OK, let’s take a breath.
Issues #8 and #9 both looked at the Direct-to-Consumer business model. We looked at the pros (way better gross profits) and the cons (managing the supply chain yourself). So, what does this mean for us - Erin and Jeff trying to start an Icelandic Sheep farm.
Capacity and Inventory
Before we start, we’re going to make one really big assumption: that we can get all of the meat processed we need processed when we need it. As you will see in future issues, this is not an easy assumption to make. But, we’ll go with it.
For all the glory Icelandic Sheep get for their wool, the vast majority of them are raised for meat. Even in Iceland, the vast majority of the sheep are raised for meat.1 There are two interesting pieces of information about Icelandics that are directly relevant to meat production.
First, they lamb seasonally - they do not (generally) lamb year round. They give birth in May(ish) and are ready for market in September(ish). Thus, lamb meat from Icelandics is seasonal. Basically, the farm work is lambing in the spring, get them as fat as possible in the summer,2 then process in the fall. Lambs will get to 70-90(ish) pounds of live weight.
Second, they are very efficient breeders. Their lambing rate is something like 170-180%, which means almost every ewe births twins (or even triplets). This is great for meat production because it means, with smart breeding practices you can sell a lot more lambs and not have to keep as many for breeding stock.
This is great, but it does mean that every September is when we’re going to have to figure out how to sell however much lamb we have. At max capacity, we’re imagining something like 250(ish) sheep.3 So, let’s just assume something like 100 lambs for processing every September. 100 lambs at 85 pounds average means 8500 pounds of live weight lamb. Average processing loss for lamb is pretty high, and hanging weight typically right around 50%. So, 8500 pounds live weight equates to about 4300(ish) pounds of hanging weight.
The consequences here can get expensive. There are two huge drivers of problems. One big problem is if there isn’t enough processing capacity for all of the lambs that I will have. Yes, I know that we started with the assumption that I could process all of the lamb, but let’s be real and recognize, for a moment, the limits of this assumption.
Given current processing schedules I may need to know over 12 months before I have lambs to schedule the processing. Obviously, this is well before any of the lambs are even born, and if scheduling gets to 18-24 months, it could even be before the lamb’s mother is born. How confident are you in things that you have to predict will happen 12 to 24 months from now? Demand forecasting and production scheduling are going to be a very important skills.
A nuance on this problem (call it Problem 1.5) is if there isn’t enough processing capacity for the number of lambs that I have. Then I have lambs that become sheep. Not the end of the world, given that Icelandics are good at wool, too - failure in the meat stock means I get more wool. But that’s its own problem … If people in the US would eat mutton like they do in the rest of the world, this would be less of a problem.
The second big problem is if I can’t sell all of the inventory prior to sending the lambs to processing. Because Icelandics are seasonal and all of them come at once, and get processed at once, if I can’t sell them all at once, then I have to store them somewhere. Which means I need freezer space.
Remember how I told you that wool production for lamb was a Hard Problem? I’ve also hinted that meat processing capacity is a Hard Problem. Yeah. Well, cold storage is a Hard Problem, too.
At the very least I will need on-farm cold storage, which is expensive. There is not currently a walk-in freezer on the farm, let alone a walk-in freezer that can hold multiple hundreds of pounds of lamb meat. Someday I’ll tell you about the regulations around meat processing and storage of meat. It will make you not want to put a walk-in freezer on your farm.
Still. I have time.
The Money
As of today in Wisconsin, Choice Lambs are $220 per hundred weight - or $2.20 per pound. Nationally the number is a little higher: $250 or $2.50 per pound.
If I have 100 lambs at 80 pounds each, I will gross about $8,800 - $9,500. Or, about $88 - $95 gross revenue per lamb. This means that it needs to cost me less than $88 per lamb to birth and raise a lamb for 5 months.
Some general research makes it hard to nail down what the cost to raise a lamb is, but let’s say labor time to deliver a lamb is about 45-90 minutes at $20/hour, and then some minimal feed supplements because we’ll have the lambs on pasture, and we’re probably in the $50-ish per lamb range. If we weren’t pasturing and had to feed from a barn, this number would be somewhat higher. The numbers I was seeing are all in this general vicinity. If I lower the wage expectations and rely on pasture, I might be able to get this number down to $30-ish per lamb. So, net profit per lamb is what? $30-$50?
For 100 lambs, $3,000-$5,000 in profit for a Spring, Summer, and early Fall of work? Sign me up! That was sarcasm, by the way.
A farm up near Manitowoc is selling lamb direct-to-consumer for $10 - $16 per pound. Let’s just round off to $11/pound average. If I sold all of my 100 lambs direct-to-consumer at this price I’d be looking at $47,300(ish) gross revenue.4 Or $473 gross revenue per lamb.
As an apples-to-apples to comparison, we’re talking $95 per lamb to sell through commodity markets versus $473 per lamb if I can sell at max price through direct-to-consumer.
Obviously, I’d much rather make $45,000 than $5,000 for a summer’s worth of work. But, the real number is probably somewhere in between. Some lambs will be sold commodity, some will be sold direct-to-consumer. Some will be sold as a whole or half at something higher than commodity but (much) lower than direct-to-consumer. Getting this product mix right will require some fine tuning.
Questions
I still have some very big gaps in my knowledge. I have some access to people that can help me answer these questions, but if you (oh, dear reader) know anyone that might lend some insight into these questions, please let me know (or better yet throw them in the comments for future readers). I’d love to talk to chefs, institutional kitchen buyers, people in wholesale meat, grocery meat departments, meat markets and butcher shops, ethnic/specialty markets, or producers with more than 150 sheep.
Where and how do quality-focused groceries or restaurants in the Upper Midwest source their lamb? Do they have direct farm connections or do they purchase from wholesalers? If they purchase from wholesalers, which wholesalers? Where do the wholesalers source their lamb, from processors or directly from farms? How much does a restaurant or grocery go through in a week? Do they view lamb as a regularly needed product or seasonal?
Where bought by cut, what cuts are most popular? Do you buy other cuts or only the cuts that are needed?
Similar questions for specifically middle-eastern markets and restaurants.
Does anyone buy mutton? If so, who? If not, why?
I know hogget is a thing, but do consumers?
Farm nerd-out here, but they gain between .5 - .75 pounds per day!
This is a made-up number. I don’t know if this inclusive or exclusive of lambs raised for market.
Obviously cost to raise the lamb, processing costs, and the sales channel costs will all come out of this, so net profit will be much lower.