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Setting the Beef Price

10/22/2014

5 Comments

 
Picture
A grey day in the Skagit Valley.
A couple months ago, I received an e-mail from one of our pork customers asking if they could reserve a quarter beef, and if so, what would the price be. I told them it would be $3.50/lb based on hanging weight, and they got back to me with every farmer's dream: "You should charge more. You're too cheap compared to other farms in the area." I told them that I would put some research and thought into it, and try to sum it all up in a blog post. This is that post.

Last year, we charged $1.75/lb for beef, based on the fact that we'd never raised beef before and we we weren't sure of the quality for a relatively young steer (about 13 months old). The quality turned out to be excellent for our tastes: very tender, flavorful meat, and lean, but not so lean that there was no flavor. We weren't producing marbled, corn fed steaks, but we were producing healthy, tasty meat. Compared to the richness of our pork, this was a good companion. Plus, Jen was raised on ground turkey and likes lean, ground meat.

We want raising beef to be an important aspect of our business, but not a dominant one. Most of our effort should go into our core, which is raising pork. Raising a few steers makes sense because the pigs don't eat all the pasture. A good ratio might be one steer for every sow. To that end, I don't expect we will ever develop a breeding herd of cattle--it's easier for us just to buy young bulls and raise them on our lush pastures.

And our pastures are really good. The goal of grass fed beef is to make sure your animals are getting an abundance of calories right before slaughter. For us, it makes sense then to only slaughter in the fall--that way they fatten on the fall pastures and it saves us from feeding costly hay over the winter. I'm still not sure what the ideal timing is: to buy young bulls in spring or fall or to buy slightly older bulls in the fall, but either way, we will likely be keeping them on the farm one winter and slaughtering the following fall.

Therefore, I'm confident we can produce high quality, lean grass-fed beef. If the quality there, the price I want to charge then depends on the cost of production. Here's a link to the spreadsheet I'm using to do the math:

steerplan.xlsx
File Size: 12 kb
File Type: xlsx
Download File

The summary of the plan is this: I have two scenarios I'm modeling: buying 4-5 month old steers in the fall, or buying day-week old bull calves in the fall. Both are similar in terms of the price I need to charge: about $4/lb. I'll discuss the 5 month old steer scenario from here on out: I buy at $450, I spend $200 on hay over the winter, I add $855 of labor (at $15/hour), I estimate 1.5 acres of land needed per steer, which at my current rental rate is $150. I add in $171 for miscellaneous costs, and $188 for profit to get to a price of $2069. I'm estimating a hanging weight of 525 lbs to get to $4/lb. If I perform the labor, I make about $1048 per animal. The acquisition cost is variable, and I may not get the deal I got this year again. The labor cost is large, and it reflects that I'm estimating in my rotational grazing scheme I'd need to move them twice a week, taking an hour each time--in line with my experience thus far. The other aspect of the labor is feeding hay, replacing bedding, and handling manure in the winter.

This seems like a reasonable plan to me, and $4/lb is indeed higher than what I quoted our customer to begin with, but it's still $.50 less than what she suggested I charge. Perhaps after another year or two of data I'll find that I do need to raise prices, but for now, this seems fair, and pays me a fair wage for my labor.
5 Comments
George
10/22/2014 09:05:29 pm

It is not uncommon here on east coast to see $4.75-5.25/lb hanging weight.

Reply
Mike
10/23/2014 07:46:51 am

Nice post, and as I have noticed before you're a numbers guy which I appreciate. So if you are going to the trouble of using a spread sheet why don't you fully load your labor rate. i.e. taxes Fica medicare workmans comp or the self employed equivalent what about expenses for paid time off etc. I know this may seem a little overboard but if the purpose of the spread sheet is to simulate a going business rather than to just ensure that you don't loose money your spread sheet is way to simple. It's not my intent to be overly critical I have the greatest respect for you and your labors and the fact that your willing to share... but have you considered a spread sheet using the 40 40 20 model/ 40% direct expense this include the beef any expendable item consumed while bringing her to market weight plus direct labor, 40% indirect expense equipment written off over a period of time or spread over a number of cows, S,G,&A to account for your indirect labor administrative and sales expense as well as all insurances workmans comp. and paid time off and that portion of your farm mortgage atributed to this operation as well as land rent although that might be more properly applied to direct expense and 20% profit after all expenses have been accounted for. Continued best wishes and good luck

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Jeff
10/23/2014 08:53:25 am

Thanks for the feedback, Mike. Yes, it's too simple for sure. I keep forgetting to include overhead/insurance. I've only recently started to track labor costs, so it's a bit overwhelming to get to the complexity of where I need to get. I'm not familiar with the 40 40 20, but it makes sense.

I'll redo the spreadsheet with a more complex labor, as well as including overhead for barn rent, insurance, marketing, etc. I'm still not sure how to best spread those costs out, as they pertain to the pigs, rabbits, beef, and garlic. I would like my accounting to be as "module" based as possible so that I can objectively assess each enterprise.

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bruce king link
10/23/2014 07:43:28 pm

Steer prices are crazy high right now; the highest I've ever seen. Combination of drought and winterkill and low beef herd and high milk prices (=more dairy heifers retained). Kind of the perfect storm.

To me $2/lb live weight for 300lb steers is crazy high to me, which is what I'm seeing at auction. It drops a little for dairy bulls, but day-old dairy bulls go for $180-250. Bottle babies.

So if you have a supply that isn't at those prices, you've got an advantage over other folks who want to do the same thing you are, but you're not doing as well as the folks who are vertically oriented; produce their own calves and market those calves as finished animals direct to consumers.

I went looking for 20 good calves this spring and came away with sticker shock. 500lb steers for $1k. Would have cost me $20k to buy them.

I went the other way. I've stopped selling my calves. It's slow, but it's cheap, and it doesn't require much more than time if you've got the grass, or can get it.

If I run across a good deal I'm still open to buying, but I'd like the price of calves to be in the 40 to 60 range for day-lds or roughly a dollar to 1.45 a lb live weight for bigger animals.

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bruce king link
10/30/2014 03:47:48 pm

usually you can get lower prices going into winter. I've got extra hay, so I'm looking to buy. But the 300lb nice steers I saw a few months ago at the auction for $2.xx a lb...

have been replaced by 300lb steers at $3.20 a pound.

Steak is going up in price for the next 18 months.

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