Determining How to Price Direct to Consumer Meat Sales
As consumers continue to look at sourcing their food through local channels, many producers are finding opportunities to sell meat cuts directly to consumers. This is not a new idea, but there certainly seems to be an increase in attention to these types of opportunities. Being able to purchase directly from a farmer and having a say in how the animal is processed is an easy win for everyone involved. Even as a producer with a small number of livestock, you have access to consumers, and the ability to have better control over your prices.
How do you determine what to charge?
Understanding how to price these sales is critically important in making sure that you are recovering your costs associated with production and making sure that your farm is profitable. This can only be determined by taking good records and knowing how much it costs to raise the livestock from day one on your farm. Only after knowing your cost of production can you accurately look at what it will take to make a profit from raising livestock and selling the meat cuts.
Penn State Extension has a great method for determining the cost of your animal. This process first starts out with establishing the cost of the live animal. This is determined by what it cost you to raise that animal. This price can also be compared to current auction prices. Current auction prices can help you get in the ballpark for what that animal cost, but the best way to find that number is through your record keeping.
Next, you’ll take the number you found in step 1, and divide it by the dressing percentage to get the hanging cost, or the cost per pound at carcass weight. Your butcher may have more specific numbers for dressing percentage, but on average, beef dress out around 60%, hogs around 70% and sheep/goats around 50%. With this number calculated, now add in your processing cost per pound.
Bone-in or boneless, know what comes back as actual meat cuts
At this point, you now figure out what you’ll get back as actual meat cuts and divide your total so far by that percentage. This will either be bone-in or boneless. Bone-in beef will typically give you back 65-70% of the carcass weight and bone in pork should be around 75-80%. Lamb/goat is around 70-75% as bone- in cuts. For boneless beef, expect around 55-60% and for pork, 65-70%. Completing this step will help you determine the cost that it takes, per pound, to get from the live animal, down to the individual meat cuts. Remember that as you work through this process, the cost per pound will continue to increase with each calculation because with each step, there is a reduction in the yield of the animal as it goes from live weight to packaged product.
To complete this process, you now need to divide the cost by the percentage of the mark-up that will help you reach your desired retail value, and desired return on your product. For example, dividing your final cost by 75% would give you your sales price with a 25% return on your product.
Here's an example using a beef steer
Let’s work through an example of this process. I have raised a beef steer that I have figured out cost me $1.50 per pound to raise ($1,800 cost of purchase & raising/1,200 lb.). $1.50/60% dressing percentage brings us to $2.50/pound. Now add in the processing fee, let’s say $.55, which is added to the price per pound which now brings us to $3.05 per pound. This steer is being processed bone in, so we can expect back 65% of our carcass weight. Divide $3.05 by 65% to get $4.69 per pound, which is the final cost of the animal being broken down into the individual cuts. At this point, I want to add in a 20% return on the product, so I divide $4.69 by 80% to give me the 20% return, which puts my price at $5.87 per pound.
Remember, this is a rough estimate. There are obviously a lot of variables, and the variables are subject to change. It’s important to remember that you will need to make adjustments as input costs change, dressing percentages fluctuate from animal to animal, and costs change based on what you are requesting from the butcher. Working through this process can help you and your customers realize the actual value of the meat being sold, and what you as the producer need to charge to make sure that you remain profitable.
Frank Becker is the Agriculture and Natural Resources Extension Educator with Ohio State University Extension – Wayne County, and a Certified Crop Adviser, and may be reached at 330-264-8722 or firstname.lastname@example.org
CFAES provides research and related educational programs to clientele on a nondiscriminatory basis. For more information, visit cfaesdiversity.osu.edu
This article was previously published in The Daily Record.