Sheep Production. 'r-lzý s. 0ia NOV STATE UNIVERSITY. ,Agricultural Economics Report No June 1977

,Agricultural Economics Report No. 118 June 1977 0 Sheep Production 0ia TRO HT-%TD 5rDnATA STATE UNIVERSITY NOV 7 1977 'r-lzý s By Jorge L. Brignone, Timothy A. Petry, and F. Larry Leistritz Jorge L. Brignone, Timothy A. Petry, and F. Larry Leistritz Agricultural Experiment Station Dept. of Agricultural Economics North Dakota State University Fargo, North Dakota

FOREWARD This report represents a continuation in investigating factors that influence the economics of livestock production in North Dakota. Research was conducted under North Dakota Agricultural Experiment Station Research Project No. 1352, "Economics of Livestock Production Technology." The authors wish to extend their appreciation to the sheep producers who made this study possible. The authors also wish to acknowledge the helpful suggestions and manuscript reviews of Mr. Merle Light, Professor of Animal Science, and Mr. LeRoy Schaffner, Associate Professor of Agricultural Economics.

TABLE OF CONTENTS Highlights....................... ii Objectives of the Study................... 3 Procedure................ 3 Production and Marketing Practices.......... 4 Costs and Returns................ 10 Page Fixed Costs................... 11 Variable Costs...................... 14 Returns for the Sheep Operation................16 Regional Differences.................. 17 Differences by Type of Operation............... 17 Differences by Profitability............. 20 Commercial Lamb Feeding Operations............ 20 Implications for Sheep Producers and Policy Makers..... 22 List of Tables............. 26 List of Figures.... 27

Higshight't The main objectives of this studdy were to obtain indfomation about costs and returns od difterent sheep operations in North Dakota, to ind whch major factors influenced prod itbit ty, and to examine the extent to which economies of size are possible in the production o sheep. Data were obtained from personal interviews with 77 producer located in the main sheep producing areas fort 1973. A ewe tlocki wa the main sheep-retated activity or 59 produces, white 11 weate commetciat lamb feeders and seven producers maintained purebred operations. The ewe flock group averaged 196 ewes and was divided into three subgroups by size (less than 100 ewes, 100 to 200 ewes, and more than 200 ewes) and by region (southeastean, centra2, south centrat, and westean). Totat annuia costs pet ewe amounted to $48.42, o4 which $40.07 were vartiabe costs and $8.35 were.ixed costs. Homegrown feeds, pasture, and.abor costs represented azmost 84 peacent oi the total vaxiable costs. The r'.tun to management averaged a negative $1.89 pet ewe, which tepresents a minus 2.8 percent of the totae investmnent. The larger ptoducers and those in the western Aegion had higher raeturns than producers in tthe other goups. The smaul-size gtoup had a retuln to management of minus $24.67 per ewe, compared to a positive $2.50 in the largesize group. The western region aveaaged $6.84 per ewe., while the other three regions had negative returns with the lowest in the south central region (-$20.79). The regional differences can be related to differences in average size o6 the Zlock (395 ewes in the westean and 94 in the south central region). Producers in the south central region used more labort per. ewe than those in other regions, and labor costs per ewe were more than twice as high oor smaut ptoducers a os or large ptoducers. Regr&esion anazysi was used to measure the negative relationship between size o4 the flock and both total cost pe. ewe and man-houts per we. HoweveA, jeed costs were found to be the most important factoa afeecting prodfitability. The analysis also showed that a minimum size of 296 ewes was needed to achieve the break-even point, which is where totaz cost equated income received. ii

Anaty6is of speciatiy opeaations showed that lamb jeedeu repotted an avetage ttuan to management of $2.49 pea Lamb 4old. OpeAations using urigated valley land in Wlittiams and McKenzie counties had highea tetuwns than those in othea areas. Commewciat lamb feeding without ownewhip o6 a ewe ftock was the most paofitable type o sheep enteaptuse o6 those studied, with a 14.6 peceant returmn to management. iii

ECONOMICS OF SHEEP PRODUCTION IN NORTH DAKOTA by Jorge L. Brignone, Timothy A. Petry, and F. Larry Leistritz* Sheep numbers in North Dakota, as in the rest of the nation, have been declining since 1945. There were a total of 300,000 stock sheep and lambs on North Dakota farms and ranches in 1970--and 205,000 on January 1, 1976, a decline of 32 percent. 1 Sheep and lambs on feed decreased 26 percent, from 77,000 in 1970 to 57,000 in 1975 (although there was a high of 110,000 in 1973). The total farm value of stock sheep on farms and ranches in North Dakota was $8,515,000 in 1975, with 2,700 farms reporting sheep and lambs. 2 North Dakota occupied fourteenth place in the nation for its lamb crop in 1973 and ranked fifteenth in wool production, accounting for 2 percent of total U.S. production. The total wool clip for 1973 amounted to 2,799,000 pounds, with a value of $2,295,000. Sheep are raised or produced in every county, but nearly one-half of the total sheep population is concentrated in the central, southwestern, and southeastern regions (see Figure 1). Several problems affect sheep producers today. Prices for wool fluctuate from year to year. The price of wool in 1973 was 55 percent above the 1972 price. The wide price fluctuations are caused by marketing problems, such as lack of consistency in wool grades and competition from artificial fibers. *The authors are, respectively, former research assistant, assistant professor, and associate professor, Department of Agricultural Economics. 1 North Dakota Crop and Livestock Statistics, Annual Summary for 1970, Revisions for 1969, Agricultural Statistics No. 23, Statistical Reporting Service, United States Department of Agriculture, and Department of Agricultural Economics, North Dakota State University cooperating, Fargo, May, 1971. 2 North Dakota Crop and Livestock Statistics, Annual Summary for 1975, Revisions for 1974, Agricultural Statistics No. 38, Statistical Reporting Service, United States Department of Agriculture, and Department of Agricultural Economics, North Dakota State University cooperating, Fargo, May, 1976.

