DESPITE some improvement in farm profitability due to some better weather and higher livestock prices, achieving positive net margins without CAP support remains a real challenge for Scottish farmers.

Furthermore, while the latest profitability figures for beef and sheep producers comparing 2017 against 2016, do show some improvement, next year's results are likely to be a whole lot worse.

That was the overwhelming outcome of a Quality Meat Scotland report on enterprise profitability for beef and sheep producers in 2017.

The results, from a survey covering 69 breeding sheep enterprises with a total of 35,000 ewes and 106 suckler cattle units with 10,500 breeding females, of which 15 were finishing 6600 store lambs and 53 were finishing 3900 prime cattle, found that 44% of suckler herds achieved a positive net margin, up from 36% in 2016. Similarly, the number of store finishers showing margins in the black increased from 30% in 2016 to 43% in 2017.

Marginal improvements were also shown in the sheep sector, which saw just 14% of hill ewe flocks able to make a positive net margin – in what was perceived to be a good year – against a mere 10% in 2016. However, net profitability among upland flocks slipped to 56% of enterprises surveyed achieving a positive net margin for their 2017 lamb crop compared to 68% the previous year.

Lowground flocks also saw a deterioration in their on-farm results, with 80% achieving a positive net margin for the 2017 lamb crop compared with 85% surveyed achieving a positive net for the 2016 lamb crop.

Store lamb finishers reported a considerable improvement in margins, with all those surveyed achieving a positive net margin compared with just 38% of the sample in 2016.

The results for this year or 2018, are nevertheless, likely to be a completely different ball game following the late spring, difficult lambings and calvings, increased feed and fuel costs and lack of grass and subsequent winter forage following the drought.

Stuart Ashworth, head of economic services at Quality Meat Scotland also pointed to the uncertainty surrounding Brexit trade agreements, which has had a profound effect on the store market.

"There is a complete lack of confidence in the industry because people still don't know what's going to happen regarding trade agreements which has played into the store market.

"Store lamb prices struggled in 2017 and despite the buoyant trade experienced by finishers for such lambs earlier this year, there was no real improvement in store lamb values this year, most of which was down to the uncertainty surrounding Brexit," said Mr Ashworth.

"The expectation for next year is that margins are expected to come under significant pressure and are very unlikely to come close to the figures just published," he added.

While there were some improvements in the 2017 farm profitability results, they continued to show significant variation in levels of financial and technical performance. Again, the top producers were characterised by high physical, or technical, performance; strong control over costs while also maximising returns from the market place.

Suckler herds in the top third were characterised by strong cost control, with lower cow mortality and lower herd replacement rates, leading to lower herd maintenance cost. Such herds also had lower total variable costs than the average while achieving higher output. Variable costs per kg of calf reared were lower among the top third too who also had lower fixed costs per kg of output, even if on occasion fixed cost per cow were higher than the average.

LFA hill suckler herds surveyed had an average gross margin of £340 per cow – a slight improvement on the year before. However, higher fixed costs pushed the net margin to (-)£139, which was £40 lower than 2016 figures. The top third averaged £473 per cow gross margin, an improvement over the average of £133 per cow, and a net margin of £90 per cow. Nevertheless, of the 15 producers surveyed four achieved a positive net margin.

LFA upland suckler herds were split into two categories: one group selling at weaning; and a second group selling yearling stores. Those selling at weaning made an average gross margin of £399 per cow, but were outperformed by their counterparts selling yearlings, who achieved an average gross margin of £482 per cow. However, after taking account of fixed costs, both groups achieved a positive net margin. Some 48% of businesses selling calves at weaning in 2017 achieved a positive net margin, up 36% on the previous year.

Those in the top third of sheep producers similarly achieved increased outputs through higher stock performance. By rearing more lambs per 100 ewes than the average, the top-third flocks typically sold some 5-10kg lwt more lamb per ewe. They also typically realised higher selling prices for all classes of lambs sold, resulting in income per ewe from lamb sales of £10-£20 per ewe more than the average.

LFA hill sheep enterprises, on average revealed a gross margin of £24 per ewe, an improvement of £1 on last year, with the top third benefitting from higher prolificacy and lamb weights, resulting in a net output £20 per ewe higher than the average. Furthermore, with variable costs unchanged on the average, this improved productivity transferred into a gross margin £20 per ewe better than the average. Nevertheless, on average the group achieved a net margin of (-)£19 per ewe – a deterioration of £2 per ewe on last year. Net margins among the top third recovered to £1 per ewe, having been negative last year.

Although only 14% of the sample achieved a positive net margin, this was an improvement from 10% who achieved this in 2016.