Pricing-and-Profits-Beef-Model-Cost-SswagORG

8/7/2019 Pricing-and-Profits-Beef-Model-Cost-SswagORG

1/41

Determining Cost

Beef as a Model for:

All meat.

Eggs.

Milk &/or milk products.


2/41

The Logic Flow

For a given customer or class of customers:Determine the Basket of Goods & Services.

Define the parameters of Value.

How you will differentiate your business from

competitors.Determine the price range.

Determine the cost of creating the Basket with the

value parameters.

Match cost to price and see if you can make money.

If you cant - then go back and do it all over again

with modifications.

If you still cant then dont do it or do it as a hobby.


3/41

Price

Value

#1

Economics - Price and Cost vs. Value

Cost


4/41

Why Understand Cost

Compare against price to judge viability.

Use as a roadmap for managing cost.

Structure of production model.

Capital purchase decisions.

Input selection.


5/41

Connecting Bundles or Cuts

with Yield of AnimalsFor Delivery on: Dec-11

Ac tua l sLive Weight:

Ratio of hung weight to live weight: 60% Hung Wt: 602 590 570 615 623

Ratio of meat to hung weight (Mixed): 68%

Ratio of hamburger out of Roasts etc. 75%

Pounds of Misc for 10# hamburger: 14.0

Number of Animals 5Available meat - ordinary cut: Cuts Shorted Cuts to Number

Per Animal Total Avail Ordered Difference Subtitute Short Running Count

Rib Eyes 15 75 60 15 Rib Eyes

T-Bones 17 85 77 8 T-Bones

Sirloin 16 80 71 9 Sirloin

Round Steak 12 60 54 6 Round Steak

Sirloin Tip 12 60 49 11 Sirloin TipRump 4 20 17 3

Chuck 16 80 79 1

Arm 6 30 31 (1)

Short Ribs 13 65 65 0

Stew Meat 28 140 138 2

Total Burger 29% 870 687 183

Tubes 629

4# Patties 40

1# Hot Dogs 18 Hot dogs to be made: 100

50# MixedPackages Number in Approx Wt Burger:

In 50# Mix Package Per Packag Wt per 50# Packages Pounds 1 01Rib Eyes 2 2 1.5 3 3 4 5 1T-Bones 3 2 2 6 5 1 10 2Sirloin 3 1 2.25 6.75 5 1 11 5 Hung Wt of cull cowRound Steak 2 1 1.5 3 3 4 5 1 Ratio to burger: 55%Sirloin Tip 2 1 1 2 3 4 3 4 Burger for Hot dogs & burger: 0Rump 1 1 2.5 2.5 1 7 4 3Chuck 3 1 2 6 5 1 10 2Arm 1 1 2 2 1 7 3 4Hamburger 11 1 1 11 18 7 18 7Short Ribs 3 1 1 3 5 1 5 1Stew Meat 5 1 1 5 8 5 8 5

50.25 85 4

25# MixedNo. of 25# Mixed Boxes

No. of 50# Mixed Boxes

for this order:

17

Cutting and Weight Analysis

Assumptions:

Substitutions

Total Excess 773

-450

-40-


6/41

Based on Weekly Urner Barry Weekly National Feature Retail Prices and % of cuts from Meatman website

Live weight 1100 Dressing percent 55

HCWT 605

Saleable product 481.3 0.7955

Value, $/hd $1,513

Projected Urner Barry Retail Urner Barry Retail% carcass lbs value, $/lb carcass value

Blade Roasts and Steaks 4.7 28.7 $3.30 $94.66Ground Beef and Stew Meat 34.0 205.8 $2.80 $576.13Arm Pot Roasts and Steaks 5.0 30.0 $3.30 $99.13

Cross Rib Pot Roast 3.6 21.5 $3.00 $64.48Top Round 4.8 29.3 $4.00 $117.11Bottom Round 4.4 26.4 $3.00 $79.20Tip 2.3 14.2 $4.00 $56.86Rump 1.1 6.6 $3.30 $21.78Flank Steak 0.5 3.0 $3.20 $9.75

Pastrami Squares 0.4 2.5 $2.00 $4.91Outside Skirt 0.3 1.9 $2.80 $5.21Inside skirt 0.3 2.1 $2.80 $5.92Boneless Brisket 2.2 13.5 $3.50 $47.38Porterhouse Steak 2.7 16.6 $6.00 $99.51

