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Abstract
A group of North Dakota lamb producers who are members of Valley Wool Growers Association identified several niche markets for high quality North Dakota lambs. The potential availability of a closed, but formerly federally inspected, livestock slaughter and meat processing facility in Steele County heightened their interest in determining the feasibility of a cooperatively owned lamb slaughter and processing facility. The cooperative would be patterned after existing and proposed slaughter cooperatives, whereby cooperative members would own shares to supply lambs to the plant on a year-round basis.
The analysis was conducted in several sections corresponding to critical factors which affect feasibility of the plant. The critical factors analyzed included federal inspection requirements, the potential of an adequate supply of lambs, the potential for a viable niche market, plant investment and operating costs, expected return, alternative lamb purchase prices, alternative lamb carcass sales prices, and several investment and expense scenarios.
The building and equipment investment was projected to be $1,468,000, which was higher than originally expected due to the extensive refurbishing necessary to meet federal inspection and increased capacity requirements. Plant operating expenses at full capacity were projected to be $3,013,877 per year which included $673,877 in operating expenses and $2,340,000 for lamb purchase. Income from lamb meat sales and pelts was estimated at $2,800,000 per year.
The assumptions of purchasing 20,000 lambs per year for $0.90 per pound and selling for $2 per carcass pound resulted in an annual negative margin of $213,877 at full capacity. Therefore, other scenarios were investigated which would enable the plant to operate profitably. The maximum price that could be paid for lambs to pay all investment and operating costs, including a 7.5 percent return to member equity, was $0.8004 per pound. A 25 percent increase in projected costs would reduce the purchase price to $0.7358, or a reduction in the lamb carcass sales price to $1.80 per pound would reduce the lamb purchase price to $0.7004.
The range in probable prices that could be paid for lambs is $0.70 to $0.80 per pound with a likely price of $0.75. The proposers of the cooperative will need to decide if prices in this range would be sufficient to lure enough member investors to provide the 20,000 lambs necessary to operate the plant.