Knowing Your Numbers: What are your operational benchmarks?

Written collaboratively by Jaelyn Whaley and Whit Stewart, University of Wyoming Extension Sheep Specialist.

Tightening margins have posed a challenge to many sheep producers over the last few years. The mantra “you can’t manage what you don’t measure” has become increasingly important to ensure profitability. Do you know where changes can be made to improve margins? That’s where enterprise budgeting and knowing your operational benchmarks can help.

Knowing Your Breakeven

Do you know what price your lambs need to bring to breakeven? With prices returning to pre-pandemic levels, but little relief in feed prices, it’s critical to accurately assess your inputs and know the price that you must receive to break even. For 70% of sheep operations in the North Central region, their sheep are supplementary income. Regardless of size, every sheep operation needs to be profitable so that your off-the-farm job doesn’t have to contribute to the sheep enterprise. An enterprise budget is the first step in determining your profitability. It includes income, variable and fixed costs, and net income. You can then calculate your breakeven for your lambs by taking your total costs, subtracting any income other than lambs (including cull ewes, wool, etcetera), then dividing by the total pounds of lambs sold (market weight × total number of lambs sold).

Example Equation

Breakeven = (Total Costs - Cull Ewe Income - Wool Income) ÷ (Number of lambs sold × market weight)

Knowing Your Benchmarks

Operational benchmarks are defined by operational goals and can be related to productivity or profitability (for example, weaning 150% of your lamb crop, or keeping input costs below $100 per-ewe). One key profitability value is the number of lambs weaned per ewe exposed. This reflects the productivity of your flock based on how many ewes raised lambs to weaning. The number of lambs born per ewe bred is commonly evaluated to help determine prolificacy. However, the number (or percentage) of lambs weaned per ewe exposed highlights unproductive ewes, as well as the post-partum maternal traits of your flock. Benchmarks may also include monetary benchmarks, such as feed cost per-ewe. As the largest cost for any operation, finding the lowest cost ration to meet nutrient requirements can be a challenge. Consider pricing your feed by cost per-pound of nutrient to maximize the price of different feeds based on nutrient density.

Example Calculation

The following example calculation is for $260 per-ton alfalfa that is 90% dry matter.

First, convert the weight to dry matter (2,000 pounds × 90% = 1,800 pounds).
Then calculate the pounds of protein. Let’s say this alfalfa is 17% crude protein (1,800 pounds × 17% = 306 pounds of protein).
Then divide the price of the alfalfa by the amount of protein ($260 ÷ 306 pounds = $0.86 per-pound).
So, this example alfalfa costs $0.86 per-pound of protein.

Compare varying feedstuffs that are easily accessible to you. Lick tubs tend to be significantly higher in terms of price per pound of protein, but their convenience is sometimes preferred. High protein supplements, like distiller’s grains, are usually more cost-effective and can be fed in lower quantities.

As a producer, maintaining your competitive advantage also means knowing how your operation compares with other operations in the area in terms of costs and productivity. In 2021, the United States average direct cost per-ewe was $135, and the average number of lambs weaned per-ewe exposed was 160%. Unfortunately, industry-wide production levels are limited.

American Sheep Industry Benchmarking Survey

To further help develop U.S. benchmarks, the American Lamb Board, SDSU Extension, and the University of Wyoming have teamed up on a benchmarking survey. Even if you are unsure of your numbers, you can fill out the survey as much as you can. If you don’t know any of your numbers, we’d be happy to work with you to develop an enterprise budget. We’d greatly appreciate your participation in the survey to continue making improvements to the American sheep industry. You can access the survey using the blue button below and return it to Jaelyn Whaley via email or by mail (401 6th Ave. W., Lemmon, SD 57638).

Access Survey HERE!

Additional Resources

For more information, check out the following enterprise budget templates, or contact an SDSU Extension Small Ruminant Specialist for help creating a budget tailored to you!