T-bone Steak 1.4 8.3 $6.00 $49.75Strip Steak 2.1 12.7 $8.00 $101.54Sirloin Steak 2.1 12.9 $5.00 $64.73Tenderloin Steak 1.0 5.8 $14.00 $80.55Rib Roast 3.3 20.2 $5.00 $101.12Rib Steak 1.3 7.8 $7.00 $54.49Short Ribs 1.2 7.3 $2.80 $20.38Kidney and Hanging Tender 0.7 4.1 $0.00 $0.00

Fat and Bones 20.45 123.7

Total 100 605 $1,755

Generic Cut

Information

% cuts from

Meatman web

Site.


7/41

University Sources of Budgets for Beef

Production Can Point to Costing Methods

http://www.uwex.edu/ces/animalscience/beef/resources.cfmhttp://www.iowabeefcenter.org-(Look For SPA)

http://www.extension.iastate.edu/agdm/

www.iowabeefcenter.org/content/Organic_Natural_Grass_Fed_Beef_2006.pdf

(cost of pasture)


8/41

Comparison to Industry Averages:A starting point.

Good information

on Cow/Calf

Not very good on

Stockers,

Backgrounding orFinshing


9/41

Beef Cow-Calf (one cow unit)Ag Decision Maker -- Iowa State University Extension

Production Efficiencies

Calf weaning rate 92%Calf death loss 0%Cow death loss 2%Cow replacement rate 20%

Income Price Unit Quantity Unit Total

Heifer calves per lb x 1000 lbs x 0.26 head = $0.00Steer calves per lb x 1100 lbs x 0.46 head = 0.00Cull cows per lb x 1150 lbs x 0.18 head = 0.00Gross Income $0.00

Variable Costs Feed Costs Price Unit Quantity Unit

Pasture $35 per acre x 2.5 acres = $87.50Pasture fert. & misc. costs $20 per acre x 2.5 acres = 50.00Corn $4.35 per bu x 56 bu = 243.60Modified distiller grain $55.00 per ton x 1.05 tons = 57.75Salt and minerals $0.09 per lb x 60 lbs = 5.40Supplement & minerals $0.16 per lb x 128 lbs = 20.48

Alfalfa - brome hay $85 per ton x 2.5 tons = 212.50Corn stalks $3.00 per acre x 4 acres = 12.00Other 0.00Total Feed Costs $689.23

Veterinary & health $35.00Machinery, equipment, fuel & repairs 26.00Marketing & miscellaneous 25.00Other 0.00Interest on variable costs 9% x 9 = 52.33Labor $14.00 per hr x 10 hours = 140.00

Total Variable Costs $967.56

Income Over Variable Costs ($967.56)

Fixed Costs

Machinery, equipment, housing & fences $75.10

Interest & insurance on breeding herd 108.20Bull depreciation/replacement 12.00Total Fixed Costs $195.30

Total All Costs $1,162.86

Income Over all Costs ($1,162.86)

$1.27$1.53

Version 1.0Contact: Shane EllisDate Printed:

. . . and justice for all

For more information see Information File B1-21, Livestock Enterprise Budgets.

Breakeven selling price for variable costs (per lb)

1/2/09

Breakeven selling price for all costs (per lb)

months

Place the cursor over cells with red triangles to read comments.

Enter your input values in shaded cells.

Hay and Pasture Calves Fed

Finishing Steer Calves - One HeadAg Decision Maker -- Iowa State University Extension


Fed steer sale $0.00 per lb x 1150 lbs = $0.00

Variable Costs Price Unit Quantity Unit

Calf feeder cost $1.12 per lb x 550 lb = $6 16 .0 0Interest 9% x 7 months = 32.34

Feed Costs

Corn $4.35 per bu x 52 bu = $2 26 .2 0

Fair quality hay $85.00 per ton x 0.4 tons = 34.00

Modified distiller grain $55.00 per ton x 1.05 tons = 57.75Supplement & minerals $0.16 per lb x 130 lbs = 20.80

Corn silage $39.00 per ton x 0.00 tons = 0.00Other 0.00

Total Feed Costs $338.75

Veterinary and health $10.00

Machinery and equipment 11.00

Marketing and miscellaneous 14.00Other 0.00

Interest on variable costs 9% x 3.5 months = 9.81

Labor $14.00 per hour x 3 hours = 42.00Death loss 2% hd = 17.22

Total Variable Costs $1,091.12

Income over Variable Costs ($1,091.12)

Fixed CostsMachinery, equipment, housing $21.00


Income over All Costs ($1,112.12)

Break-even selling price for variable costs $0.95 per lbBreak-even selling price for all costs $0.97 per lb

Version 1.1Contact: Shane EllisDate Printed:1/2/09

For more information see Information File B1-21 Livestock Enterprise Budgets.

