Will it Pay? Economics and Marketing Issues

1
Will it Pay? Economics and Marketing Issues

• Curt Lacy
• Extension Economist-Livestock
• The University of Georgia
• Rural Development Center - Tifton

2
Some Economic Notions

• Long-term the price of a commodity will approach
  the total cost of production
• If a product generates Excess Profits producers
  will enter the business and prices and profits
  will decline
• In a niche market a few producers can make money
  but many can go broke!!

3
Economic Considerations

• Is it profitable? (returns over variable costs)
• Will it cash flow (returns over total) costs

4
Economic Analysis Assumptions

• Cow-Calf
• 100 cows
• 2 acres per cow-calf pair
• 140 ac Max-Q
• 60 ac Coastal Bermuda
• Spring calving
• Calves weaned in Sept-Oct
• Steers weigh 550
• Heifers weigh 475

5
Economic Analysis Assumptions

• Stockers Finishing
• 50 calves sold as finished animals
• 1.5 finishers/ac
• 1.8-2.0 adg
• Finished at 950-1,000 pounds
• Sales price 1.50/lb. live weight

6
Economic Analysis Results
Revenue  
Cull Revenue 11,616.00
Cull Calves 10,093.75
Finished calves sold 74,903.00
Total Revenue 96,612.75
Variable Costs  
Cow-Calf 37,588.59
Finishing 37,677.00
Total Variable Costs 75,265.59
Returns above VC 21,347.16
Fixed Costs  
Cow-Calf 10,202.64
Finishing 5,044.00
Total Fixed Costs 15,246.64
Returns above TC 6,100.52
7
Impact of Sales Price on Revenue
/Cwt. Average Sales Price /Cwt. Average Sales Price /Cwt. Average Sales Price /Cwt. Average Sales Price /Cwt. Average Sales Price
Item 100.00 125.00 150.00 175.00 200.00
ROVC (4,055.84) 8,319.16 20,694.16 33,069.16 45,444.16
ROTC (19,302.48) (6,927.48) 5,447.52 17,822.52 30,197.52
ROVC Returns over variable costs ROTC Returns
over total costs
8
Key Points

• 50 steers 17,900 lbs. of retail product? at 55
  lbs. per capita consumption 325 people eating
  all of your production
• Does NOT include market development costs
• Larger frame animals will take longer to finish
  and cost more
• High level of forage management required

9
Developing the Business Plan

• What do you want to do
• Why??
• Develop a plan
• Start slow dont try to corner the market your
  1st year
• Allow for unexpected delays, increased costs, and
  lower revenues

10
Other Considerations

• Alternative forages depends on location
• Alfalfa
• Summer annuals
• Haylage/baleage
• Annual peanuts?
• Alternative pricing schemes
• Price retail product instead of live weight
• Merchandise byproducts

11
Pricing Your Product

• Live weight Processing?
• Lower price
• More weight
• Easier
• Doesnt require storage facilities
• Retail weight
• Higher price
• Less weight 358 lbs of retail product in 1,000
  lb. steer
• Requires storage facilities
• Ability to sell in smaller quantities

12
Some Marketing Ideas

• Plan on 3-5 years to build an appreciable demand
• Be professional
• Choose the right processor
• Test market your product
• Get customer feedback
• If practical, incorporate that feedback into your
  program
• Collect information on your consumers
• Offer cooking suggestions and recipes
• Be positive about your product but not negative
  about conventional beef. Remember, you are a
  beef producer also.

13
Some Marketing Ideas-contd

• Try local and small first
• Farmers markets
• Local restaurants
• Local food cooperatives
• If retailing, find a market for bones, variety
  meats, etc
• Look into diversifying your product line
• Hot dogs, sausage, bologna, SPAM??
• Poultry
• Pork
• Stay with it. There is a reason not everybody
  does this!

14
Summary

• Grass finished beef can be a profitable venture
• Have a plan Know what, why, and when
• Market development is key
• Market development takes time
• No good thing comes easy