Friday, October 14, 2011

Summer Issue of Sheep Canada

Market Wishes verses Farm and Ranch Practicalities

It’s nice to see lamb prices are on the way up and appear to be holding, there is more optimism out there and a level of confidence among producers not seen for some time. I do remember a time back in the mid 90s when we saw similar prices and that was when a dollar bought considerably more than it does now. So in reality we are still not at a good price yet, however one interprets ‘good’. Rising inputs and overheads have seen to a narrowing of margins even when the price is up. It is about this time in the cycle of any farm commodity, whether livestock or grain, that with the tease of higher prices the buyers and packers promise good times ahead and encourage producers to ramp up production. The farmers and ranchers oblige as the only way to make more money is sell more livestock or grain. So within 18 months to 2 years the market peaks and starts it’s downward price spiral due to over production, cheap imports etc. Charlie Gracie wrote a great little book about this and its effect on the cattle industry, track it down and read it. Much of what is there can be said about any commodity including the lamb industry. Although we are much smaller the same applies, though due to sheep lambing at a year of age the cycle can be shorter.
About 20 years ago, give or take, government and industry groups were pushing multi-birth breeds, Romanov, Finn and the four new Canadian made breeds of that time. This along with accelerated lambing in the form of 3 lambing’s in two years or even the Star system of 5 lambing’s in 2 plus years. This all looked good on paper but unless we treat the sheep like pigs (putting them in barns year round, common in Quebec and parts of Ontario) and pretend Canada doesn’t have winter along with high stored feed costs compared to returns, it just won’t work with all the extra costs and man hours required. If we had $3.00/lb live lamb prices it might! I can just see the buyer’s faces now. The fact is there was a time when I could buy a full breakfast for $3.00 and lambs were a$1.50/lb live. Now the lambs are the same price but breakfast is $8.00. The word is already out there to produce more lambs to fill an expanding market but as we can see producing more on a very narrow or none existent margin is a mugs game. Many of you have found profit in private farm gate sales but it’s very tough to get the volumes up to a living wage. I sell for $7 to $8 per pound to my customers. That’s cheap compared to the $10 to $14/lb they pay in a supermarket, also they meet me, see my farm and are happy with our pasture-raised product. I only need a quarter of the sized flock to generate the same income. For small producers this is acceptable, but for the industry as a whole it would be a deathblow.
A viable industry needs numbers to support the infrastructure, packing plants trucking and distribution. Most of these are still in place so they at least have workable margins unlike some of their suppliers who have sold off flocks or downsized. The down sizing of the national flock puts pressure on the packing side of things and I have been hearing the worries of BC processors who are having great difficulty finding lambs. It seems the players put too much emphasis on supply and demand assuming if there is a demand we will jump to the pump like we always have to supply it. The average producer is 50 plus years old and has seen this part of the cycle several times and is finally getting smarter. With 95% or more of producers earning income from off farm sources they have allowed lower prices to exist by continuing to produce lamb at unsustainable prices. In turn the buyers and packers have grown accustomed to these low prices and have got soft in their business practices and pricing beyond their door. Retailers in turn hold their prices knowing full well if they do the packer can stay in business by lowering the price to the producer. As mentioned early in this article even with present higher prices it is still not high enough due to higher input costs and the reduced buying power of the dollar over time. This mess has been 30 years in the making and with many producers exiting the game due to old age and very few youngsters taking over the industry as we know it may well be gone in the next few years, except for lucrative farm gate sales.
There is still time to turn this around however. The producer’s share of the retail price used to be around 45% to 55% 25 years ago in the red meat sector. With a $3/lb carcass weight it is now 25%. I will suggest to be sustainable it has to be around a 50% return. I always find it ironic that folks will pay $12 or more per pound for fair trade coffee to ease their conscience, but will mercilessly grind their own countrymen into bankruptcy for a cheap grocery bill.
Some how buyers and packers must ensure more money back to the producer, because if they actually make a few real dollars (not money saved buy cutting costs, as there isn’t nothing left to cut) they will ramp up production. The folks between the farm gate and the customers plate (read middlemen) need to accept narrower margins as we the producers have been forced to do for the last 30 years. Yes, it’s hard but if you want to stay at the table that is what it’s going to take. Remember most of your producers are of an age they can shut shop and walk away and you could be left with empty killing floors and mortgages to pay. But if you pay a “fair trade price” most of us aged producers would love to oblige and producer more lamb at a profitable price for many more years. Hey, if we can get profit back in the equation maybe we will get some young farmers back in the game so your
Children can follow in your footsteps as buyers and packers too!
Rob Fensom farms in BC and is a grazing mentor and agricultural educator. He has been active in the Canadian sheep industry since 1987.

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