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A Sacramento Study of Sample Costs For Finishing Beef Cattle on Grass

26 February 2013

Production decisions, potential returns, budgets and production loans are considered in a cost analysis of grass finished beef systems by the University of California in light of recent demand shifts to value added, grass fed beef products.

Introduction

There is increased interest and effort among some California ranchers to offer a value-added, ranch-raised grass fed product. The goal is to sell the beef product for a higher price and improve ranch profitability. The scale of operation can vary between a few head per year to a company marketing thousands of head per year. Ranchraised meat products can increasingly be found in natural food stores, restaurants, and farmers markets.

Changing the business structure of the ranch from selling live animals to merchandising meat requires a new set of skills and knowledge. The producer must enjoy dealing with people and be comfortable marketing the family ranch experience and the wholesome product that is produced. It requires knowledge in food safety, marketing, and meat quality. Case studies have indicated the success of the new ranch enterprise is highly correlated to how the business in constructed to minimize transportation and labor costs.

Head of Purchased Yearlings Finished on Grass – Carcass Beef

1 Per Calf based on 20 head purchased
2 Assumes a 1% death loss calculated on the total purchase price of the 20 head
Note: The cost of labor and health insurance is not included
3 noted above but not defined here

Production Options

If producers retain their own stocker cattle at the end of the yearling phase, they have forgone the opportunity to market them as feeder cattle and have effectively transferred them to a beef grass finishing enterprise. The fair market value of those feeder cattle must be assigned to this enterprise to evaluate the profitability of the grass fed enterprise.

Twenty heifers averaging 800 lbs will be turned onto leased irrigated pasture on April 15. The value of the heifers (January 13, 2012 Shasta Livestock Auction Yard, $126-$133) is estimated at $1.30 per pound. Assumed value of the heifers into the fed cattle enterprise is $1,040. The animals are assumed to be ready for harvest on Oct. 1 (168 days). The assumption is they will need to reach a 1,100 finish weight. To do this they will need to gain about 1.78 pounds per day. Keep in mind that some cattle will not perform as well as others and that there will be variation in the time required to reach a finished weight. Cattle will be processed and packaged at a USDA inspected processing plant located 100 miles from the ranch. The ranch will pay the harvest costs ($70/head) and cut and wrap charges ($0.90/lb).

For a niche beef business to be successful the operation must produce a high quality product consistently. Off quality product sold to consumers could result in dissatisfied customers and lower future meat sales. The structure of the business needs to be carefully considered so that opportunities to scale the business up can be implemented in response to market demand. The marginal return on a few head may not make this enterprise economically attractive where if that same per head return was realized across many head it might be more attractive. (REDUCE PER UNIT COST)

Production Operating Costs

*Operations Calendar for Grass Fed Beef --Farmers Market Based on range & Pasture (20 head, 0% mortality
MonthOperation
April 15 to October 15 Irrigated pasture
April to October Vaccination/Deworming
September Reserve Harvest Date
October Start Farmer's Market Planning
October (varies according to Ranch) Harvest animals & process into retail cuts
November Start Farmer's Market Sales
*Calendar will vary according to the Ranch and Farmers Market

Operations. The Operations Calendar for finishing beef cattle on grass is shown in Table A. The operations are affected by several factors such as weather, quality and quantity of the irrigated pasture. Therefore, depending upon the season, the operations will vary each year.

Pasture, Hay and Supplements. This includes the market value of all feed (purchased or raised) that was used in the beef cattle finishing operation. The assumption used in this study is that irrigated pasture is rented for $26/AUM (an AUM [animal unit month] is the equivalent to 1,000 pounds of forage on an air dry basis) over a six-month period. It is assumed the landowner pays for water, fertilization and provides the irrigator in this cost study. Some operations feed small amounts of hay when they receive or ship cattle.

Some areas of California are deficient in micro and macro-nutrients, which can greatly impact the weight gains on pasture. Consult your local veterinarian to learn about what might be deficient in your area. For Se, Cu, Zn and P a good reference by county is the UC Website http://animalscience.ucdavis.edu/MineralProject/

Health, Veterinary, Medicine. Good health and nutrition management can greatly impact profitability. Cattle should be treated to reduce risk from parasites (external and internal) and disease. Consult your local veterinarian on the best program for your cattle. Cattle should be appropriately identified. Cattle will be gathered and processed again mid-season. This study assumes a death loss of 1%. This cost is based upon 1% of the total purchase amount of the 20 yearlings.

Vehicle/Freight. Pickup business vehicle mileage is estimated at 1,000 miles per year and includes mileage while pulling the stock trailer. Estimated mileage for the stock trailer is 400 miles and the All Terrain Vehicle (ATV) 4-wheeler is 1,000 miles per year. All hauling will be by the livestock owner.

Repairs. Vehicle and equipment repairs are accounted for in the mileage rate allocated to each vehicle.

Labor-Cattle Management. Owner labor is used for hauling, gathering, feeding, salting, checking cattle, and moving pastures is also not included as a cost. Water charges, fertilizer, irrigation and fence repair is the responsibility of the land owner and is included in the pasture rental rate.

Management-Niche Beef Business. Although the development of a grass finished niche beef business requires a tremendous amount of time to produce the product, develop the market , manage sales and inventory it is not included in the cost of production example (Table 1).

Marketing/Returns. There are two different grass fed business plans in this cost study. Both involve the same number of head (20). They include selling 20 animals to consumers as sides of whole carcass beef or as packages of cuts at a Farmers market.

Sides of Carcass. The target market size is 40 people interested in purchasing a side of beef. The product is defined as grass fed beef delivered to a USDA inspected should this be slaughter and processing plant, which is required to sell processed beef. Adding this enterprise will require additional labor from the owner, but is not reflected in this cost study. In tables 1 and 2, labor is considered to be part of the Returns to Risk and Management. To obtain the costs of forage, we have the cattle on leased pasture. No additional equipment or facilities have been charged against the operation. The cattle will be marketed to friends and neighbors. Limited advertisement in local media will be done as well. Additional revenue could be potentially earned through the sale of offal (heart, liver, tongue), dog bones and other by-products but is not considered in this cost study.

Farmers Markets. Marketing at a Farmers market will require that the beef be frozen and stored at a facility that has temperature monitoring or control systems. Equipment to transport and store the meat at a guaranteed temperature will need to be purchased. Costs for permits, stall rental (at Farmer’s Market) and travel to market need to be considered. Development flyers or promotional information for consumer education and sales support will be needed. This example assumes meat sales will be in fifty pound packages of assorted cuts of meat to address the inventory issues by getting consumers to buy a wide array of cuts. The price is $7 per pound or about $350 per box. This example assumes there will be approximately six to seven of these 50 pound boxes per carcass. For purposes of this analysis two farmers markets are attended weekly for 40 weeks of the year. This model assumes that approximately two of the 50 pound boxes will be sold at each farmers market each week and that 100 miles per week of driving is necessary to service these markets. Additional revenue could be potentially earned through the sale of offal (heart, liver, tongue), dog bones and other by-products but is not considered in this cost study.

Interest on Operating Costs. Interest on operating costs is calculated on cash costs (yearling cattle purchased or retained and operating costs) and is calculated at 5.75 % annual interest over a 6-month period.

Risk. Production risks should not be minimized. While this study makes every effort to model a production system based on typical, real world practices, it cannot fully represent financial and market risks, which affect profitability and economic viability.

Further Reading

You can view the full report by clicking here.

February 2013

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