Overly-simplified Sheep & Wool Economics – Bob Padula

        

Once people find out I raise sheep, some of the first questions asked are “Do you raise them for the wool?” and “How much do you sell the wool for?”

        

I don’t mind those questions, they come with the profession.  And if I’m not willing to talk about wool, lamb or sheep production and how great the products are - how can I expect a consumer to get excited and purchase wool or eat lamb meat?   

    

I’m a wool guy, and wool is important to my operation.  I take pride in my wool, and I have worked decades to get to the point I am today with my wool and sheep operation.   But the truth is – wool, while important to my operation – is not the main income generator for me, or any other commercial sheep operation.   Today, lamb and lamb meat pays the bills. 

    

The economics of sheep raising varies all across the USA and even between farms next to each other – everyone has a different set of finances and no one size fits all.  Annual cost of production for raising sheep varies greatly and it’s really difficult to “nail down” a specific cost of production that fits for all sheep operations.  The specific details are always going to be “ranch/farm” specific.  Without going into all the details and specifics, let’s just say the cost of running a sheep can vary anywhere between $125 and $250 (or more) per head per year.  Let’s pick the middle and say $165 and move on.   

       

Shearing is an annual cost for wool sheep producers – which is between $5 to 8/hd depending if you include all the costs of wool harvesting, including outside labor, or opportunity cost - It’s part of that “$165/hd” cost of production – we just deal with it.          

        

The “average wool sheep” is going to shear about 7 lbs of fleece wool, 1.5 lbs of belly wool and skirtings and 0.5 lbs of tags/locks – each having a different value.   For ease of math, let’s use $2.00, $0.75 and $0.25 for a total of = $15.25 wool income – call it $15.   (For this discussion, it really doesn’t matter if you have a sheep that grosses $5, $10, $15, $20 or $30 per head….)   

        

So it costs $165 to raise them, and you get $15 in wool income….. that leaves $150 of “debt” that has to be paid for.

         

Fortunately, we have the lamb to sell.  Depending on where and how you raise and market them, producers have the option of selling lambs anywhere from 60 lbs to 150 lbs.  To break-even you have sell $150 worth of lamb for each ewe that you raise.  It doesn’t really matter if you sell a 75 lb lamb at $2.00 a pound or a 120 lb lamb at $1.25/lb – the math roughly comes up the same for everyone these days….. it takes at least one lamb per ewe to cover the cost of running the sheep per year – and the “profit” is when you are able to sell more than one lamb per ewe. 

Some sheep have a single lamb, some have twins.  Some do not lamb and some may even raise 3 lambs.  Shepherds use the term “lambing percentage” to indicate how many lambs are born per ewe, raised or sold per ewe.   Not every ewe gives birth, and in some cases the lambs do not survive at birth (3-5%). And unfortunately, no matter how hard we try, not every lamb born survives (another 12-15%).  That’s 15-20% loss – during the first 3 weeks – let’s just use 20 head.   

        

So you have 100 sheep and ½ have twins (50x2=100), ½ have singles (50x1=50)…… that gives you 150 lambs (150% lamb crop born) – minus the 20 early death loss and non –lambers ….  You are down to having 130 lambs at 3 weeks of age (130% lamb crop raised to 3-weeks). 

          

Death loss from 3 weeks to “selling time” varies depending on where and how you “run your sheep”….  Predators are estimated to kill another 25-35% of the lambs in an extensively managed sheep operation – if the predators don’t get them, there is always “random, natural death loss” that occurs (Sh*# happens). 

        

For ease of math, let’s just use another 30 lambs lost – meaning you now have 100 lambs to sell per 100 ewes – a 100% lamb crop …..  Good job, you broke even and the bank lets you raise sheep another year. 

        

How do you make money with sheep?  Sell more lambs per ewe and/or cut expenses.  How do you do that?  Well, instead of ½ twins and ½ singles – if you have 2/3 twins and 1/3 singles that would give you 165 lambs to start with (165% vs 150 %) and even if you still lose the “50 hd” – you have 15 more lambs to sell (115% vs 100%).   If you can get to 75% twins and 25% singles…. Now you are up to 175 lambs to start with – 175%.   The way to make $ is to reduce the death losses from birth to marketing.  

       

One “new” approach is to use real-time ultra-sound to determine fetal number – similar to the common ultrasound used in humans.  Sheep producers can sort ewes into “groups” based on singles vs twins and then feed them accordingly (save $) and spend more time with the twin bearing group to increase lamb survival rates.       

So…. What about triplets?  Sure – that makes academic sense.  But along with triplets comes other issues to contend with.  These are not insurmountable problems but do come with strings attached – extra labor and higher production costs.   Research has shown that triplet lamb survival in extensively managed sheep operations is about 50%.....  Survival of twins is estimated to be 80-85% and singles 90+%.  Many extensively managed sheep operations remove one of the triplets at birth and raise those on Milk Replacer rather than experiencing the high death losses. 

               

From my wool guy bias or perspective….. The other problem with triplets – generally speaking, the sheep that routinely have triplets, have less desirable wool.  To the point where the wool from these sheep does not cover the $5-8 shearing expense and the lambs from these ewes, have less desirable lamb pelts – another discount of $5 to $10 per lamb sold.  (I’m not a fan of those breeds of sheep, but if that is what people want to raise – go for it.)

           

Finally, lowering production costs is another way to boost profit potential.   It should be obvious if you can lower the annual cost from the hypothetical $165 per head used in this example it reduces the number of lambs needed to be sold per ewe to break even. 

           

Likewise, if your wool is more valuable, all other things equal – you make more total money.  The sheep is naturally going to grow wool and it costs the same $/hd to shear them….. might as well try to make the most income that you can from wool.       

          

So the bottom line sheep economics in the USA – even though wool and wool income is very important for many sheep operations, the total $ income from wool is not enough to cash flow the sheep operation and it takes the sale of one lamb per ewe to essentially pay the bills.

 

Wool is “The icing on the cake.”