Place the cursor over cells with red triangles to read comments.

Enter input values in yellow grid-lined cells.

Corn and Hay orCorn and Silage Rations

There are someestimating toolspublicly available

for all phases.

Issues: Knowing inputcosts.

Issue: Opportunity cost.


10/41


11/41

Design the Cost Model

Define steps in the process from raw inputs to food

- what are they, how do they work, wheres ourfarm.

Define inputs and outputs to each step.

Understand the value added in each.

Determine total cost of each step.

Define the decisions to manage quality and cost.


12/41

A Direct Sale Beef Operation(Anatomy)

Cow/Calf

To Wean

Calf

FinishedProcessing Logistics

Marketing

&

Selling

TruckWean to

Stocker

Fertility

MachineryLand

Seed

Labor & Non-feed

Grain

Pasture

Stored

ForageLabor

Maint

Fuel

OwningOr: Hire

Outside


13/41

Cow/Calf to WeanOutput of cow herd: a healthy weaned calf.

Cost of

Calf

Cost to keep

The cow herd.

Number of

Weaned Calves:Cash basis costs:

Total feed costs. (Pasture &

Winter feed - hay.)

Total allocated costs.Replacement acquisitions.

Cost to raise replacements.Minus revenue from culls.

Management goals:

High weaning %.

Feed costs down.

Long life for cows.

Low cost of replacements.Market culls well.


14/41

Typical Costs (Financial) to Keep a

Conventional Cow in Midwest

63%

22%

11%

2% 2%

Feed Cost

Operating Cost

Depr

Labor Hired

Capital

Total Cost ($390)

45%

27%

11%

16%

1%

Pasture

Harvested Forage

Non-forg. Raised

Purchasedd

Aftermath

Feed Cost ($245)


15/41

Typical Costs (Financial) to Keep a

Conventional Cow in Midwest

63%

22%

11%

2% 2%

Feed Cost

Operating Cost

Depr

Labor Hired

Capital

Total Cost ($390)

45%

27%

11%

16%

1%

Pasture

Harvested Forage

Non-forg. Raised

Purchasedd

Aftermath

Feed Cost ($245)

Cost of feed:

Crop aftermath$5-15/Ton DM

Cover crop grazing.. Well managed pasture$20-30/Ton DM

Mixed dry hay$40-60/Ton DM

Grass silage$60-80/Ton DM

Corn silage.$40-60/Ton DM


16/41


Heifer calves per lb x 1000 lbs x 0.26 head = $0.00Steer calves per lb x 1100 lbs x 0.46 head = 0.00Cull cows per lb x 1150 lbs x 0.18 head = 0.00Gross Income $0.00

Variable Costs Feed Costs Price Unit Quantity Unit

Pasture $35 per acre x 2.5 acres = $87.50Pasture fert. & misc. costs $20 per acre x 2.5 acres = 50.00Corn $4.35 per bu x 56 bu = 243.60Modified distiller grain $55.00 per ton x 1.05 tons = 57.75Salt and minerals $0.09 per lb x 60 lbs = 5.40Supplement & minerals $0.16 per lb x 128 lbs = 20.48Alfalfa - brome hay $85 per ton x 2.5 tons = 212.50Corn stalks $3.00 per acre x 4 acres = 12.00Other 0.00Total Feed Costs $689.23

Veterinary & health $35.00Machinery, equipment, fuel & repairs 26.00Marketing & miscellaneous 25.00Other 0.00Interest on variable costs 9% x 9 = 52.33Labor $14.00 per hr x 10 hours = 140.00

Total Variable Costs $967.56

Income Over Variable Costs ($967.56)

Fixed Costs

Machinery, equipment, housing & fences $75.10

Interest & insurance on breeding herd 108.20Bull depreciation/replacement 12.00Total Fixed Costs $195.30


Income Over all Costs ($1,162.86)

$1.27$1.53

Version 1.0Contact: Shane Ellis

Breakeven selling price for variable costs (per lb)Breakeven selling price for all costs (per lb)

months


17/41

Example: Cost of beef animal at each PhaseTotal Cost ofWean to Finished

Cow/Calf Turnout Finish Animal

Cows+Heifers/Animals 34 28 16

Bull 1

Calves Weaned 30

Days on Pasture 205 200

Stocking rate (acres/animal unit) 1.25 1.00

Days on Hay 160 180 60

Days on Grain 0 90

Lb of Grain per Day 0 3.3

Cost of Pasture 1,576 576

Cost of Hay 4,444 2,600 762

Cost of Grain 0 851

Other Inputs:

Bedding 369 246

Chore cost 459 153

Minerals 106 53 53

Veterinarian & Breeding 514

Registrations 216

Certification (less cost share) 100

Insurance & Utilities & tax on bldgs 1,347 857 490

Total Cost per Enterprise $9,131 $3,909 $2,732

Cost per Head (Cows & Heifers) $268.56 $139.61 $170.78

Cost per Calf Weaned $304.37 $614.76Transport to Processor 16.67Processing Cost 245.62Total Cost $877.04


18/41

Example: Cost of beef animal at each PhaseTotal Cost ofWean to Finished

Cow/Calf Turnout Finish Animal


Bull 1

Calves Weaned 30




Days on Grain 0 90


Cost of Pasture 1,576 576

Cost of Hay 4,444 2,600 762

Cost of Grain 0 851

Other Inputs:

Bedding 369 246

Chore cost 459 153

Minerals 106 53 53


Registrations 216


Insurance & Utilities & tax on bldgs 1,347 857 490

Total Cost per Enterprise $9,131 $3,909 $2,732



Assists on these types of decisions:

Where should I attack costs.Pricing of animals at various stages.

Buy or raise replacements.

Use a bull or AI.


19/41

Example: Cost of Inputs on Organic Beef Farm

Manure & Chores &

Hay (Ton) Pasture (Acre) Bedding (Ton) Grain (100#) Compost(Ton) Manure(Ton) Misc

Total Equipment Cos $2,269 $85 $219 $456 $595 $219 $612

Manure/Compost 697 284 0 0 0 0 0

Manure 0 0 0 367 0 0 0

Supplies 204 428 0 0 0 0 138

Seed 275 251 0 116 0 0 0

Lime 391 28 0 0 0 0 0

Land Rent 4,107 708 267 427 0 0 0

Taxes 0 688 0 0 0 0 0

_______ _______ _______ _______ _______ _______ _______

$7,943 $2,473 $486 $1,366 $595 $219 $0

Total U/M 171 70 3 91 95 83

Cost per UM $46.45 $35.33 $152.03 $14.97 $6.27 $2.63 $0

Per Bu: $4.79

Cost w Op Labor $52.91 $36.02 $192.03 $17.91 $10.33 $4.41

$8.00 $5.73

Cost with total labor

Cost per ton DM $12.53

(DM per acre) 5750


20/41


Manure & Chores &




Manure 0 0 0 367 0 0 0

Supplies 204 428 0 0 0 0 138

Seed 275 251 0 116 0 0 0

Lime 391 28 0 0 0 0 0

Land Rent 4,107 708 267 427 0 0 0

Taxes 0 688 0 0 0 0 0

_______ _______ _______ _______ _______ _______ _______

$7,943 $2,473 $486 $1,366 $595 $219 $0

Total U/M 171 70 3 91 95 83

Cost per UM $46.45 $35.33 $152.03 $14.97 $6.27 $2.63 $0

Per Bu: $4.79

Cost w Op Labor $52.91 $36.02 $192.03 $17.91 $10.33 $4.41

$8.00 $5.73



(DM per acre) 5750

Assists on these types of decisions:

Make or buy hay. (Rent land to make hay?)Buy or raise grain.

Should I make compost.

Apply nitrogen to pastures or not.

Does frost seeding pay out.

Do work myself or hire custom operator.Part of the story in deciding to buy a piece

of equipment or not.


21/41


Manure & Chores &




Manure 0 0 0 367 0 0 0

Supplies 204 428 0 0 0 0 138

Seed 275 251 0 116 0 0 0

Lime 391 28 0 0 0 0 0

Land Rent 4,107 708 267 427 0 0 0

Taxes 0 688 0 0 0 0 0

_______ _______ _______ _______ _______ _______ _______

$7,943 $2,473 $486 $1,366 $595 $219 $0

Total U/M 171 70 3 91 95 83

Cost per UM $46.45 $35.33 $152.03 $14.97 $6.27 $2.63 $0

Per Bu: $4.79

Cost w Op Labor $52.91 $36.02 $192.03 $17.91 $10.33 $4.41

$8.00 $5.73



(DM per acre) 5750

Equipment cost allocated

By machine hours.Manure & compost

Charged by ton.

Costs from financial

Records. Must measureTotal yields.Labor is tied to

machine hours.


22/41

Hours of Operation for Main Equipment

Manure & Chores &Hay (Ton) Pasture (Acre) Bedding (Ton) Grain (100#) Compost(Ton) Manure(Ton) Misc

Loads 79 37

Ton/Load 2.5 2.25

Total Tons 198 83

Output/Acres/Yield 171 70 3.2 91.2

Acres 67.5 70 7.2

Compost loads 27 11 0 38

Ton/load 2.5 2.5 0 2.5

Compost applied 67.5 27.5 0 95

Manure applied 83 83

Hours Hours Hours Hours Hours Hours Hours Hours Total Hours

Bobcat 22 2 19 9 54 106

2350 40 6 4 19.5 29 9 3 111

630 36 5 6 1 48

520 40 5 8 5 58

Total Equipment Hours 138 6 16 34 48 19 63 323


23/41

Measuring and Recording Machine Hours


24/41

Cost of Using Equipment

To support internal enterprise costing, establish hourly costof operating each main piece of equipment.

Cost of Owning:

Depreciation

Interest

Insurance

Housing

Cost of operating:

FuelMaintenance

Operating Labor

How much information is needed, where it comes from

and the method of analysis depends on the use of the

decisions you are trying to make. Remember, the juice

has to worth the squeeze.


25/41

Operating Cost for Main EquipmentOperating Cost with Current Year Maintenance Costs

Current YearTotal Hours Fuel Repair&Maint Operate ($10) Total Op Cost Op Cost/Hr

Bobcat 106 300 700 1,063 2,063 $19.42

2350 111 600 1,400 1,110 3,110 $28.02

630 48 136 750 480 1,366 $28.45

520 58 164 325 580 1,069 $18.43

Total Gas $ 600

Total Diesel $ 180

Three yr aver

2005 2006 2007

Bobcat 862 1,003 700 855

2350 2,165 709 1,400 1,425

630 1,856 299 750 968

520 266 325 892 494

Operating Cost with 3 Year Rolling Average Maintenance Costs3 Yr Aver

Total Hours Fuel Repair&Maint Operate ($10) Total Op Cost Op Cost/Hr

Bobcat 106 300 855 1,063 2,218 $20.87

2350 111 600 1,425 1,110 3,135 $28.24

630 48 136 968 480 1,584 $33.00

520 58 164 494 580 1,238 $21.35

Maintenance cost in last three years


26/41

Manure & Chores &


Loads 79 37

Ton/Load 2.5 2.5

Total Tons 198 93

Output/Acres/Yield 171 70 3.2 91.2

Acres 67.5 70 7.2Compost loads 27 11 0 38

Ton/load 2.25 2.25 0 2.25

Compost applied 60.75 24.75 0 85.5

Manure applied 93 93

Hours Hours Hours Hours Hours Hours Hours Hours Total Hours

Bobcat 22 2 19 9 54 106

2350 40 6 4 19.5 29 9 3 111

630 36 5 6 1 48

520 40 5 8 5 58

Total Equipment Hours 138 6 16 34 48 19 63 323

Expense $$ $$ $$ $$ $$ $$ $$ Maint & Lease Fuel Total Non-Lbr Cost/Hr

Bobcat 207 0 19 0 179 87 508 700 300 1,000 $9.422350 569 85 57 278 416 132 43 1,400 180 1,580 $14.23

