Demise of ewe premium payments could hit cash flow
13/06/05

Unless they plan ahead carefully, insufficient cash flow could easily become a serious headache for many sheep businesses this autumn now they no longer have an income stream from ewe premium payments, warns the English Beef and Lamb Executive (EBLEX).

In contrast to previous years when ewe premium payments arrived on farm in good time to fund ewe replacement and store lamb purchases, all this autumn's seasonal peak in cash requirements will have to be generated from stock sales.

The most recent EBLEX costings for lowland flocks, however, show this may not be easy for many businesses. On average, drawings to cover fixed costs absorb around 61% of the income generated by every English lamb sold, with seasonal demands for variable and flock replacement costs taking a further 35% (Table).

Table: Components of Lamb Value in Lowland Flocks (EBLEX Costings 2003/4)

* Excluding concentrate costs but including replacement costs.

Assuming uninterrupted lamb sales between June and September, the average business will consequently have only just enough funds remaining from finished and store lamb sales to buy ewe replacements to replenish a fifth of the flock.

Under these circumstances any slippage in the sales pattern could be extremely damaging for cash flow, requiring significant extra borrowings for large flocks, in particular. Even with low interest rates, this extra cost could easily be the difference between profit and loss for  average flocks with low net margins.

While top-third performing flocks may not face such critical problems, ensuring sufficient lamb sales early enough in the autumn will be equally important for their business health.

To avoid cash flow difficulties, EBLEX advises flocks to plan their grassland management and stocking very carefully this summer to maximise lamb growth rates, setting out simple budgets with clear targets for sales through to the early autumn and monitoring performance closely. It stresses it is always prudent to sell lambs as soon as they are ready, pointing out that holding back in an uncertain market can be costly.