Properly pricing proteins is of paramount importance.
According to Brian F. Moyer, an education program associate at Penn State Extension, knowing precisely what the numbers are will make all the difference in plotting out successful meat sales. Moyer specializes in assisting meat producers with direct-to-consumer marketing and regulations, farmers markets, on-site farm markets, public markets, retail marketing and value chain coordination.
The first step, Moyer said, is knowing the cost of production.
“It doesn’t matter if you are selling halves, quarters or single cuts, you need to know your cost of production first,” he said. “What are your costs of raising that animal from day one until the day of slaughter? In any business endeavor, keeping good records is essential to knowing if you are going to be profitable or not.”
Once you know your cost of production, he said, there are some tools you can use to help you determine what price you may want to attach to your fine, farm-fresh product.
Moyer demonstrated a process that meat producers can use that will help determine their costs after processing so they can best calculate their retail price.
He urged users to keep in mind that the cost of production will vary depending on the breed of the animal as well as other factors, such as whether they’ve been grain-fed or grass-fed. Also, the percentage used to determine its “carcass weight” depends upon what kind of animal it is (beef, hog, lamb), what breed the animal is and the method of production.
This example will address a grass-fed Angus steer that dresses out to a hanging carcass weight that is 58% of its live weight. The cost to get that animal to slaughter weight is $1.35/lb. of live weight.
Determining the Cost of the Animal
Start with the per-pound cost of the live animal (as mentioned before, the cost to raise that animal).
Divide this amount by 58% to work toward the “hanging cost.” (That animal is a “carcass” after it is slaughtered. This determines the new cost per-pound at carcass weight.)
Add in the processing fees, trucking, etc., to the hanging cost.
Divide the total by 65% to get the “cut-out” cost (breaking the carcass down into individual cuts of meat).
Divide the cut-out cost by the percentage mark-up you desire to reach the “retail value” price you will ultimately charge.
For an example:
Cost of the live animal = $1.35/lb.
$1.35 divided by 58% = $2.33
$2.33 plus $0.65 (per-pound processing fee) = $2.98
$2.98 divided by 65% = $4.58 (the final cost of the animal becoming single cuts of meat)
$4.58 divided by 75% = $6.11
A sale price of $6.11/lb. would give the producer a 25% return on the product.
In every step of the process there is a reduction to the final yield of the finished product. Consequently, the cost per pound will go up with every step from live animal to cut and packaged product. This example gives a rough estimate which can help meat marketers remain profitable.
Remember, a lot of variables can change these percentages. For example, how much fat was on the animal? What kind of cuts are being requested? Are there going to be bone-in or boneless cuts? Boneless cuts will reduce the total pounds of product returned from the butcher.
The kind of animal being processed will also make a difference in the percentage of product ultimately received. The average percentage of yield for pork is approximately 70%, beef is 60% and lamb is 50%. When turning a carcass into individual cuts of meat, the average yield for bone-in cuts is 75% – 80% of carcass weight for pork, 65% – 70% for beef and 70% – 75% for lamb.
Moyer added that aging and further processing can decrease the final product weight. If a butcher hangs (ages) a carcass for two weeks, there will be moisture loss due to evaporation. Curing ham and bacon and applying a heat process to meat cuts may also reduce the final yield.
Moyer hoped that by using these calculations as a guide, meat producers should be able to make a rough estimate on the amount of product they will need to sell and what price they will need to ask for to remain profitable.
by Enrico Villamaino