Let’s talk a little bit about meat prices, and who is making money and who is not. I’m going to use beef as my example here because beef is more flexible than pork. But similar things are going on with pork as well.
There are four major beef packers that control over 80% of the beef industry. Tyson, Cargill, JBS, and National. JBS and National are Brazilian companies, and Tyson/Cargill are US based.
The Players
There are three major players in the commercial beef supply chain.
First, you have the cow-calf operators. They’re the ones who have a herd of cows, breed them every year, and sell calves at auction to feedlots. These calves usually get brought to market between 700 and 900 pounds. If weaned calves are too light to go to market, they will be ‘backgrounded’ … fed for a few months to put on more weight.
Next, you have the feedlot operators. They buy the calves at auction and feed them, generally a grain based diet to put on the pounds. They then head to auction again, usually between 1,300 and 1,500 pounds.
Finally, you have the big beef packers. These guys buy fat cattle at auction, bring them to their plant, slaughter and process them into primal and subprimal cuts, vac-packed and put into boxes. This product is called, strangely enough, boxed beef. These boxes go to retailers who cut them and package them for final sale to consumers.
The Economics
Let’s walk through the economics of the whole process. Throughout the description I’ll use numbers that are relatively current for October, 2021. We will also skip labor costs to keep things simple.
Cow-Calf Economics
Not really going to dive into detail here. Mainly because the costs associated with each operation is different, so it’s tough to make a clear comparison.
With today’s pricing, an 800 lb calf going to market will bring $1.55/lb live weight, which works out to be $1,240.
Feedlot Economics
A feedlot has two inputs and one output.
The obvious input is buying the calf from the producer above. That’s 800lbs @ $1.55/lb, for an input cost of $1,240.
Then they have to feed it a ration to get it up to weight for it to be processed. Average processing weight today is 1,366lbs. To get there, it will cost about $1.20/lb gain. That means for every pound the animal puts on, it costs the feedlot $1.20 in feed.
Some quick math shows that to go from an 800 lb feeder calf to a 1,366 lb animal ready for slaughter is 566 lbs. At $1.20/lb that works out to be $679.20.
Total cost per animal works out to be $1,919.20 without labor expense.
Using today’s prices, the feedlot can sell that animal to the packer for $1.226/lb for a total of $1,674.72
Yes, you saw that right. With todays economics the feedlot is losing about $244.50 on every single animal they sell.
Packer Economics
So the packer got a great deal on that animal at $1,674.72 and is ready to process it into boxed beef. Once they run it through the slaughter plant they end up with a carcass. That 1,366lb animal live, once processed, hangs out at about 871lb.
The USDA tracks conversion rates, percentages, etc, very closely and develops an index value for boxed beef. It’s normalized so that you can take a carcass weight and get a value once it’s been fully cut into primals and subprimals.
That rate today is $2.89/lb which applied to an 871 lb carcass yields a value of $2,518.26 with a profit of $843.55 per animal.
Summary
Feedlots lose $245 per animal. Packers profit $844 per animal. Sounds pretty sustainable, right?
There is a solid imbalance in supply and demand right now. Usually things are relatively balanced, but right now there is a fair amount more fat cattle available than the packers are willing to buy.
Cow-calf producers and feedlots have to predict demand so they can meet it. Packers control that demand. Keeping that demand low keeps the prices down artificially.
How Do We Fix This
Well, the short version is we buy from local producers.
The game changes there a little bit.
Let’s take BowTiedFarmer for example, using the same weights as above. He buys a feeder calf at auction for $1,240.
He raises that calf on pasture for 14-18 months, supplemented with hay over winter, for a cost of about $500. So he has $1,740 into that animal.
Now he sells it to his neighbor via a custom slaughter process for $4.00/lb hanging weight. Recall that the carcass weight ends up at 870 lbs, which works out to $3,480.
Taking out his costs, our farmer has made $2,240 on that animal.
Pretty big difference.
Every single animal you buy from a local producer takes money out of the big packers pockets, stops them from taking advantage of upstream producers, and helps support your local tribe.
Plus, you end up with about 550 lbs of top of the line grass fed beef for about $8/lb after butcher fees, etc. Considering that grass fed ground beef costs $7/lb at Walmart, that’s a pretty smoking deal for a very healthy product that is better than anything you’ll buy at the store.
What are you waiting for?
informative and helpful, was wondering the disconnect in pricing right now between grocery market and farmer. purchased a half cow this summer for $6.50/ lb, and getting a half heritage pig this Christmas. the quality, taste, and flavor is much better than the grocery store. ideally wont ever buy meat again from the store