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- 3- Objectives of the Study This study sought information on the costs and returns of different sheep operations in North Dakota, to find which factors influence profitability, and to examine the major reasons for variation in earnings between different operators. The objectives were: 1. To obtain information related to management and health practices, marketing practices, as well as what problems the producers consider important. 2. To measure the resource requirements for lamb and wool production (e.g., investment, labor, etc.). 3. To determine the extent to which economies of size are possible in the production of sheep in North Dakota. 4. To supply sheep producers, farm managers, and policy makers with information which could aid their decision making. Procedure Data were obtained via personal interviews with 70 sheep producers. Selecting the counties to be surveyed required a compromise between such factors as sheep numbers, sheep density, and type of operation (farm flock or range operation). After the counties were selected, a letter was sent to each county extension agent requesting a list of sheep producers in his county. A letter sent to each producer asked for his cooperation and permission for a personal interview. A total of 489 letters were mailed and 91 affirmative answers were received. Personal interviews, using a detailed schedule, provided 70 useful reports (59 farm and ranch flocks and 11 commercial feeders). The data were for 1973 but collected during the summer of 1974.

- 4 - Production and Marketing Practices The 59 producers whose main activity was a ewe flock were divided into four regions and three size groups. The regions are shown in Figure 2. The average flock size was 196 ewes with the largest flocks in the west (395 ewes) and the smallest in the south central region (94 ewes) (Table 1). About 40 percent of the total acreage was in cropland, with the highest percent in the southeastern region (59%) and the lowest in the western (31%). Thirty-eight percent of the total animal units owned were sheep. The lowest figure was for the south central area (19%) and the highest for the western region (54%).3 The average lamb crop or the number of lambs born per ewes bred was 131 percent, with a slightly higher average for the south central region and a lower average for the central region. Highest mortality rates (20%) were in the south central and the lowest (12%) in the southeast region. Mortality figures included lambs dying during the first 48 hours after birth. The average mortality rate was 16 percent for lambs and 4 percent for ewes. Three size groups were considered and are reported in Table 2: 0-99 breeding ewes (21 producers), 100-199 breeding ewes (19 producers), 200-900 breeding ewes (19 producers). Smaller producers had a larger amount of cropland and a smaller percent of sheep in the operation. They also averaged a higher fleece weight, a higher percent of lamb crop, sold more lambs per ewe, and kept fewer ewes per ram. Nineteen of the 59 producers interviewed practiced winter lambing (December to March) with spring lambing (March to June) reported by the remaining 40. No one reported lambing during the fall. Most lambing occurred during the February-May period. The earliest was December and the latest was June. The major difference between the winter and spring lambing groups was ewe flock size (127 ewes in winter and 228 in spring). 3 An animal unit was considered to be one cow or five adult sheep. Only cattle and sheep were used for the calculation.

Figure 2. Location of Sheep Producers Interviewed by Region. ('1

TABLE 1. AVERAGE PRODUCTION CHARACTERISTICS OF SHEEP FLOCKS BY REGION, 1973 Region For All Item Western South Central Central Southeastern Producers Number of Producers Surveyed 13 14 13 19 59 Size of Flock, Number of Ewes 395 94 187 140 196 Percent of Land Owned 70.5 85.8 75.0 80.4 76.8 Percent of Land in Crops 30.6 31.5 36.9 58.5 37.9 Percent of Sheep Per Total Livestock 54.2 18.9 34.1 37.4 37.8 Average Weight of Lamb Sold, in Pounds 89.1 87.7 88.3 93.6 89.0 Average Fleece Weight, in Pounds 9.5 9.9 29.9 9.7 9.7 Number of Ewes Per Ram 31.5 28.6 29.0 32.0 30.8 Average Percent of Lamb Mortality 17.5 20.0 14.8 11.5 15.9 Average Percent of Ewe Mortality 3.2 5.7 6.1 4.9 4.4 Average Lamb Crop, in Percent 133.0 134.9 124.8 132.8 131.2 Average Number of Lambs Sold Per Ewe 0.95 1.12 0.99 1.08 1.00

