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Business planning

In most agricultural enterprises, profit margins are slim and profitability varies from year to year, as supply and demand vacilate and input costs rise (and rarely fall). Sheep production is no different than any other agricultural enterprise. It is not a "get rich quick" scheme. It requires good animal husbandry and business management skills to be successful and generate a return to land, labor, and management.

Business planning

Financial success usually begins with business planning. A business plan is a "road map." It allows you to plan your business before spending any money. It increases your chances of success and helps avoid costly mistakes. Business planning is considered essential to the success for both new and established enterprises.

While the formats and components of business plans vary, most plans include an exective summary, business description, production plan, marketing plan, and financial plan. Not all plans include all of the same components. Business planning will be more complicated for value-added enterprises versus production-only enterprises.

Components of a business plan
Cover sheet Name of business
Contact information
Date plan was prepared
Executive summary Business description
Mission statement
Plan summary
Business descripton Business overview
Business history
Production plan What will you produce?
How much will you produce?
How will you produce it?
Permits and regulations
Marketing plan Market trends
Marketing strategies
Marketing contracts
Marketing alliances
Competitive advantage
Financial plan Balance sheet
Income statement
Cash flow statement
Enterprise budgets

Every state has Small Business Development Centers and Cooperative Extension Offices that can assist agricultural producers with business planning. Many county governments now have someone in the Economic Development Office that specializes in agriculture.

The University of Minnesota Center for Farm Financial Management has a free online business planning software called AgPlan. In addition to completing your business plan online, you can view examples of business plans.

The Agricultural Economics Department at Purdue University also has an online business planner called INVenture. If you refer to develop you business plan on paper, you can download a Farm Business Planning Instructional Workbook from the University of Maryland. There are numerous other web resources for business planning.

Key factors affecting profitability

The key factors that determine profit in a sheep enterprise are feed costs, percent lamb crop, and market prices.

Feed costs

Feed costs, especially the cost of feeding ewes over the winter, comprise the majority of costs in a sheep enterprise.

Read article Coping with high feed costs =>

Percent lamb crop

Percent lamb crop is usually defined as the number of quality lambs marketed per ewe exposed for breeding. While there are some additional costs associated with producing a higher percentage lamb crop (e.g. lamb finishing costs), for the most part extra lambs mean extra profit. It costs the same amount of money to maintain a ewe no matter how many lambs she produces. Overhead or fixed costs are reduced when productivity is higher.

The optimal lamb crop varies by geographic location and production system. In situations where feed costs and overhead are very low and wool still comprises a significant portion of the income, a hundred percent lamb crop may be profitable. These situations are getting fewer and far between.

Most most sheep producers, a 200 percent lamb crop is an appropriate and reachable goal. Most breeds of sheep are capable of producing a 200 percent lamb crop if they are fed and managed properly.

In situations where land and production costs are higher, lamb crops in excess of 200 percent should be the goal. To achieve such a lofty goal, accelerated lambing programs or prolific genetics are usually required. However, beginning shepherds should not start with prolific breeds or attempt to lamb ewes at frequent intervals.

There are various strategies for increasing lambing percentage. Not all strategies will apply to all farms. The number of lambs that a ewe gives birth to varies by her age, genetics, body condition, nutrition, and season. Ewes reach their peak productivity between the ages of 3 and 6. Maintaining too young of a flock will reduce lambing percentage. Fertility is usually highest in the fall months. Ewes bred to lamb in the spring (March-April) will usually give birth to more lambs than those bred to lamb in the winter or fall.

While the heritability of reproductive rate is only 10 percent, selection will increase lambing percentage. The birth type of the individual lamb is less important than the lamb's family history. It is especially important to select rams from multiple births. Rams with large testicles are also desirable for breeding, as scrotal circumference has been linked to reproductive rate in female progeny.

Nutrition exerts a large effect on reproductive performance. Ewes that are in better body condition will usually ovulate more eggs. Flushing may increase the ovulation rates of ewes in sub-optimal body condition. Flushing is when the nutrition is increased prior to and during the early part of the breeding season. It is usually accomplished by supplementing ewes with 1/2 to 1 lb. of grain. Ewes that are already in good body condition usually do not respond to flushing.

Market prices

Obviously, higher (net) market prices will increase profitablity. There are various ways to increase market prices. If lambs are marketed through public livestock auctions, there are various strategies for increasing returns.

Read Tips for marketing sheep (and goats) through public livestock auctions =>

When live lambs can be sold directly from the farm, either to an order buyer, direct marketer, or consumer, you avoid paying the fees associated with sale barns, though you are still obligated to pay the lamb check-off. For on-farm sales, it's important to have a scale so you know what your lambs weigh. You also need to closely follow the local, regional, and national markets, so you know what your lambs are worth. Often, you can accept a lower price at the farm than you would expect at a sale barn, since your are incurring less selling costs. On the other hand, you should seek a premium for "farm-fresh" lambs.

If you sell directly to a slaughterhouse, you may be able to establish a year-round or contract price. Larger processing plants may be willing to pay for lambs according to a grid, which establishes a set of premiums and discounts. If you produce the kind of the lamb that the processor wants, you should be able to get a higher price for your lambs.

Marketing lambs, carcasses, and/or meat directly to consumers certainly has the potential to increase the value of lambs marketed.


Late updated 10-Jul-2010 by Susan Schoenian.
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