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Profitability of intensive small stock enterprise

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Profitability of intensive small stock enterprises

Dr. Francois van de Vyver, National technical manager, Ruminants, Nutri Feeds

fvandevyver@countrybird.co.za

(018) 011 8888

Due to various reasons, the interest in intensive small stock enterprises are increasing in the South African market.  The main reason for this occurrence is that optimal management is achieved in intensive systems, thereby ensuring profitability.

There are however certain critical factors that drive the cost effectiveness of intensive systems.  Intensive small stock production is a high-risk industry, with a higher turnover but at lower margins due to the relatively high input costs of such systems.

Price Margin (the difference between the purchase price and the market price of the finished lamb) is the first driver of profitability of an intensive small stock enterprise.  In current market conditions, the price margin is often negative at the start of the finishing period but can be turned around by careful focus on the other cost drivers during the six to seven week finishing period.  Farm-produced lambs have a positive effect on the price margin as these animals do not carry a transport or commission component. It is important though to assign the correct market value to these lambs in the calculation of the Gross margin of the enterprise.  

Meticulous management of the Feed Margin (profit above feed cost) is critical especially when the price margin is negative.  The feed margin contributes the biggest portion of the overall costs and is primarily driven by two biological factors.  The first of which is the growth rate of the lambs and is expressed as average daily gain (ADG).  As a rule of thumb, ADG should be in excess of 300 g/animal/day for the enterprise to be profitable.  The second factor is the efficiency at which the lamb converts the feed into growth (body mass gain).  This efficiency is expressed as the feed conversion ratio (FCR, kg of feed needed to gain 1 kg in body mass).  The period that lambs spend on feed is critical for profitability, especially in systems with high feed costs. This is directly dependent on the growth rate potential of the lamb. Obviously, losses due to mortality and poor performers should be considered as well in calculations as these can be detrimental to profitability.

Budget and Plan

Before the decision is made to move to an intensive system, a carefully planned budget should be drafted.  This budget should be updated during the feeding period, to make the correct decisions at the time. The components of such a budget is illustrated in the following simple Gross margin budget.  For the purpose of indicating the effect of growth rate on profitability, this calculation does not consider the cost of capital, which is dependent on the number of animals and expressed on a per animal basis. Cost of capital however is an important figure in the calculation of an accurate budget and should be incorporated in one’s decision making.

From the calculation it is evident that growth rate and efficiency of the lamb is absolutely critical.  The selection of quality lambs for intensive systems, as well as the choice of a quality feed is non-negotiable for profitability since these have a direct effect on the performance of the animals. In the attached calculation it is further clear that the difference between a profit or a loss can be as little as 50g growth per day, when all other factors are kept constant.

A balanced feedlot ration should supply sufficient protein as well as energy to optimize growth without causing metabolic or rumen disturbances.  The balance of the macro minerals (Ca and P) is critical to limit the occurrence of urinary calculi. In the same manner, trace minerals and vitamins should also be supplied according to the nutrient requirements of the animal to prevent various deficiencies, which can negatively impact performance in the feedlot.  Sulphur should be included proportionally to nitrogen (N), especially when urea is used in the ration. The desired ratio of urea to sulphur should be around 10:1. Finally, the choice and inclusion level of roughage is important to ensure a healthy rumen environment. The fibre component should be effective in stimulating chewing and rumination for sufficient salivation and rumen motility.  The total ration should contain a minimum of 30% neutral detergent fibre (NDF).

The importance of clean, fresh water cannot be expressed enough since it has a direct and substantial effect on feed intake and therefore performance.

Under current market conditions and as can be seen from the gross margin calculation, intensive finishing of lambs is under severe pressure.  Producers must therefore also consider alternatives in their decision making. Consideration can be given to using back grounding to reduce the costly fattening period, whilst still producing a desirable product according to consumer demands.  

For further information on the intensive production of small stock, please contact Dr Francois van de Vyver at Nutri Feeds on fvandevyver@countrybird.co.za

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