Agricultural Economics Report Summary 435s January 2000
FEASIBILITY OF A SHEEP COOPERATIVE
FOR GRAZING LEAFY SPURGE
Randall S. Sell
Dan J. Nudell
Dean A. Bangsund
F. Larry Leistritz
Department of Agricultural Economics
Agricultural Experiment Station
North Dakota State University
Fargo, North Dakota 58105
There are three general methods of controlling leafy spurge in the upper
Great Plains: 1) chemical, 2) cultural, and 3) biological. Each has limitations
on its applicability and effectiveness such that any one method will probably
not be practical on all leafy spurge infestations. Use of herbicides is often
limited because of environmental and labeling restrictions as well as economic
considerations. Tillage and reseeding are often not practical because of
the topography of infested areas and economic considerations. Biological
control (insects) has provided excellent control in certain conditions but
not in others (Bangsund et al. 1997). Another form of biological control,
which has been shown to be economical, is grazing with sheep (Bangsund et
Similar to using herbicides to control leafy spurge, the use of sheep grazing
does not eradicate the weed; yet it can control the infestation. Sheep grazing
of leafy spurge can have a two-fold benefit: 1) decrease the density of the
infestation and thereby allow cattle to graze and 2) sheep can directly generate
revenue which may provide positive returns. Utilizing a benefit-cost analysis,
Bangsund et al. (1999) showed that under season-long grazing strategies with
good management (sheep performance), even in less economical situations (low
density infestations, small patches of leafy spurge within larger pastures
enclosed with new fence), sheep grazing would be economical. Another method
of analysis used by Bangsund et al. (1999) was a least-loss analysis, where
the economic loss which would occur if leafy spurge was left uncontrolled
was compared to losses incurred with control. Thus, even if control results
in negative returns, the control method may still be recommended, providing
the loss from control is less than the economic loss of allowing the infestation
to expand unabated. The only scenarios in which not using sheep grazing controls
were better than implementing a sheep grazing enterprise were with poor
management, new fencing, and low rangeland carrying capacities.
The use of sheep or goats has been known as an effective method of controlling
leafy spurge since the 1930s (Sedivec et al. 1995). However, the majority
of ranchers with leafy spurge have not adopted sheep as a potential leafy
spurge control tool (Sell et al. 1999b, Sell et al. 1998a, 1998b). A major
deterrent to using sheep for controlling leafy spurge is the inability of
the ranch operator to provide adequate labor and management for an additional
enterprise on the ranch. Ranch operators usually feel that they would not
be able to add another job to the work load of the ranch, or they may feel
that they can not or do not want to learn the skills necessary to be successful
in the production of a different livestock species. Of ranchers recently
surveyed in western North Dakota, more than 70 percent felt they did not
have the right equipment for sheep, and more than 40 percent indicated they
did not have the expertise/knowledge to effectively utilize sheep (Sell et
al. 1999b, Sell et al. 1998a, 1998b). Of those ranchers who had leafy spurge,
80 percent grazed only cattle, 18 percent grazed sheep and cattle, and only
2 percent grazed only sheep on their rangeland (Sell et al. 1999b).
This is a summary of an economic feasibility analysis of a cooperatively
owned and professionally managed sheep operation for leafy spurge control
(Sell et al. 1999a). The objectives of this report were 1) determine the
return on investment of the cooperative, 2) determine the proposed structure
of the cooperative, and 3) ascertain the amount of capital investment required
by members in the cooperative.
The cooperative would be the property of ranchers that have leafy spurge,
and sheep from the cooperative would graze the leafy spurge infested rangeland
of its members. The flock would be managed as a single unit by a manager
hired by the cooperative. A centrally located cooperative, with management
strictly dedicated to sheep production, would capture economies of scale
in production and exempt the individual ranchers from the burden of learning
to manage a new enterprise, while still gaining the benefits of multi-species
grazing on leafy spurge infested rangelands. In addition, profits from the
sheep operation would accrue to the owners of the cooperatively-owned flock.
