October 2, 2003

 

With Feeder Lamb Prices High, Profit is Still in Reach, NDSU Experts Say

With feeder lamb prices at record highs, some feeders may be wondering if it’s possible to be profitable feeding lambs this winter. North Dakota State University experts say it’s possible, but feeders must know their costs, be able to project accurate breakeven prices, take an educated look at the market, and know how their lambs will perform.

"Feed costs and feeder lamb price are significant factors to consider when deciding whether to feed lambs," says Roger Haugen, sheep specialist with the NDSU Extension Service. "But management and lamb performance are also critical.."

To calculate breakeven costs, producers need to know their total feed costs, projected death loss, non-feed costs such as bedding, veterinary supplies and other expenses, and interest on operating expenses. "Good records will yield that information," Haugen says. "With prices where they are, producers need to have good numbers. They need to know how their lambs will perform because all lambs perform differently based on genetics and other factors. Producers need to be honest with themselves."

As an example, Haugen suggests producers might buy feeder lambs in mid October for $120 per hundredweight at 70 pounds. Lower-performing lambs may be on feed for 120 days, gain 60 pounds and consume 420 pounds of feed. Higher performing lambs may be on feed for 86 days, put on 60 pounds and consume 300 pounds of feed. Feed cost is $100 per ton. And death loss is 2 percent. Financing is 10 percent interest and non-feed costs are 7 cents per day.

With those numbers, breakeven price on the 130 lower-performing fat lambs is $91.05 per hundredweight and $83.62 per hundredweight for the higher-performing fat lambs. "Costs and performance will be different on every farm," Haugen notes. "What’s important is that producers know those costs and can predict performance."

Equally important to the ultimate profitability of sheep feeding enterprises will be prices in January and February when fed lambs will be marketed.

NDSU Extension Service livestock economist Tim Petry says slaughter lamb prices are following normal seasonal patterns. What’s different about this year is that prices now about $10 per hundredweight higher than both last year’s prices and the five-year average.

"The seasonal pattern is for prices to increase into January and February from lows in October and November. We don’t expect that to change this year," he says. "Prices are being projected at around $90 per hundred weight in January and from $90 to $95 in February which would be similar to last year."

Petry says there are two primary factors behind the current high prices and neither is likely to change in the coming months.

"We’ve seen a large number of drought-induced sales of ewes in the United States. As a result we have fewer lambs coming to market. Commercial lamb production in the United States in 2003 is down by about 5 percent," he explains.

A second factor boosting the market is sharply reduced imports. "Total lamb meat imports are 15 percent below last year," he says. Australia, the largest importer of lamb to the United States, is seeing some of the same drought-related production reductions as seen here. Lamb inports from Australia are 19 percent below last year.

"We do have a good stable demand for lamb in the United States," Petry says. "That demand mainly comes from ethnic groups and they tend not be as price conscious during holidays and important family events."

The discovery of bovine spongiform encephalopathy (BSE) or mad cow disease in Canada has meant a stop to Canadian exports of live sheep and lamb meat and mutton to the United States as the border was closed to prevent the spread of the disease. "The Canadian situation may change, but that should not have much impact on markets," Petry says. "As long as the weather remains dry, we won’t see an expansion in the industry and even when the drought moderates, we’ll initially see more ewe lambs held off the market for breeding which will reduce lamb supply even more."

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Source: Roger Haugen, (701) 231-7645, rohaugen@ndsuext.nodak.edu
Tim Petry, (701) 231-7469, tpetry@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu