Ranchers’ Lamb Finishes First
Year Of Operation In The Black

By Colleen Schreiber

SAN ANGELO — Ranchers’ Lamb of Texas finished its first fiscal year of operation in the black, a feat that even chairman of the board Chico Denis admits was something of a surprise.

Denis attributes that accomplishment to an efficient startup and an efficiently run operation in which now-retired plant manager Ray Ellis played a large role.

"Ray did us an excellent job and we’re grateful for all he did," Denis remarks. "Without him, we would never have gotten it started."

The plant, he says, exceeded expectations in its ability to efficiently kill lambs. Since startup in September 1997, the kill has ranged from 6000 to 7000 a week at the high to a low around 3800 in weeks when the plant has difficulty moving the meat. Currently the kill is averaging about 5000 per week. Total kill capacity is 8500 a week, though Ranchers’ Lamb has never reached that maximum potential.

Denis says the plant is not profitable with kill levels lower than 4000. Below that level, he says, fixed costs "eat you up." Somewhere around 4500 is their breakeven.

Ranchers’ Lamb is also killing a couple of hundred goats a week. Most, however, are old Angoras, not meat goats. Denis says the plant is capable of killing meat goats, but as of yet a market has not been established for this product.

"We haven’t developed a system yet where we can run meat goats through the plant given their live price. In the end it costs us more to kill them than what we can recoup from the meat alone. If we could come up with a pelt market, that would help some. Right now we virtually have no drop credit."

Most goats, Denis points out, currently leave Texas alive and are slaughtered elsewhere in small, makeshift facilities.

"As long as that kind of infrastructure handles the goat numbers, it will be difficult for Ranchers’ Lamb to step into that market," he contends.

The biggest challenge this first year, Denis says, was in selling the meat.

"Being the new kid on the block, we took some punches, but we survived, and we hope we’ve developed some constant relationships."

The most disappointing aspect of their first year in business, Denis says, has nothing to do with the plant itself, but instead with the current lamb market.

"We can’t sell as many carcasses as we have and are able to kill," Denis explains. "When we were preparing and building the plant, we worried about not having enough supply. That hasn’t been the case, except maybe one month this summer when we were short of lambs."

He attributes the inability to move the necessary tonnage in large part to growing import tonnage, which currently accounts for some 40 percent of the domestic market.

"Imports play a major role in today’s market," Denis reiterates. "They give breakers an alternative supply, which in turn makes them less dependent on us."

Imports are the biggest problem during a time of high domestic prices. It is under this scenario that importers are able to fill their orders with the cheaper imported product. The biggest fear, Denis says, is that oftentimes once breakers, wholesalers, retailers and the like open their pipeline to imported product they never switch back to domestic lamb, even when the domestic product becomes more available and the price in line with the imported product.

The sheep industry, Denis notes, is working hard to get a meat labeling law passed. Today consumers have no way of knowing whether they’re buying domestic or imported lamb from Australia or New Zealand. Such legislation would require labeling of imported lamb as such.

If passed, labeling would be regulated and enforced by USDA. It has been reported that it would cost USDA $60 million a year to administer.

"When we started this plant, we had to import a lot of equipment, and on every piece that we imported we had to pay a duty. Yet those who bring lambs into the U.S. don’t pay a duty. It should be all or nothing. When you hang agriculture out to compete in a free trade environment, agriculture tends to suffer.

"We’re not asking for a tariff," Denis continues. "We’re just asking for identification. It’s done on a lot of other products. It can be done on red meat," he insists.

Some 90 percent of the lambs that are slaughtered at Ranchers’ Lamb come from Texas feedlots. Denis says there are periods and will always be periods where the plant doesn’t have the necessary spread in carcass weights, which requires them to get lambs from other sources.

"You can only sell so many 55-pound carcasses and down," Denis explains. "That’s why we have to bring in some lambs from Wyoming, Idaho, Utah, to get the mix of carcasses that we need."

The trade would like to have 65 to 70 pound carcasses, and that takes a 130 pound lamb. A lot of Texas lambs, Denis says, won’t grow to 130 pounds without getting too fat. He believes some genetic improvement is being made in terms of fitting the carcass specs, but he adds that it is a slow process.

The plant is on the verge of bringing on line a computerized system which will allow the tracking of inventory, among other things. It will also enable them to begin selling carcasses on a rail basis.

Ranchers’ Lamb is also working with the government to implement hot grading of carcasses. This would allow carcasses to be sorted prior to going into the cooler and would allow producers to find out in relatively short order whether their lambs are the "right" kind.

Hopefully, producers would be paid for producing the "right" kind, though Denis admits that practice is likely still a ways down the road.

"I’m not sure if the industry will ever adopt a system whereby they pay on a yield grade basis. I do know that we had an awful problem when we first started last October through about April. Then I would have told you that there are just too many lambs in Texas that get too fat, but because the market is such that everyone is paid the same regardless of quality, it’s hard to make the changes. When it becomes a pocketbook issue, producers will do something about it."

Denis says he does worry some about the decline in sheep numbers. The key to keeping the base from continually dwindling, he stresses, is profitability.

"Numbers are definitely a challenge, and if we can’t return some profitability to the industry at the producer level, we’re not going to have an industry," Denis says.

"It’s as simple as that. We’ve got to get people eating lamb, we’ve got to efficiently produce these lambs, and we’ve got to have some relief from the government in the form of better labor programs, for example."

Dry weather is always a consideration in Southwest and West Texas, but it’s something most ranchers have learned to deal with.

"We’ve gotten through them before. It’s when you have drouths coupled with so-called free trade and imports and all the other problems that we run into trouble. They can stack up enough to kill the industry.

"If we don’t get a price that is profitable all the way down the chain to the producers, we’re going to go out of business," he continues. "Right now, producers are getting 75 cents. That should be profitable. We need to stay pretty close to that 70 to 75 cents."

The high prices producers received last year were due largely to the anticipation of the startup of the new plant, and in the end those prices, Denis says, nearly killed feeders.

Still, Denis believes, the new slaughtering facility has saved producers more than they probably realize.

"If Ranchers’ Lamb were not in Texas, I believe we would see much cheaper lamb prices. Texas feedlots would be empty or nearly empty, and Texas producers would be at the mercy of out of state feeders."

For the most part, feeders have been able to get their lambs killed on schedule. Some individual producers have even been able to get a handful of lambs scheduled to be killed when they wanted, a practice, Denis notes, that would not have happened at the old Monfort plant. Denis expects that there will be some backup of lambs this fall, but he adds that during the fall run, it’s a typical problem at most any lamb slaughtering facility.

"When these mountain lambs come off this fall there will be too many lambs. The drouth in Texas forced a lot of lambs into feedlots 60 days early, so those lambs are going to come out kind of in direct competition with the mountain lambs."

Today Ranchers’ Lamb is strictly a carcass plant, but plans are in the works for adding a fabrication unit. Initially, Denis says, they will likely start out by going to boxes and then hopefully later to a case-ready product. Best estimates expect the addition to cost $750,000 to $1 million.

Denis admits that there are challenges associated with becoming a breaker. There is first the cost of putting in the unit, but even more significant, he says, is the risk of inventory build-up.

"We have to have the ability to sell all the cuts. Putting meat in inventory ties up a lot of money right quick. We have to go out and secure new markets, and to do that means we have to displace someone else. We have a man on board now whose expertise is in fabrication. He’s been in that business, he knows that business, he has the expertise to sell the boxes or the cuts."

Wayne Snyder, previously the head of the red meat department at Ralph’s grocery chain in California, became the new plant manager starting in September.

Denis says he’s not sure where the pelt market will end up.

"It’s definitely gone down. How drastically it will continue to go down depends on what happens in Russia and the eastern countries. We’ve enjoyed very good pelt prices for several years, but we could sure lose 50 to 75 percent of that pelt value, and that could make anywhere from $5 to $12 a head difference. That’s a severe lick no matter how you phrase it," he remarks.

The biggest challenge for Ranchers’ Lamb this next year will be the start-up of a fab unit.

For the industry, Denis says, the biggest challenge will be to get some cohesion, to get people working together to establish some kind of national organization with enough members to wield political clout.

"There’s all kinds of challenges facing us," Denis concludes. "This year has been a real challenge. It’s good to see our hard work finally come to fruition."