630 664 0 92 111 0 0 18 750 136 886 $18.45

520 337 0 42 67 0 0 42 325 164 489 $8.43

Hay Equip 491 9 500 Total Gas $

$600

Total Equipment Cost $2,269 $85 $219 $456 $595 $219 $612 $3,675

Manure/Compost 697 284 0

Manure 367

Supplies 204 428 138

Seed 275 251 116

Lime, fert & tests 391 28

Land Rent 5,510 4,107 708 267 427

Taxes 688_______ _______ _______ _______

Total Expense (w/o labor) $7,943 $2,473 $486 $1,366 $595 $219

Cost per UM $46.45 $35.33 $152.03 $14.97 $6.96 $2.36

Per ton: $14.13 Per Bu: $4.79

Operator Labor per U/M@ $6.46 $0.69 $40.00 $2.94 $4.51 $1.60

$8.00

Cost with operator labor $52.91 $36.02 $192.03 $17.91 $11.48 $3.96

Per ton: $12.53 Per Bu: $5.73


27/41

Measuring & Recording

Field Sizes


28/41

Yield Measurement & Recording


29/41

Determine Pasture Yields


30/41

Example: Cost of beef animal at each PhaseTotal Cost of

Wean to FinishedCow/Calf Turnout Finish Animal


Bull 1

Calves Weaned 30




Days on Grain 0 90


Cost of Pasture 1,576 576Cost of Hay 4,444 2,533 762

Cost of Grain 0 851

Other Inputs:

Bedding 369 246

Chore cost 459 153

Minerals 106 53 53


Registrations 216


Insurance & Utilities & tax on bldgs 1,347 857 490Total Cost per Enterprise $9,131 $3,842 $2,732



Cost from input costs

Times amounts used.

Cost from

Financial Records


31/41

Cattle Input Measurement & Recording


32/41

Wean to Sale

Feed: Pasture,

grain, winter feed

(hay).

Allocated costs.

Transport.

Direct Marketing

Costs

Outsourced

Some

OutsourcedSome internal

MaterialsLabor

Cow/Calf

To Wean

Calf

FinishedProcessing Logistics

Marketing

&Selling

TruckWean to

Stocker


33/41

Logistics, Sales & Marketing Cost

Processing Logistics

Marketing

&Selling

ck

Reefer cost prorated by miles.

Labor to pack & transport.Supplies for logistics.

CSA marketing person prorated by

sales volume.

Office supplies specific (cost

records) and general (prorated.)


34/41

Strategies for Balancing Data Gathering

Effort to Usefulness of Information

Identify decisions most critical to your operation.

Map information that you need to make those decisions.

Collect only data (external & internal) to support that

information.

Use less accurate ways of getting less critical information.

Hierarchy of criticality. (Size, volatility, ability to

influence or change)

Daily decision making. (Pricing, Inputs)Seasonal decisions. (Customer Selection, Inputs)

Long term decisions. (Channel Selection, Physical

Assets)

Pulsing

Considera

tions


35/41


36/41


37/41


38/41

Worksheets for Managing Manure - From NutrientManagement Plans


39/41

Assist Operating Decisions -

Strategy & Tactics To whom youll sell and what is the basket.

Can you sell to different channels and how much.

Pricing.

Will you perform a service or have someone else do it.

Will you buy or raise feed - each feed.

Target rate of gain. Level of mechanization and whether you own or rent.

When to buy custom work.

Nutrient management decisions.

Genetics.

Raise, buy or lease breeding stock. AI or natural service. Rate at which you can afford to lease land.


40/41

Steps in the Process of Growing

and Selling Chickens

Incubation

& HatchProcessing

LogisticsMarketing

&

Selling

Fertility

Machinery

Land

Grind& Mix

Grain

BrooderFeed to

Finish

Outside

Feed

Packaging

&/or Freezing

Disposal ofWaste

Outside

Supplies


41/41

Steps in the Process of Growing

and Selling Chickens

Incubation

& HatchProcessing

LogisticsMarketing

&

Selling

Fertility

Machinery

Land

Grind& Mix

Grain

BrooderFeed to

Finish

Outside

Feed

Packaging

&/or Freezing

Disposal ofWaste Extent of our

Operation

Outside

Supplies

Pricing-and-Profits-Beef-Model-Cost-SswagORG

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