TABLE 2. PRODUCTION CHARACTERISTICS OF SHEEP FLOCKS BY SIZE GROUP, 1973 Size Group (Ewes). For All Item 0-99 100-200 201-900 Producers Number of Producers Surveyed 21 19 19 59 Size of Flock, Number of Ewes 56 148 397 196 Percent of Land Owned 73.10 81.20 76.10 76,80 Percent of Land in Crops 53,30 46.90 25.20 37.90 Percent of Sheep Per Total Livestock 17.70 32.20 49.50 37,80 Average Weight of Lamb Sold, in Pounds 90.20 88.90 88.90 89.00 Average Fleece Weight, in Pounds 10.30 10.00 9.50 9.70 Number of Ewes Per Ram 23.50 31.60 31.80 30.80 Average Percent of Lamb Mortality 14.60 13.60 17.50 15,90 Average Percent of Ewe Mortality 6.50 5.60 3.80 4.40 Average Lamb Crop, in Percent 147.70 132.20 128.80 131.20 Average Number of Lambs Sold Per Ewe 1.17 1.12 0.94 1.00..............

- 8 - There were 37 producers who sold mainly feeder lambs and 20 who sold mainly slaughter lambs (two did not sell any lambs during 1973). The average sale weight ranged from 73 pounds for feeder lambs to 105 pounds for slaughter lambs. Many producers sold feeder as well as slaughter lambs. Producers with larger flocks (229 ewes) reported selling mainly feeder lambs, while producers with smaller flocks (145 ewes) reported selling mainly slaughter lambs. Columbia and Suffolk were reported as the two most popular breeds. Other important breeds included Hampshire, Corriedale, Targhee, and Rambouillet. Labor requirements expressed in man-hours per ewe revealed the western region as the most efficient and the south central region the least efficient. 4 Labor requirements per ewe decreased as size of ewe flock increased (Table 3). The inverse relationship between man-hours per ewe and size of the flock was found to be statistically signigicant with 35 percent of the total variation in labor requirements explained by the variation in size of the flock. 5 The lambing season required the greatest amount of labor, followed by feeding and general care of the sheep. Health-care practices, which included docking, castration, dipping (or dusting), vaccination, and worming, represented the third greatest need for labor. TABLE 3. AVERAGE LABOR REQUIREMENTS FOR SHEEP FLOCKS, 1973 Average Average Man-Hours Man-Hours Region Per Ewe Size Group Per Ewe Western Region 2.32 0-99 ewe size group 6.62 South Central Region 4.83 100-200 ewe size group 3.93 Central Region 3.69 201-900 ewe size group 2.58 Southeastern Region 4.15 All Producers 3.30 3.30 4 A man-hour represents the amount of work completed by one adult man in one hour. 5 Several regression equations were tested to determine to what extent the change in one variable is due to the change in the other variable. The equation was of the form Y = a + b 1/x - c 1/x 2.

-9- Oats were fed by 86 percent of the producers, being the most common grain used in the ration; 98 percent fed hay; 88 percent of the producers utilized native pasture; and 46 percent also utilized seeded grass in the sheep operation. Smaller producers tended to use more feed per animal unit than large producers. The mortality rate for lambs was 16 percent per year compared to 4 percent for adult sheep. The most common reasons given for lamb deaths were weakness after birth and inclement weather during and after lambing. Both problems were mentioned in 73 percent of the answers. The most important single disease mentioned as causing lamb deaths was enterotoxemia (overeating), followed by pneumonia and white muscle disease. The major causes of death for adult sheep were identified by 39 percent of the producers as "old age" and "unknown causes" and 15 percent indicated lambing problems of the ewes. Specific causes of death were bloat, enterotoxemia, mastitis, pneumonia, and white muscle disease, as well as accidents and predators. Vaccination of sheep and lambs was practiced by 30 of the 59 producers, mainly for enterotoxemia. Predators (coyotes and foxes) were mentioned by 22 percent of the producers as a leading cause of lamb losses. Some producers mentioned predators as their reason for deciding to leave the sheep business. The average mortality rate attributed to coyotes was 19 percent of those lambs being born on seven western North Dakota ranches. The problem was less serious in other areas of the state. The West Fargo livestock terminal market was used by 28 of the 59 producers. Other common selling practices were direct marketing (without the use of a selling agency) and use of an auction market with both systems being more popular in the western region. Marketing of sheep and lambs was concentrated from August to November, with slaughter lamb sales occurring until February. October was the most common month of selling. The weight of lambs sold averaged 91 pounds (84 pounds for feeder lambs and 102 pounds for slaughter lambs) at an average age of 7.1 months (6.8 months for feeder lambs and 7.5 months for slaughter lambs). Wool was sold to dealers by 61 percent of the sheep producers; of

