Profit, or Not?

My favorite 12 year old likes to buy blue jeans at The Buckle. I always have to take a deep breath before we go shopping because the price tag blows me away.  When I look at her size 24 blue jeans and the amount of cotton material used to make them, I wonder where the $100.00’s goes that I pay for them?

The special jeans…

Does it go to the cotton farmer?  Does it go to the designer or the person that sews the jeans?  Does it go to the retailer that I purchase them from?  While I am unsure of the breakdown of where the proceeds go, I am pretty confident that each one of the people that I named gets a part of my $100.00 bill.  Did all of them make a profit from the sale—most likely that depends on the cost that they accrued at each level of the jean making process…

Last week a Business Week reader asked me, “Is it true that cattle make only $20 per animal? That just doesn’t sound right to me. When I buy a New York steak from the market I typically paid around $6 – $7. That is one piece of steak. Where did the money go?”

Where does the money that you pay for this steak go?

Raising cattle and growing beef is a complex business.  Like my daughter’s blue jeans, there are many different people involved in the creation of the steak before it ends up at your market or grocery store.  The following is a blue print of the beef that comes from my farm…

Stage 1: The cow-calf rancher (like Al and Sallie Atkins in my Calf #718 blog series) is the first phase of the beef production cycle.  This rancher has a cattle breeding herd and cares for the calf from birth to approximately 8-12 months of age.

A young calf, standing near his mama on the AL Ranch. Al and Sallie Atkins work hard in stage 1 to offer good care to this animal who will grow up to make safe and healthy beef…

Stage 2: The feed yard farmer (like me) is the second phase.   I feed the animal until he is ready for harvest (another 4-6 months).

Just like Al and Sallie, I am dedicated to offering good care to my animals and enabling them to make safe and healthy beef…

Stage 3: The packing plant (like US Premium Beef / National Beef) is the third phase.  It is at this phase that the animal is harvested and becomes beef.

All of Al’s and my hard work comes to fruition when the animals that we raise become high quality beef for you to purchase…

Stage 4: The retailer / food service company is the final phase.  This company brings the product to your dinner table either via the grocery store or the restaurant.

From our ranches and farms to your dinner plate…

At each one of these stages, there are revenues and costs that determine the profit or loss.  Each one of us (the rancher, the feed yard, the packing plant, and the retailer) hope to be profitable with every animal at every stage.  The quote of $20.00 per head that appeared in the article was an average profit number for my stage (the feed yard) of the beef production cycle.  If each partner at each of the 4 stages were to make $20.00 per animal, that would be a total profit of $80.00.

Considering that it takes approximately 18-21 months and thousands of dollars for one of my animals to move through the 4 stages and become beef, that is a relatively small profit margin.  Additionally, during that time frame, enormous volatility exists in the cost of my feed ingredients and the market values for my animals. From a business perspective, this volatility is one of my top three challenges as I grow beef.  Sometimes I make $120.00 per animal, sometimes I lose $100.00— I hope to see an average profit of $20.00 per head over the long run…

When we made the life decision to leave the city and move back to the farm, we did it knowing the inherent financial challenges that we would face. It takes both hard work and creative thinking to remain financially viable amidst the growing volatility in agricultural markets…

Long term financial sustainability in farming is intrinsically tied to saving during the good years in order to survive the bad ones…Hopefully, in the long run, there are more good years than bad.  My daughter’s cool blue jeans and her future college education are depending on it!

10 Comments

Filed under Feed Yard Foodie "In The News", General

10 responses to “Profit, or Not?

  1. Steve Duke

    Well, one thing I think for sure, is that the product your raising (beef) is made right here in America with the profits going to Americans that will help keep the local economy going! It’s been shown over many times that agriculture products have a positive influence on American jobs as it’s pretty hard to ship our land and what it grows over seas! I know some blue jeans are US made…..but pretty hard to find. Good post hopefully you’ll get many readers thinking!

  2. Dal Grooms

    A simple breakdown of the major four stages for cattle production, Anne, but just as there is with the jeans there are so many others involved in commerce, who also expect a profit…marketing, transportation, the goods and services used at every stage, paying taxes, etc. Capitalism is designed to help each person involved in any stage make a profit. (Also loved Steve’s comments…I’d sure like to find a lot more things that were made in America. I’m not interested in protectionism, but I’d like to promote the skills and abilities in the U.S. that are often overlooked.)

    • You make a couple of excellent points, Dal. It is more complicated than my 4 stages, although it was my hope that the description in the post would provide a basic yet accurate “blue print”. My post could have easily been as long as an encyclopedia with as complex as this topic is.

      Thank you for reading and contributing.
      Anne

  3. Great post! We often get that question from cattle producers, saying, “Well, how come a steak costs THAT much when I’m only getting $20/head?” I wrote a blog post on it earlier this year that links to some articles talking about food cost (and all that’s figured into it) from packer to consumer. I learned a lot while interviewing distributors and foodservice folks, so maybe some of your readers would be intersted, too.

    http://www.blackinkwithcab.com/2012/03/26/prices-rise-for-a-reason/

    ~Miranda

  4. The ERS has a great breakdown of where your food dollar goes here: http://www.ers.usda.gov/media/131096/err114_reportsummary.pdf

  5. Thought you may find this post of interest when I look at some of the costs of cotton clothes. 🙂 http://janiceperson.com/cotton/costs-quality-american-made-cotton-value/

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