Tightening margins have challenged 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 break even? 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 must be profitable so that your on-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, etc.), 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 most significant cost for any operation, finding the lowest cost ration to meet nutrient requirements can be a challenge. Consider pricing your feed by the cost per pound of nutrients to maximize the price of different feeds based on nutrient density.

Example Calculation
The following example calculation is for $260 per-ton alfalfa, which 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, in 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.