- 10 - these 53 percent sold to local dealers, 7 percent shipped to distant buyers, and 2 percent used both systems. The remaining 39 percent of the producers sold wool through a wool pool. 6 Costs and Returns Total capital invested was determined by using 1973 values for adult sheep stock, buildings, fences, machinery, and equipment. A percent of usage for sheep was estimated by the'producer so only the value actually used in the sheep enterprise was considered for all items not exclusively ' used for sheep. About half of the total investment for all producers was for sheep stock, which was valued as an average between the beginning and" the end of the calendar year inventories (Table 4). TABLE 4. AVERAGE CAPITAL INVESTMENT OF SHEEP PRODUCERS BY SIZE OF FLOCK, 1973 Size Group Buildings and Machinery and Total (Ewes) Sheep Stock Fences Equipment Investment doat&a peeatent dottzca petcent dottiars pecen.t dottawu 0-99 1,863.14 42.8 1,675.48 38.5 813.14 18.7 4,351.76 100-200 4,968.58 49.1 3,541.79 35.0 1,614.68 15.9 10,125.05 201-900 14,532.05 55.1 6,776.26 25.7 5,067.47 19.2 26,375.78 All Producers 6,943.02 (52.2) 3,919.12 (29.5) 2,441.31 (18.4) 13,303.45 Total investment per ewe generally declined with size of flock, although sheep investment increased slightly (Table 5). Lamb sales accounted for two-thirds of the sheep enterprise income received by the producers. Sale of wool was the second highest source of income amounting to about one-fifth of total income. (A summary of income information is found in Tables 6 and 7.) * 6 A wool pool is a type of cooperative marketing in which generally the producer is a member of a wool growers association. The pool sells wool to local buyers or consigns it to commission firms in the main markets of the East Coast. The practice of pooling the wool is more common for smaller producers.

- 11 TABLE 5. AVERAGE CAPITAL INVESTMENT PER EWE BY SIZE OF FLOCK, 1973 Number Buildings Machinery Size Group of Sheep and and (Ewes) Producers Stock Fences Equipment Total dottas /Aewe dotul /ewe dottraw /ewe dollau /ewe 0-99 21 33.27 29.92 14.52 77.71 100-200 19 33.57 23.93 10.91 68.41 201-900 19 36.60 17.07 12.76 66.43 All Producers 59 35.42 20.00 12.46 67.88 Fixed Costs Fixed costs are detailed in Table 8. Interest and depreciation amounted to more than 95 percent of the fixed costs. Investment figures were multiplied by a 7 percent rate to determine the interest charged for sheep flock, buildings, fences, and equipment. Depreciation was computed for buildings, fences, and equipment. Breeding stock was not depreciated because annual depreciation was already accounted for in the annual change of inventory. 8 Taxes on land and rent paid for land were not included, but were represented in the total rental value assumed for the land and showed up in the use of pasture under variable costs. There are apparent economies of size for fixed costs, with the exception of interest for the sheep stock, taken on a per ewe basis. Fixed costs do not vary with the level of production in a given year. All costs are variable in the long run because the producer has to adjust his facilities to a changing level of production. 8 The straight-line depreciation formula was used for buildings and fences with known original costs and less than 20 years old. Older buildings were depreciated over a 10-year period, also using the straightline method, with the estimated present value as given by the producers. The double declining balance method was used for equipment less than 15 years old. The estimated present value was depreciated over a three-year period using the straight-line method and a salvage value of 10 percent for equipment older than 15 years or that for which the original cost was unknown.

TABLE 6. AVERAGE INCOME RECEIVED BY SIZE OF FLOCK, 1973 Item 0-99 Size Group (Ewes) 100-200 201-900 All Producers doellav and. peacent Average Number of Ewes 56 148 397 196 Selling of Lambs 1,867.10 73.0 4,846.84 67.3 11,401.84 62.3 5,897.19 64.6 Selling of Wool 381.81 14.9 1,323.05 18.4 3,942.74 21.5 1,831.66 20.1 Wool Incentive Payment 211.95 8.3 652.00 9.1 1,186.37 6.5 667.46 7.3 Selling of Ewes and Rams 46.14 1.8 604.11 8.4 1,348.95 7.4 645.37 7.1 Other Income 21.76 0.9 22.00 0.3 80.53 0.4 40.76 0.4 Change in Inventorya 30.05 1.2-247.21-3.4 342.16 1.9 41.27 0.5 Total Income 2,558.81 7,200.79 18,302.59 9,123.71! Na!> I aichange in inventory" reflects the change in value of sheep stock between the beginning and the end of the year. More of the change is due to the number bought or sold during that year than to actual changes in the market value. This item is included to compensate for differences in income between those producers selling part of the breeding stock and those selling only lambs. This change in inventory also includes the value of lambs produced during 1973 and sold during 1974. The negative average change for producers in the medium-size range indicates a decline in sheep numbers.

- 13 - TABLE 7. AVERAGE INCOME PER EWE BY SIZE OF FLOCK, 1973 Size Group (Ewes) Item 0-99 100-200 201-900 All Producers doats / ewe Number of Producers 21 19 19 59 Lamb Sales 33.34 32.75 28.72 30.09 Wool Sales 6.82 8.94 9.93 9.35 Wool Incentive Payment 3.78 4.41 2.99 3.41 Ewe and Ram Sales 0.82 4.08 3.40 3.29 Other Income 0.39 0.15 0.20 0.21 Change in Inventory 0.54-1.67 0.86 0.21 Total Income 45.69 48.66' 46.10 46.56 TABLE 8. AVERAGE FIXED COSTS BY SIZE OF FLOCK, 1973 Item Size Group (Ewes) 0-99 100-200 201-900 All Producers dottaua Number of Producers 21 19 19 59 Interest costs Sheep Flock 130.48 329.89 1,017.26 480.27 Buildings and Fences 117.48 247.95 474.32 274.41 Equipment 56.86 113.11 354.89 170.95 Depreciation Buildings and Fences 134.29 270.42 480.84 289.73 Equipment 119.81 236.58 721.47 351.17 Insurance, Licenses, and Other 28.05 77.42 112.16 71.03 Total Fixed Costs 586.97 1,275.37 3,160.94-1,637.56

- 14 - Variable Costs A list of the variable costs involved in the ewe-flock operation can be seen in Table 9. Veterinary costs included veterinary services and medicine, disinfectants, sprays, branding paint, and tagging. Electricity and fuel also included telephone, oil, and grease. Marketing costs were yardage, feed and bedding, commission fees, and hired transportation (when not the producer's own). Homegrown feed, pasture, and labor costs were calculated as follows: for homegrown feeds the average prices for 1973 in North Dakota were used and for pasture the value was considered on the basis of animal unit months. 9 The rental values considered for the land were $6/AUM for seeded grass; $5/AUM for native pasture; and $4/AUM for stubble, straw, chaff, corn (fodder), etc. Feed costs per hundredweight sold decreased with an increase in size of the flock ($23.09 for the 0-99 ewe group and $14.29 for the 201-900 ewe group). Labor was valued at $3/hour and included all labor used for the sheep enterprise. However, labor employed in the production of grain and hay fed to the sheep was not included as it was already included in their market values. Economies of size in sheep production became apparent when expressed on a per ewe basis (Table 10). Both fixed and variable costs per ewe declined as the size of the flock was increased. The relation between production costs per ewe and the size of the flock was estimated statistically. 10 The total cost estimates ranged from $73.67 for a 50-ewe flock to $41.74 for a 900-ewe flock as shown on page 16. 9 An AUM is defined as the monthly amount of forage, or its equivalent, required for good growth and production by five head of sheep. (California Agricultural Experiment Station, Farm Enterprise Accounting and Management, Manual 31, Berkeley, California, August, 1961, p. 29.) 10 Several regression equations were tested to determine to what extent the change in one variable is due to the change in the other variable. The equation was of the form Y = a + b l/x - c 1/x 2.

- 15 - TABLE 9. AVERAGE VARIABLE COSTS BY SIZE OF FLOCK, 1973 Size Group All Cost Components 0-99 100-200.. 201-900 Producers Shearing Dollars Percent 44.33 1.3 110.37 1.7 301.63 2.1 148.46 1.9 Building and Equipment Repairs Dollars Percent 111.95 3.3 151.74 2.3 437.05 3.1 229.46 2.9 Veterinary and Brand Tagging Dollars 39.67 119.00 244.42 131.15 Percent 1.2 1.8 1.7 1.7 Electricity and Fuel Dollars Percent 92.52 2.8 255.95 3.9 696.11 4.9 339.53 4.3 Marketing Dollars Percent 44.38 1.3 167.37 2.6 228.32 1.6 143.22 1.8 Purchased Feeds Dollars Percent 37.95 1.1 203.74 3.1 438.63 3.1 220.37 2.8 Homegrown Feeds Dollars 1,324.52 2,402.95 4,278.26 2,623.02 Percent 39.5 36.7 30.2 33.4 Pasture Dollars SPercent 564.10 16.8 1,337.05 20.4 4,417.05 31.2 2,053.80 26.1 Labor Dollars Percent 1,092.33 32.6 1,751.42 26.8 2,963.42 20.9 1,097.14 24.3 Other Dollars 1.62 41.05 142.58 59.71 Percent 0.0 0.6 1.0 0.8 Total Variable Costs Dollars 3,353.37 6,540.64 14,147.47 7,855.86 Percent 100.0 100.0 100.0 100.0

- 16 - Size of Ewe Flock 50 100 200 300 400 500 600 700 800 900 A flock size of 296 ewes was required in 1973 to achieve even point of $46.56 total income for the 59 producers. A size larger enabled producers to pay for all costs of production. TABLE 10. TOTAL COSTS AND INCOME PER EWE BY SIZE OF FLOCK, 1973 Dollar Cost Per Ewe $73.67 59.11 49.85 46.47 44.73 43.67 42.95 42.43 42.05 41.74 the breakof 296 and Size Group Fixed Costs Variable Costs Total Cost Total Income ewe. dobaf ewe do-rao / ewe doau / ewe docua/z ewe 0-99 10.49 59.88 70.37 45.69 100-200 8.62 44.20 52.82 48.66 201-900 7.95 35.64 43.59 46.10 Al1' Producers 8.35 40.07 48.42 46.56 Returns for the Sheep Operation Several types of return can be considered. Return to labor and management (RLM) is equal to total income minus all costs except labor. Return to management (RM) is the final net income once allocations for the producer's labor is made and should "pay" the managerial capacity of the producer. Both measures are shown in Table 11 by the different size groups. The group having flocks in the 201-900 ewe range was the only one in which all return measures were positive. The small producers experienced a negative return even before starting to pay for labor and management. The 0-99 size group averages only 56 ewes and has a higher ewe mortality rate than other groups; while receiving an income per ewe similar to other groups, a loss results because of higher feed and labor costs.

- 17 - TABLE 11. AVERAGE RETURN MEASURES PER EWE BY SIZE OF FLOCK, 1973 Size Group Return to Labor and Management Return to Management dottevue dot&cu 0-99 -5.16-24.67 100-200 7.68-4.16 201-900 9.97 2.50 All Producers 7.84-1.89 Regional Differences The most successful producers were those in the western region. They had the highest return to labor and management values and the only positive return to management values of all regions. Producers in the south central region had the lowest economic returns and the lowest price received per hundredweight sold. The average size of the flock was 94 ewes in this region and sheep represented only 19 percent of total livestock animal units. The most important single factor influencing results in the western region seemed to be the larger size of the flock (395 ewes). Larger flocks led to lower average variable and fixed costs, especially feed and labor costs. The results by regions are summarized in Table 12. Differences by Type of Operation Producers selling mainly feeder lambs generally realized higher net returns than producers selling mainly slaughter lambs (Table 13). Producers selling slaughter lambs had higher costs per ewe and per hundredweight sold and they had lower net returns. On the other hand, slaughter lamb producers used fewer man-hours and had lower feed costs when expressed as per hundredweight sold. Part of the lower economic performances of producers selling slaughter lambs was explained by their smaller average size (145 ewes compared to 229 ewes for feeder lamb producers).

TABLE 12. ECONOMIC EFFICIENCY MEASURES BY REGION, 1973 Region Item Western South Central Central Southeastern All Producers Average Investment in Dollars Per Ewe 63.31 71.00 67.59 75.96 67.87 Average Total Cost in Dollars Per Ewe 40.30 63.80 53.74 52.08 48.42 Average Total Cost in Dollars Per Lamb Sold 42.67 57.11 54.62 48.29 48.44 Average Feed Costs in Dollars Per Cwt. Sold 13.47 23.34 19.47 15.11 16.25 Average Variable Costs in Dollars Per Ewe 32.93 55.29 45.33 41.89 40.07 o0 Averaged Fixed Costs in Dollars Per Ewe 7.37 8.51 8.42 10.20 8.35 Average Return to Labor and Management in Dollars Per Ewe 13.81-6.18 1.26 9.62 7.90 Dollars Per Cwt. Sold 16.78-6.31 1.45 9.55 8.85 Average Return to Management as Percent of Investment 9.20-29.3-14.30-2.70-2.70 Dollars Per Ewe 6.84-20.79-9.65-2.05-1.83 Dollars Per Cwt. Sold 8.32-21.24-11.14-2.03-2.05 Dollars Per Man-Hour 2.95-4.30-2.61-0.49-1.81 Average Price Per Hundredweight Sold in Dollars 33.98 29.67 32.26 36.67 33.70

-19 - TABLE 13. ECONOMIC EFFICIENCY MEASURES BY AVERAGE WEIGHT OF LAMBS SOLD, 1973 Type of Lamb Sold Feeder Lambs Slaughter Lambs For All Item (under 95 Ibs.) (over 95 Ibs.) Producersa Average Weight of Lamb Sold in Pounds 84.90 102.7 89.00 Average Size of the. Flock in Ewes 229 145 196 Average Investment in Dollars Per Ewe 65.04 76.57 67.88 Average Total Cost in Dollars Per Ewe 46.83 53.19 48.42 Average Feed Cost in Dollars Per Cwt. Sold 16.56 14.53 16.25 Average Variable Costs in Dollars Pew Ewe 38.83 43.81 40.07 Average Fixed Costs in Dollars Per Ewe 8.00 9.38 8.35 Average Man-Hours Per Ewe 3.10 3.88 3.30 Per Cwt. Sold 3.71 3.49 3.71 Average Return to Labor and Management in Dollars Per Ewe 8.52 7.79 7.90 Dollars Per Cwt. Sold 10.18 6.99 8.85 Average Return to Management as Percent of Investment 0.90 5.10-2.70 Dollars Per Ewe -0.56-3.88-1.83 Dollars Per Cwt. Sold -0.67-3.48-2.05 Dollars Per Man-Hour -0.18-1.00-1.81 Average Price Per Hundredweight Sold in Dollars 33.66 33.87 33.70 aincludes two producers who did not sell lambs.

