While 2020 has certainly been a challenging year for agriculture and especially those in the livestock business. However, direct to consumer meat sales have been a bright spot as a result of increased demand. Although a small percentage in the grand scheme of things, direct marketing of farm products has become a more popular route of merchandising livestock. For those with an established direct to consumer meats sales business, COVID-19 and the resulting reduction in national packing capacity, and limited meat supplies in the retail case, created the perfect storm for expansion of niche market opportunities.
The increased demand and volume of local beef, pork and other meats has also led to record throughput and demand for services at the small meat processors across the country. As I visit with the local meat processors across Ohio, many of them are taking harvest reservations well into mid-2021 and several processors have already set some beef appointments into 2022.
Follow the Rules
As new producers venture into direct marketing there are some things to keep in mind, particularly when it comes to food safety and the regulations that pertain to selling meat.
While some regulations may vary from state to state, generally in order to sell meat, it has to come from an animal that harvested in an inspected meat processing facility. A meat processor in Ohio will either fall under federal inspection by the United States Department of Agriculture (USDA), or state inspection by the Ohio Department of Agriculture (ODA). The biggest difference between the two inspection agencies is that USDA inspected product can enter interstate commerce, meaning it can be sold across state lines.
In Ohio there are also custom exempt meat processing plants. Custom exempt plants process meat for the producer’s own use, the meat cannot be resold. These products will be labeled “Not for Sale”.
When it comes to the storage and distribution of meat products, be aware that additional licenses may be required to ensure safe handling practices. For more information on Ohio license requirements, “Selling Food from the Farm: When do you need a license?” under the Ag Law tab at https://farmoffice.osu.edu
Understand Product Pricing
Regardless of how much you charge for a carcass or a cut of meat you must know two things: 1) your breakeven price; 2) how much money (profit) you want to make.
To determine a breakeven price, one must know their cost of production the below are potential factors that should be considered as production expenses on a per head basis. Don’t under sell the value of practices that make your product unique. Keep in mind that most locally processed beef is not graded, be careful in how you advertise the quality of your product. Ungraded beef should not be promoted as “Choice”, “Prime”, or “Certified Angus Beef”.
Cost of Production
Cost of Animal – If the animal was purchased, what did it cost? If home raised, what did it cost to keep a cow for a year?
+ Feed – Value or cost of feedstuffs and mineral that were either produced and purchased.
+ Veterinary – Any vaccinations, dewormer, other medications, veterinary bills.
+ Bedding and Supplies
+ Transport – Fuel, wear and tear on truck and trailer.
+ Advertising – Cost of acquiring a customer.
+ Value of Your Time – Value of time invested on average per head.
= Breakeven cost per head
Once you have calculated a breakeven cost add you desired profit per head and divide that total by the hanging carcass weight to determine a price per pound.
(Breakeven + Profit) / Carcass weight = price per pound.
Profit margin can be flat rate per head or a percentage of the cost of production. Determine a margin that suits your enterprise and your customer.
Often, the customer will want an idea of how much meat they will be paying for. Carcass weight can be estimated prior to harvest by estimating dressing percentage. Dressing percentage = (Carcass Weight/Live Weight) *100.
Grain fed, non-dairy type, steers and heifers will dress around 62% and closer to 59% for a dairy steer. Dressing percentage can vary depending on gut fill, muscling, fatness and cleanliness of the hide.
To determine prices for individual, retail beef cuts, the formula to calculate cost of production is similar, however the cost of harvesting, processing, packaging, and labeling the product must be accounted for. Time spent marketing and advertising can be considerably higher when marketing individual cuts.
When calculating the average price per pound of individual cuts, one must consider cutting yield. Cutting yield = (Pounds of retail product/carcass weight) *100. Cutting yield will be influenced by boneless vs. bone in product, muscling, amount of fat needed to be trimmed, and amount of fat in ground beef.
Direct marketing of beef to the local consumer can be a way to add value to your fed cattle enterprise, when done correctly. Continue to work with and develop a relationship with your local meat processor as we move into the coming year. Produce a beef product that has a quality eating experience and you will be sure to have return customers.