Three alternative flock management strategies were considered for the cooperative. These were 1) winter lambing, 2) spring lambing, and 3) fall lambing. The primary difference between these alternatives revolves around the timing and length of the lambing season. The necessary equipment, facilities, labor, feed, production, and cooperative member contributions will vary depending on the alternative considered. Each management alternative has unique attributes which will affect its financial performance. Additionally, the logistical challenges facing the distribution and collection of the sheep onto and from the cooperative members' ranches will need to match the requirements associated with the alternatives. After consultation with range scientists, it was determined that the effects of removing the ewes from leafy spurge in August were unknown. It is possible that leafy spurge control would be reduced if the grazing season ended early in the summer. Therefore, the financial feasibility of the fall lambing scenario was not analyzed.
There are also many similarities in the scenarios. Flock size for all scenarios
was 5,000 ewes. All replacements were purchased. Terminal sires were used,
and all lambs were sold at 125 pounds in each scenario. Ewes for the cooperative
were assumed to be western white-faced. These animals are typically a cross
of Rambouillet, Columbia, Targhee or some combination of these breeds. They
can be expected to weigh 140 to 170 pounds and shear 8 to 10 pounds of wool
grading 60's or 62's. Feed costs were adjusted for the differing amounts
of weight added to lambs post-weaning depending on the management scenario
used. Production coefficients of the winter and spring lambing scenarios
are shown in Table 1.
Table 1. Production Coefficients of Winter and Spring Lambing Scenarios
|Number of Ewes||5,000||5,000|
|Marketed Number of Lambs||6,000||6,000|
|Lamb Selling Weight (lbs)||125||125|
|Market Lamb Price ($/cwt)||$76||$76|
|Number of Rams||100||100|
|Ram Purchase Price ($/head)||$200||$200|
|Cull Ewe Selling Price ($/cwt)||$26||$26|
|Cull Ram Selling Price ($/cwt)||$13||$13|
|Ewe Purchase Price ($/head)||$100||$100|
|Ewe Replacement Rate 1||20%||20%|
|Ewe Death Loss Rate||5%||5%|
|Roughage Used Per Year (tons)||2,650||1,800|
|Grain Used Per Year (tons)||1,860||965|
|Hay Price ($/ton) 2||$51.50||$51.50|
|Grain Price ($/ton) 3||$79.80||$79.80|
|Total Investment Per Ewe 4||$301.05||$215.71|
1 One thousand replacements purchased and 750 cull ewes sold each year.
2 Long term average hay prices in North Dakota are $59 for alfalfa and $39 for grass hay. This price represents a weighted average of 60% alfalfa and 40% grass hay (North Dakota Agricultural Statistics Service, various years).
3 Represents feed barley price per bushel of $1.90.
4 For a complete description of the facilities and other capital
investments in each scenario, please refer to Sell et al. 1999a.
A comparison of the balance sheets for the winter and spring lambing alternatives
reveals the total assets required for the spring lambing scenario are nearly
30 percent less than the winter lambing alternative (Table 2). The additional
assets required for the winter lambing scenario are based on additional buildings
and facilities ($244,000), additional equipment ($58,000), and additional
operating capital ($125,000). The additional buildings are predominantly
the insulated lambing barn and cold lambing lots (Figure 1). The additional
equipment for the winter lambing scenario includes creep feeders, additional
feed wagon, and a grinder mixer.
Table 2. Total Assets and Equity Requirements for 5,000 Ewes Under Winter Lambing and Spring Lambing Scenarios
|Winter Lambing||Spring Lambing||Percent Difference|
|Long Term Assets||536,553||292,845||45.4|
Figure 1. Schematic Drawing Comparing Proposed Facilities for Winter and Spring Lambing Scenarios
Cooperative Members Contribution
A rancher/member's investment in the cooperative accomplishes two things 1) it entitles the member to share in the potential returns/losses resulting from the operation of the cooperative and 2) it requires the member to provide summer pasture according to the number of shares owned. Prospective members to the cooperative would be required to contribute equity and may have to add fencing to their existing pastures. Cooperative member equity investment per ewe was $150 and $108 for the winter and spring lambing scenarios, respectively (see Table 1).