- 20 - Differences by Profitability The 59 producers were divided into groups according to profitability-- that is, the average returns to management as a percent of average investment. The higher profit group had profits ranging from 1.6 percent to 47.1 percent. The range for the lower group was between -157.5 percent ard -21.4 percent. Each group included 20 producers, with the remaining 19 forming a medium group with profits between -18.1 percent and 0.4 percent. The differences in production characteristics are shown in Table 14. The most striking contrasts were in lamb mortality (22.9 percent in the lower group and 9.2 percent in the highest group) and average flock size (115 ewes to 255). Other differences related to profit were ewe mortality, lamb crop percent, and lambs sold per ewe. The big difference in labor hours could also be partially explained by the differences in flock size. Table 15 includes a summary of average costs and returns measures for the different profit groups. Of special interest is the difference in feed costs per hundredweight sold. 11 This variable was statistically the most important one affecting profitability. 12 The return measures differ even more when expressed as return per hundredweight sold. Commercial Lamb Feeding Operations Commercial lamb feeders buy feeder lambs to feed for later sale as slaughter lambs. They may or may not own a ewe flock in addition to the lamb feeding operation. The sample included 11 producers of which seven are located in the irrigated valleys of the Missouri and Yellowstone rivers in Williams and McKenzie counties (valley producers). The remaining four (nonvalley producers) were located in Williams, Burleigh, LaMoure, and Cass counties. The main production differences between both groups are shown in Table 16. 11 This figure includes grain, silage, hay, and supplements, but not pasture or other roughage. 12 The same procedure was used as the one explained in footnote 5. In this case the equation was of the form Y = a - bx.

- 21 - TABLE 14. PRODUCTION CHARACTERISTICS OF SHEEP FLOCK ENTERPRISES BY PROFIT GROUPS, 1973 Profit Group Item Low Medium High All Producers Size of Flock, Number of Ewes 115 217 255 196 Percent of Land Owned 78.2 72.5 79.4 76.8 Percent of Land in Crops 44.0 32.5 38.0 37.9 Percent of Sheep Per Total Livestock 28.0 39.9 42.7 37.8 Average Weight of Lamb Sold, in Pounds 86.4 90.4 88.9 89.0 Average Fleece Weight, in Pounds 10.1 9.1 10.0 9.7 Number of Ewes Per Ram 29.1 31.5 30.7 30.8 Average Percent of Lamb Mortality 22.9 19.8 9.2 15.9 Average Percent of Ewe Mortality 6.8 4.0 3.8 4.4 Average Lamb Crop, in Percent 124.3 132.3 134.5 131.2 Average Number of Lambs Sold Per Ewe 0.85 1.01 1.07 1.00 Average Man-Hours Per Ewe, 4.29 3.64 2.62 3.71 Purchase of lambs was the largest variable cost for valley and nonvalley producers (67 percent of the total); next came feed costs at 22 percent (excluding pasture). Purchased feeds were more important for valley producers, while homegrown feeds and pasture costs were larger for nonvalley producers. Labor averaged 3.5- percent of the total variable costs. are shown on a per lamb sold basis in Table 17. Costs and returns data It can be seen that, as a group, nonvalley producers did not make a profit, while valley producers received a profit per lamb sold. The return to management, expressed as a percent of total investment, was 8.3 percent, which was much higher than for

- 22 - TABLE 15. ECONOMIC EFFICIENCY MEASURES BY PROFIT GROUPS, 1973 Profit Group. Item Low Medium High All Producers Average Investment in Dollars Per Ewe 66.28 72.04 65.74 67.88 Average Total Cost in Dollars Per Ewe 62.79 50.83 40.38 48.42 Average Feed Costs in Dollars Per Cwt. Sold 33.73 15.08 11.34 16.25 Average Variable Costs in Dollars Per Ewe 54.18 41.67 32.73 40.07 Average Fixed Costs in Dollars Per Ewe 8.61 9.16 7.65 8.35 Average Return to Labor and Management in Dollars Per Ewe -14.36 2.96 22.00 7.90 Dollars Per Cwt. Sold -19.52 3.25 23.14 8.85 Average Return to Management as Percent of Investment -40.8-10.4 21.4-2.7 Dollars Per Ewe -27.01-7.46 14.09-1.83 Dollars Per Cwt. Sold -36.71-8.17 14.82-2.05 Dollars Per Man-Hour - 6.30-2.05 5.38-1.81 Average Price Per Hundredweight Sold in Dollars 34.05 33.16 35.55 33.70 farms and ranches with average flocks. Furthermore, analysis revealed that lamb feeders not owning a ewe flock were in a more favorable situation than those owning one. Implications for Sheep Producers and Policy Makers Declining numbers of sheep and lambs in the United States and North Dakota have had both positive and negative effects on the industry. There are fewer lamb producers; fewer lamb feedlots; fewer lamb, sheep, and wool buyers; fewer commercial lamb slaughterers; fewer retailers handling lamb and

- 23- TABLE 16. PRODUCTION CHARACTERISTICS OF COMMERCIAL LAMB FEEDERS BY GROUP, 1973 Group All Item Valley Producers Nonval ey Producers Producers Number of Producers 7 4 11 Number of Lambs Sold 3,577 678 2,523 Total Acreage Operated 464 1,660 899 Percent of Land Owned 73.4 85.5 81.6 Percent of Land in Crop 75.1 69.1 71.0 Average Weight of Lamb Sold, in Pounds 107.6 107.1 107.6 Average Fleece Weight, in Pounds 5.7 9.9 6.2 Average Percent of Lamb Mortality 3.2 7.3 3.6 Average Man-Hours Per Lamb Sold 0.36 0.92 0.41 wool products; and fewer consumers who purchase lamb and wool products. This situation has resulted in a decrease in bargaining power for sheep producers and organizations. However, fewer numbers, an energy shortage (synthetic fibers are made from petrochemicals), and a strong demand for red meat have caused an increase in lamb and wool prices since this study was conducted. Sheep producers have faced several problems which have led to the decline in numbers. Respondents to this study indicated the following problem areas affect them: (1) decreased demand for lamb, mutton, and wool; (2) predators; (3) competition from imports; (4) availability of labor; and (5) environmental regulations. Sheep producers participating in a national survey indicated public land policies, predators, and availability of labor as problems which have caused sheep producers to leave the business.

