Grazier’s strategize the business of grass-based direct meat sales
At the 2012 PFI Annual Conference, 25 graziers (pasture-based livestock ranchers) came together and talked about the numbers behind their business.
Farms from around the state used round numbers and put real production costs to paper about raising livestock, marketing it, and holding a profit for the farmer.
“What still sticks with me is the sheer difficulty of making ends meet,” recalls Margaret Dunn, graduate student at Iowa State University where she studies rotational high stock density grazing. “Stacked enterprises are the way to bring in more money on the same amount of land. This makes ecological and financial sense; however, it’s hard for the two people often running these farms to procure and balance all of those things.”
The group was given the choice to split up into many small groups and explore one of eight grass-based livestock farm business scenarios. The group decided to work together and dive into details on one hypothetical grass-based livestock farm business that raised and marketed annually with respective net income by enterprise.
Farmers specified all the expenses (including labor) and projected income by enterprise, to arrive at a net return on investment of time and money. Pastured Eggs were the least profitable, Broiler Chickens were fairly profitable given low overhead costs, Turkeys were some of the most profitable (but a limited seasonal market), and Beef and Lambs were more profitable. Diversity of meat products was necessary to achieve a high income with the direct markets of farmers market, direct to consumers, as well as limited wholesale customers like restaurants, and specialty grocery stores. The hypothetical farm is a farm couple with access to 100 acres of pasture, 20 acres owned (with a mortgage) and 80 acres rented.
|2,000 broiler chickens||$10,000|
|18 sheep (and lambs)||$2,250|
|100 egg layers||$0|
|Fixed Asset Start-up Expenses|
|Watering system by paddock||$10,000|
|Land (down payment)||$8,000|
|Land (30 year mortgage)||$72,000|
|Cattle (Four year note)||$40,000|
|Annual Debt Payment||$15,000|
Ryan and Janice Marquardt from Wild Rose Pastures participated in the session. “I concluded that we may not be in the right business,” says Janice. “The numbers showed that chickens are just a stop-gap to working towards beef.” Several businesses shared openly the costs and expected returns of direct meat sales.
“I was interested to find out what other producers are paying in business expenses. That was really interesting to hear what others thought things cost or should cost,” says Ryan.
Ryan Marquardt, “It put parameters for consideration for example, depending on your land base, if you already have 80 to 100 acres you could probably make pretty good money to run cattle on it, but if you don’t have any land, and you go out and buy 120 acres with these current land prices, direct meat marketing might not pay the mortgage.”
Jake and Amber Wheeler, beginning graziers near Monroe, IA attended this session. “I was inspired to see that it was a viable option – maybe we CAN make this work, instead of just wondering if it was even a possibility. I felt like the numbers we had crunched were comparable to what others were using.”
The biggest challenge was the lesson taken away by Jake. “The scenario assumes you can go out and sell it. I think customers are hungry for it, yes, and we can produce it, but we are working on becoming better marketers.”
Jake sees opportunity in low-input production systems like pastured broilers due to the limited infrastructure needed to get started. “I still feel like chicken is a good money maker due to low opportunity costs.” Beef cattle can take up to two years to finish an animal and land and fencing infrastructure are expensive. “Iowa State University Extension Ag Decision Maker enterprise budgets use a four percent annual opportunity cost on capital,” says Jake, “We didn’t talk enough about opportunity cost.”
Graziers offered new input on the discussion with learned experience. “I would have pushed the group to increase the farm expense budget for delivery and storage,” says Jake Wheeler. “When it turns 90 degrees unexpectedly in April like this year, you have to have a way to deliver frozen meat to customers and keep it cold. We were filling up our farm freezers so I priced Des Moines Cold Storage and you can lose your profit very quickly paying for rented freezer space.”
One thing to change for next year was a great recommendation from a participant. “Have all the graziers share one “thing” they know or are good at…sketch their design of a chicken tractor, tell a good resource for getting affordable equipment, describe some innovation or rotation that worked for them. There are a lot of good ideas and sharp minds in PFI!” says Margaret Dunn.
There was great discussion about how challenging it is to make a living farming given the high costs of land, infrastructure, and the prices at which most consumers are willing to pay for food (too little in general). Identifying the segment of the marketplace of customers willing to pay for unique products proves to be a challenge to many farmers.
***Numbers were estimated from the knowledge in the room and it was attempted to include the biggest costs of running this type of business. Itemized expenses in further detail than is listed here, was determined by the group to be beyond the scope of the session, and were not recorded in the notes. For further details, refer to other farmers, search out resources, attend PFI Farminars, or PFI annual conference sessions. For costs associated with Watering System infrastructure by paddock, go to your local Natural Resource Conservation Service (NRCS) office for help designing one that works for your farm and details on cost-share opportunities.