Excerpted with permission from Curtis, K. R.*, M. Cowee, A. Acosta, W. Hu, S. Lewis, T. Harris. 2007. Locally Produced Livestock Processing and Marketing Feasibility Assessment. Technical Report UCED 2006/07-13: University Center for Economic Development, Department of Resource Economics, University of Nevada, Reno.
Summary
This section of the report details retail revenue and cost of goods. Retail revenue and cost of goods (wholesale pricing) are calculated based on the slaughter demand from the survey and pricing based on a premium retail price for naturally raised meat.
All cost and revenue projections for the first year and the first five years are summarized in these two tables.
NOTE As the authors have acknowledged, an important error was made in calculating revenue: carcass weight was used instead of cutting yield in calculating meat per animal (meat yield would actually be lower than estimated here). Making this adjustment has a significant effect on profitability -- the business actually would lose money. HOWEVER, many other figures in this estimate could be adjusted to local circumstances (e.g. cost of building construction), and this analysis should serve only as a starting place.
Retail Revenue Projections
Retail prices were calculated using a weighted method to take into account the different cuts of beef and varying prices (Cattlemen’s Beef Board, 2006).
Traditional retail pricing of cattle is $2.09 a pound (USDA-AMS, 2007); pork is $1.59 a pound (USDA-ERS, 2004); and sheep/lamb is $176.79 (American Sheep Industry Association, 2006). Based on the consumer survey results, retail prices were increased by 7% for pork, 17% for lamb, 13% for low-value beef (ground beef, chuck, etc.) and 30% for high-value beef (steak, sirloin, etc). These prices reflect the higher premium that consumers stated they are willing to pay.
The total revenue for beef was calculated by multiplying the price per cattle and the number of animals (168) slaughtered each month for a total of $315,781 a month. The number of cattle (168) was calculated using the survey data of 134,616 total pounds divided by 800 pounds (800 pounds is a lower weight bound on a grass-fed animal, 1000-1100 pounds would increase the likelihood of rating Choice).
Revenue for pork was calculated by multiplying the price per pork and the number of animals slaughtered each month (10), for a total of $2,851 a month. The number of pigs (10) was calculated using the survey data of 1,884 total pounds divided by 200 pounds, which is the average weight of a pig. Pork prices were calculated at an overall price per pound.
Sheep/Lamb revenue was computed at the carcass weight price multiplied by the number of animals per month (296) for total revenue of $61,133. The number of sheep/lamb (296) was calculated using the survey data of 44,332 total pounds divided by 150 pounds, which is the average weight of a sheep/lamb. Sheep/Lamb prices were based on a set price for carcass weight at 85 pounds plus (American Sheep Industry Association, 2006).
Cost of Goods/Wholesale Pricing
The cost of goods represents the wholesale meat prices paid to member ranches for their livestock. Traditional wholesale pricing of cattle is $89.99/ctw for an 800-pound cow, which equates to approximately $719.92 per carcass (USDA-AMS, 2007). Traditional pricing for pork is $40.20/ctw for a 200-pound pig, which equates to approximately $80.40 per carcass (USDA-ERS, 2004). Traditional pricing for sheep/lamb is $95.50 for a carcass weight equal to and exceeding 85 pounds (American Sheep Industry Association, 2006). A study by Acevedo, Lawrence, and Smith (2006) found the cost of production for grass-fed beef was higher than beef fed on a traditional diet. Therefore, a sustainable price of $1.30/lb was used for this study. This price is paid on total carcass weight, not dressed weight. Due to consumer willingness to pay studies for wholesale grass-fed pork and lamb, wholesales prices for these products were increased by 20% over traditional wholesale pricing.
Beef was calculated at approximately $1040.00 ($1.30/lb) for carcass weight at 168 cattle a month for a total of $174,720 (National Cattlemen’s Beef Association, 2003).
Pork was calculated at approximately $.48 a pound based on carcass weight at 10 pigs a month for a total of $965.00.
Sheep and Lamb was calculated at $114.60 carcass weight for an animal weighing in excess of 85 pounds for 296 sheep/lamb a month for a total of $33,922.
Table 4.18 summarizes the carcass price, as well as monthly and yearly expected cost of goods and/or wholesale pricing.