- 24 - TABLE 17. COSTS, INCOME, FEEDERS BY GROUP, 1973 AND RETURN FIGURES FOR COMMERCIAL LAMB Group_ All Item Valley Producers Nonvalley Producers Producers Average Fixed Costs in Dollars Per Lamb 1.64 3.66 1.84 Average Variable Costs in Dollars Per Lamb 35.23 38.51 35.55 Average Total Cost in Dollars Per Lamb 36.87 42.17 37.39 Average Total Income in Dollars Per Lamb 39.78 40.81 39.94 Average Return to Labor and Management in Dollars Per Lamb 3.98 1.40 3.72 Average Return to Management in Dollars Per Lamb 2.90-1.37 2.49 Average Return to Management as Percent of Total Investment 10.10-3.40 8.30 Average Price Received Per Hundredweight Sold in Dollars 34.37 33.86 34.32 Sheep producers in North Dakota may be in a better position to cope with these problems for several reasons. Producers in North Dakota do not have to rely on public grazing lands to the extent that several other states do. Although a predator problem exists, a USDA survey indicates that it may not be as severe in North Dakota as in other western states. New technology that is being developed in the areas of increasing multiple births and increasing lambing periods to more than the traditional once per year method will increase efficiency. This new technology will be more adaptable to production units in North Dakota than the western range-type systems. Results of this study indicated that a production unit of 296 ewes was necessary to provide a positive return to management. However, very few production units in North Dakota rely solely on sheep. Diversified units may

- 25 - value sheep production as a supplementary enterprise in utilizing excess seasonal labor, crop residues and homegrown roughages and grains, and land not capable of producing grain crops. These units may carry a smaller number of ewes and still add to the return to management for the entire farm or ranch unit. With declining political power of the sheep industry in relation to that of consumers, it will become increasingly difficult for sheep producers to positively influence legislation to decrease imports, increase predator control, and limit public use of federal lands. Therefore, sheep producers must strive to become more efficient by adopting new technology; increasing their bargaining power in the marketing system; and promoting the use of sheep, lamb, and wool products.

.. - 26 - LIST OF TABLES Table No. 1. AVERAGE PRODUCTION CHARACTERISTICS OF SHEEP FLOCKS BY REGION, 1973........ 2. PRODUCTION CHARACTERISTICS OF SHEEP FLOCKS BY SIZE GROUP, 1973...................... 3. AVERAGE LABOR REQUIREMENTS FOR SHEEP FLOCKS, 1973... 4. AVERAGE CAPITAL INVESTMENT OF SHEEP PRODUCERS BY SIZE OF FLOCK, 1973........... 5. AVERAGE CAPITAL INVESTMENT PER EWE BY SIZE OF FLOCK, 1973....................... 6. AVERAGE INCOME RECEIVED BY SIZE OF FLOCK, 1973... 7. AVERAGE INCOME PER EWE BY SIZE OF FLOCK, 1973.... 8. AVERAGE FIXED COSTS BY SIZE OF FLOCK, 1973.... 9. AVERAGE VARIABLE COSTS BY SIZE OF FLOCK, 1973.... 10. TOTAL COSTS AND INCOME PER EWE BY SIZE OF FLOCK 1973.. 11. AVERAGE RETURN MEASURES PER EWE BY SIZE OF FLOCK, 1973 12. ECONOMIC EFFICIENCY MEASURES BY REGION, 1973... 13. ECONOMIC EFFICIENCY MEASURES BY AVERAGE WEIGHT OF LAMBS SOLD, 1973.... Page 6 7 8 10 11 12 13 13 15 16 17 18. 19 14. PRODUCTION CHARACTERISTICS OF SHEEP FLOCK ENTERPRISES BY PROFIT GROUPS, 1973..... 15. ECONOMIC EFFICIENCY MEASURES BY PROFIT GROUPS, 1973. 16. PRODUCTION CHARACTERISTICS OF COMMERCIAL LAMB FEEDERS BY GROUP, 1973.......... 17. COSTS, INCOME, AND RETURN FIGURES FOR COMMERCIAL LAMB FEEDERS BY GROUP, 1973........... 21 22 23 24

- 27 - LIST OF FIGURES Figure No. Page 1. PERCENT OF TOTAL SHEEP POPULATION BY COUNTY, NORTH DAKOTA, 1973.... 2 2. LOCATION OF SHEEP PRODUCERS INTERVIEWED BY REGION.... 5