Two alternatives for fencing were analyzed for each scenario, new fence and modified fence. In addition, fencing requirements for each scenario are different because of the different size/age composition of the flocks grazed. Lambs are weaned prior to the grazing season in the winter lambing alternative and do not graze on cooperative member's pastures. The necessary fencing requirements for mature ewes were assumed to be an additional 2 barbed wires added to an existing 3- to 4-wire fence or construction of a new 6-wire fence. For the spring lambing scenario, the lambs graze with the ewes on the leafy spurge pastures. This scenario requires an additional 3 wires added to an existing 3- to 4- wire fence or construction of a new 7-wire fence. Fencing costs (construction, repair, depreciation) were amortized over a 20 year period (Table 3).
Annualized fencing costs incurred by the cooperative member assuming a 50-acre
pasture which is 100 percent infested with leafy spurge ranged from $1.59/
ewe for the winter lambing alternative to $1.84/ewe for the spring lambing
alternative. Construction of new fencing was generally about five times more
costly than modifying an existing fence. For new fence, the average annual
cost per ewe was between $0.10 to $0.25/ewe more for the spring lambing scenario
than the winter lambing, assuming the infestation size was equal to the pasture
size. The smaller the infestation size relative to the pasture size, the
greater the fence cost of the spring lambing scenario relative to the winter
Table 3. Annual Fence Costs per Ewe by Pasture Size and Leafy Spurge Infestation
|Pasture Size||leafy Spurge||Infestation||(acres)|
Expected annual net income for the baseline winter lambing scenario was a
negative $61,000 (Table 4). Net income in this case approximates profitability
of the proposed coop. It represents returns after depreciation on buildings,
equipment, and the ewe flock. It does not include an opportunity cost for
equity capital. The baseline model for the spring lambing scenario generated
a positive annual net income of $124,000.
Return on investment for a prospective cooperative member, assuming a 50-acre
leafy spurge infestation in a 100-acre pasture, ranged from 16 to 21 percent,
depending on whether new or modified fence was used. Return on investment
for the winter lambing scenario was negative.
Sensitivity analysis was conducted to determine returns for the cooperative
with respect to critical variables, such as lambing percentage and lamb selling
price. The lambing percentage is an often used indicator of flock management.
The lambing percentage is generally proportional to the number of lambs sold
per ewe. The lamb selling price cannot be directly manipulated through management
(except through forward contracting or other various marketing schemes);
however, assuming there are lambs to sell, it is a critical variable to determine
financial viability of the cooperative. To determine the impact of changing
these variables, the highest and lowest lamb selling price in the past 10
years was used in the model (North Dakota Agricultural Statistics Service,
various years) (Table 4). Also the selling price of lambs and the percentage
of lambs sold were changed independently to determine when the cooperative
was at a breakeven point with respect to each variable (i.e., there was zero
net income and no patronage would be returned to the members).
The high price alternative is the only alternative which provided a positive
return (5%) on investment with the winter lambing scenario (Table 4). The
feasibility of this alternative seems unlikely as a price level this high
was only attained 1 out of the past 10 years. In fact, the lowest lamb price
at which the cooperative would breakeven was $84.10/cwt. This price level
was only attained 2 out of the past 10 years (North Dakota Agricultural
Statistics Service, various years). The percentage of lambs sold per ewe
would also have to increase from 120 percent/ewe to 133 percent/ewe.
Alternatively, the lowest price at which the spring lambing scenario would
operate at breakeven was $59.51/cwt. This price was exceeded in 7 out of
the past 10 years (North Dakota Agricultural Statistics Service, various
years). The minimum number of lambs sold per ewe for the spring lambing scenario
to breakeven is 0.94 lambs/ewe. The North Dakota state average lambs sold
per ewe from 1994 through 1998 was 1.26 lambs/ewe (North Dakota Agricultural
Statistics Service, various years).
Table 4. Sensitivity Analysis for Winter Lambing and Spring Lambing Scenarios
|Low Lamb Selling Price||High Lamb Selling Price||Lowest Feasible Lambs Sold Per ewe||Lowest Feasible Price||
|Low Lamb Selling Price||High Lamb Selling Price||Lowest Feasible Lambs Sold Per ewe||Lowest Feasible Price|
|Net income (after Depr.)3||($60,728)||($263,228)||$44,272||$1,022||$22||$123,722||($78,786)||$228,714||$214||$39|
|Percent earnings/loss returned||100%||100%||100%||100%||100%||100%||100%||100%||100%||100%|
|Hypothetical Cooperative Member|
|Acres of leafy spurge||50||50||50||50||50||50||50||50||50||50|
|Capital required to purchase shares||$7,526||$7,526||$7,526||$7,526||$7,526||$5,403||$5,403||$5,403||$5,403||$5,403|
|Investment in additional 'new' fence4||$2,197||$2,197
|Investment in additional 'modified' fence4||$405||$405||$405||$405||$405||$607||$607||$607||$607||$607|
|Member equity returned||($607)||($2,632)||$443||$10||$0||$1,237||($788)||$2,287||$2||$0|
|Return on investment (new fence)5||(6.2%)||(27.1%)||4.6%||0.1%||0.0%||15.6%||(9.9%)||28.8%||0.0%||0.0%|
|Return on investment (modified fence)5||(7.7%)||(33.2%)||5.6%||0.1%||0.0%||20.6%||(13.1%)||38.1%||0.0%||0.0%|
2 The expected lamb selling price was $76/cwt, low lamb selling price was $49/cwt, high lamb selling price was $90/cwt, lowest feasible lambs sold/ewe was 0.94, and the lowest feasible lamb selling price was $59.51/cwt.
3 No opportunity cost charged to member equity.
4 Assuming a 100-acre pasture.
5 Investment assumed to include equity capital and fencing material,
no charge included for member labor.
The total (over 10 years) and annualized loss of AUMs to cattle from a 50-acre infestation of leafy spurge was determined at carrying capacities ranging from 0.4 to 0.6 AUMs per acre (Table 5). The net returns resulting from the use of a common herbicide treatment program were also calculated (Bangsund et al. 1996). The use of a recommended herbicide treatment program annualized over 10 years will not result in positive returns at carrying capacities from 0.4 to 0.6 AUMs/acre. However, the economic loss which results with the use of this herbicide treatment program will be less than the loss from not treating the leafy spurge at carrying capacities of more than 0.5 AUMs/acre.
Annual net returns (calculated at $15/AUM for AUMs gained, less annualized
cost of grazing, plus patronage) resulting from using the spring lambing
scenario in a 100-acre pasture, with a 50-acre leafy spurge infestation at
various carrying capacities were calculated (Table 5). Assuming the cooperative
does not pay any patronage (operates at breakeven), the annual net return
from grazing the sheep would be negative; however, the resulting net loss
would be less than not treating the infestation at carrying capacities of
0.5 AUMs/acre and higher. If the cooperative returns $12.00/ewe or $600 annually,
the net returns are positive. In this case, the returns are the value of
the AUMs which are gained (valued at $15/AUM) as a result of grazing the
sheep on leafy spurge infested rangeland. The annual net returns increase
as the carrying capacities are increased. If the cooperative generates returns
equal to expectations (see Table 5), then the annual net returns are increased
by more than $600 for the 50-acre infestation.
Table 5. Comparison Annualized Costs and Returns Over 10 years for Uncontrolled, Using Herbicides, and Grazing Sheep on a 50-Acre Leafy Spurge Infestation
|AUMs/Acre||Annual Average AUMs Lost||Value Lost AUMs|
|AUMs/Acre||Average Annualized Cost||Value of Gained AUMs||Annual Net/ 50 acres|
|Sheep Grazing||(zero patronage)|
|AUMs/Acre||Average Annualized Grazing Cost3||Value of Gained AUMs||Partonage||Annual Net/ 50 acres4|
|Sheep Grazing||(annual partonage equals||average investment)|
|AUMs/Acre||Average Annualized Grazing Cost3||Value of Gained AUMs||Patronage5||Annual Net/ 50 acres4|
|Sheep Grazing||(expected patronage)|
|AUMs/Acre||Average Annualized Grazing Cost3||Value of Gained AUMs||Patronage5||Annual Net/ 50 acres4|
1 Assumed patch expansion of 2 radial feet per year, and AUMs valued at $15, initial patch density 30 percent. A 30 percent (80-120 stems per square meter) patch density translates into essentially no cattle grazing within the patch.
2 Assumed $5/acre application cost and chemical treatment program annualized over 10 years of .25 lb/acre of Picloram and 1.0 lb/acre of 2,4-D. Application and chemical costs equaled $18.83/acre in treatment year. Infestation was treated 6 out of 10 years for an annualized treatment cost of $11.30/acre.
3 Annualized grazing cost is comprised of total equity invested in cooperative ($5,393) plus modified fencing costs for 100 acre pasture ($607) amortized over 10 years plus equals $600.
4 Equals annual avg. AUMs gained (@$15/AUM) minus annual avg. cost of grazing, plus patronage. Returns would be lower with new fencing.
5 Annual patronage is $12.00/ewe (i.e., $600/50 shares; patronage equal to original investment).
6 Annual patronage is $24.74/ewe (i.e., $1,237/50 shares; expected
This report presents the feasibility for a 5,000 ewe flock cooperative whose
members would use the sheep to control leafy spurge. Three scenarios were
initially investigated 1) winter lambing, 2) spring lambing, and 3) fall
lambing. The fall lambing scenario was determined to be infeasible because
of logistics associated with gathering and transportation of pregnant ewes
and lack of grazing pressure on leafy spurge throughout the grazing season.
The total capital investment per ewe for the winter lambing scenario was
more than the spring lambing scenario - - $301 and $216, respectively. The
expected net income generated by the winter lambing scenario was negative.
The minimum break-even lamb selling price or lambs sold per ewe for the winter
lambing scenario was $84.10/cwt and 1.33, respectively. The spring lambing
scenario returned $124,000 annually. The minimum breakeven lamb selling price
or lambs sold per ewe for the spring lambing scenario was $59.51/cwt and
0.94, respectively. The expected return on investment (50% equity) for
cooperative members with the spring lambing scenario, assuming a 50-acre
leafy spurge infestation in a 100-acre pasture and new fence, was 16 percent.
Return on investment with modified fence increased to 21 percent. While these
returns are not a guarantee of success for the spring lambing alternative,
they do provide an indication of the potential that such a cooperative may
For large infestations (more than 50 acres) it is difficult, if not impossible,
to find a control program which will generate positive returns to control
(except biological control). Often a producer's only recourse is to simply
"limit the losses" of the infestation. Returns/losses from no control,
recommended herbicide control, and grazing sheep from the spring lambing
cooperative were compared. If the cooperative generates slightly less than
½ of expected returns, the cooperative members can expect positive returns
from controlling leafy spurge with sheep. However, if the cooperative does
not generate a positive return, then the producer is better off to use herbicides
or not attempt to control the infestation.
There are a number of limitations of this study. The model parameters such
as labor requirements, conception rates, lambing percentage, variable and
fixed input costs, ewe and ram selling and purchasing prices were fixed.
The value of these coefficients will likely change over time, and this impact
was not investigated. This study only analyzed the performance of a large
scale cooperative. There may be situations where a larger cooperative may
be able to capture greater economies of scale or alternatively a smaller
scale cooperative is more practical given the logistical characteristics
of leafy spurge infestations within a region. Sheep stocking rates were not
changed based upon rangeland carrying capacities. Labor availability was
not assumed to be a constraint. This may or may not be the case given the
current record low unemployment rates in North Dakota.
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