Opinion: Iversen: Am I a Rancher or Beef Producer?
How in the hell can we as cattle producers spend $1,100 per head to custom process a beef carcass at a local or regional processing plant? I can’t even incur that kind of cost in maintenance and care of a mother cow and her calf (excluding the finishing ration) from the time the calf was born in the spring, raised all summer on grass, backgrounded through the fall and winter on a growing ration and then finished for 200 days on a high corn diet. This is a time span of 18-24 months! If a rancher or feeder was able to charge these kinds of prices, beef would need to be sold by the ounce!
How are independent cattle producers that want to enter the beef marketing business in order to capture more of the consumer dollar in hopes of not going broke raising cattle ever going to compete with mainstay beef prices when their processing/packaging costs are more than double that of larger beef packing companies they are competing with for shelf space?
With the currently inflated prices of cattle products, services and feed costs, cow/calf producers and feeders are operating in times where their input costs are higher than the price they receive for their salable product. So, in order to stay viable in a least cost, race to the bottom commodity driven industry, producers may consider trying to capture more of the consumer beef dollar by marketing beef rather than the customary practice of raising livestock. When considering this we must look at what our output costs will be of the final product so that we are able to compete with beef from a variety of other marketers that have much more capital, experience, leverage and already designated shelf space.
To further this discussion let’s examine some numbers and create a value for our finished product. To calculate this I am going to use fair market value and some conservative estimates using today’s values. So, let’s purchase a 3 year old bred cow on January 1st for $2,000 (I like the good ones). Using an $800 salvage value, 4 percent interest on a 5 year loan, I have an initial investment of $270 per year. Using a winter time cost of $2.50 a day from Jan-May, summer grazing costs of $60/month from June-Nov and $2.50 a day for Dec, we now have a feed investment of $810 in her. Add in a breeding cost of $40, $20 for vet/vaccines/parasiticides/etc, $75 for calving/yearly care (using $50 for a live calf and $25 for the other 11 months of care which is not nearly enough) and $30 for salt/mineral and our investment in producing a calf at weaning time equals $1,245.
Now let’s take her calf at weaning time and calculate what it costs to get him to butcher weight. If I start with a 600# steer calf at weaning and background him for 150 days at a rate of 1.5 #s a day with a cost of gain of $1.72/# gain ($6 corn, $300 ton protein, $125 hay) it would cost us $387 to get our steer to 825 #s. Using a finishing ration to put an additional 675#s at $1.50/# gain costs us another $1,012.
So, our total investment to create a butcher ready steer including the 342 days on feed after weaning and the time it took to get the calf to weaning time is nearly $2,650! Divide this by the market weight of 1,500 pounds and we have a break-even of $1.77/ pound assuming a 100 percent survival rate, all calves weaned off a 600 pound steer and our cow stayed pregnant and viable for 5 years. It also does not include additional investments such as facilities, fencing materials, electric and water costs, labor costs, insurance, etc.
We are currently marketing fat cattle in the $1.35/ pound range which is a loss of around $.42/pound or $630 a head. Then, if we invest another $1,100 to butcher, process and package this beef we have accrued $3,744 dollars! If we get 525 pounds of retail beef to market we would need to charge $7.13 a pound just to recuperate our costs and we still need to create a marketing plan and delivery process.
Currently, the marketing outlet for the hundreds of thousands of feeder cattle born and raised in South Dakota is one of two scenarios: an out of state multinational commodity driven packer conglomerate that is profiting $800-$1,000 or more per carcass above their costs or your local butcher plant that can process 1 head of beef for you 8-12 months from now and are a cost of $950-1,100 per head. Look at the money that is leaving our state to be captured elsewhere.
Why has this processing number gotten so high? Is it because we are short on shackle space so the “already in business” small processors are too busy doing custom exempt that they don’t need the business? Is it because their facilities are in desperate need of improvement/expansion? Is it because they can’t find the labor to expand? Is it because USDA has made their inspection service and regulations so stringent and expensive that it actually deters local processors the ability to be able to justify inspected processing? Is it because of their uncompetitive economies of scale?
If any or all of these are accurate, then these are the issues that need addressed! think about it…$1,100 to process a critter that takes (I am guessing) three people a total of 3-6 hours in a small plant. I’m not saying it doesn’t, but if it does, then maybe this is where a subsidy should be targeted to assist small processors and beef producers in addressing the issues they may be facing. I am aware that operating costs continue to increase all the time, but ours have, too. We as producers have managed to absorb them without increasing the price of our saleable products. Not that we have the ability to do it anyway.
We must get these processing costs back down to $450-$500 per head so we are able to compete with the larger plants. Either that or we need a custom beef processing facility in South Dakota of the size and scale that can satisfy the needs of the already existing small branded beef marketers with the capability to grow over time. We need a plant that operates at a level with the ability to attract and maintain high end retail markets, offer a consistent and competitive supply of lower valued cuts (chucks, rounds, ground beef) and capture value in the rest of the carcass (hide/offal.)
The White House and USDA are begging for solutions. Our Governor said she will do whatever is necessary to keep South Dakota ranch families profitable and local economies thriving. Our elected officials are also aware of the issues and are either turning their backs or are realizing that a Congressional fix isn’t possible.
Production agriculture as we enjoy it is in serious jeopardy of becoming extinct by a more modern, more efficient, less rural community friendly multinational conglomerate system that is driven by greed and profit and could care less about the livestock or the environment. They only want the consumer to think they do!
They are used to making promises that aren’t true! The timing is perfect to connect with the consumer and tout what we have to offer. I am a cattle rancher and would just as soon continue life as I know it and just sell livestock, but they are forcing my hand. Nobody owes me a profit. It is up to me to make the proper adjustments to remain viable. But, like any newly introduced fledgling ventures, I may need some start up money to get over the hump. I think it’s worth the investment considering what’s at stake!
Mellette County, South Dakota rancher
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