by: Garth Ruff, OSU Extension Henry County
Originally published in Ohio BEEF Cattle Letter
Over the last decade the demand for locally raised meats have steadily increased and that demand has skyrocketed as of late, due to the implications of the COVID-19 pandemic on animal agriculture and the meat packing sector. With the significant increase of demand in local product we have also seen an increase in the number of producers entering the world of direct marketing. Perhaps the toughest aspect of direct marketing is determining how to set a price. In this article I am going to address that very subject and answer the question: What should I charge for a freezer beef?
There are a couple of ways that we could go about calculating a price but at the end of the day we 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. Below are potential factors that should be considered as production expenses on a per head basis.
Whole, Half, and Quarter Beef
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 what the final price per pound is going to be before the animal is harvested in order to make purchasing and storage decisions. Carcass weight can be estimated prior to harvest by estimating dressing percentage. Dressing percentage = (Carcass Weight/Live Weight) *100.
For grain fed, non-dairy type, steers and heifers the average dressing percentage is 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.
Individual Beef Cuts
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 end product must be accounted for. Time spent marketing and advertising can be considerably high when marketing individual cuts.
Furthermore, Ohio producers must factor in the cost of a Warehouse License if storing product and either a Mobile or Temporary Food License depending on the outlet of sale. More information regarding those documents can be found at https://farmoffice.osu.edu/sites/aglaw/files/site-library/Food%20Sales%20at%20Farm%20law%20bulletin%20final.pdf.
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.
The University of Tennessee Extension service has a great factsheet that estimates the carcass cutting yield and how much product the customer can expect at https://extension.tennessee.edu/publications/documents/pb1822.pdf
Once the carcass cutting yield is known, the average price per pound required to reach a target profit can be calculated. Not all cuts have the same value in the marketplace. That value is determined by demand and the proportion of the carcass that yields each specific cut.
When selling wholes, halves, or quarters the first place to compare prices with is the local livestock auction. It is recommended that at minimum that freezer beef carcass prices be set above what the live animal is worth at the current time.
Anyone selling retail cuts directly to the consumer should consider comparison pricing as well. Comparing retail prices to the local grocery retailer is a good place to start. Rarely should direct marketed retail beef be cheaper than that in the retail meat case.