By Brianna Gwirtz, OCJ field reporter
The input costs to farm have been continually rising for many years. The U.S. Department of Agriculture’s (USDA) February 2023 Farm Sector Income forecast projected total farm production expenses in 2023 at nearly $500 billion, up 4% from the prior year, but up $87 billion, or more than 28%, from 2020. For those raising livestock, looking outside of the typical commodity markets and focusing on direct-to-consumer meat sales may be an opportunity to increase revenue.
Garth Ruff, Ohio State Extension Beef Cattle Field Specialist, noticed the trend of direct-to-consumer sales increase in the wake of COVID in 2020. Many people turned to their local livestock producers for protein, instead of going to the grocery store.
“During COVID, we had quite a few calls and a high amount of people interested in selling directly to consumers. It’s leveled out since then. That’s been our big question the last few years, how many of these direct-to-consumer sales will be maintained?” Ruff said. “As long as the customer has a positive eating experience, they will continue to buy and spend money with that livestock producer.”
To sell and price meat profitably, Ruff states that first, you must know your cost of production. Keeping accurate and consistent records of expenses is key.
“If a producer doesn’t know what their production costs are, then we start looking at USDA reports, which gives us a baseline for prices,” Ruff said.
From there, a livestock producer needs to consider what margin they want to make, as well as the market demand. Researching the customer base and their values can help to price meat profitably. For example, a livestock producer with aspirations to sell their products at an urban city farmer’s market, where there’s more disposable income, is probably able to charge higher prices than a producer selling to a less affluent, more rural area.
Besides the cost of production of the animal itself, Ruff shared that many producers tend to forget the cost of customer acquisition.
“A big thing I’ve seen is that there is a cost to acquire customers, whether that’s marketing, fuel, or just your time. A lot of producers don’t necessarily value their time appropriately. I don’t think most people would take a job for $8 an hour, so that’s not the labor cost you should set for marketing your meat,” Ruff said.
When it comes to customer acquisition, many livestock producers turn to word of mouth or social media to help sell their products. Andy Stockmaster is a livestock producer in New Washington in Crawford County. Every year he sells roughly a dozen head of freezer beef and around 25 to 30 hogs to people using Facebook as his marketing platform.
“We try to sell all our livestock directly to customers. Taking livestock to the sale barn is our last resort,” he said. “While I do find it hard to set prices, I think I do have better control of my prices by selling directly. I like that my product then ends up with local families and in the community.”
Stockmaster tends to sell all his livestock as whole carcasses, halves or quarters. He tried cuts but found he didn’t have enough interest to continue down that route.
“The most difficult part of pricing is that I want to give my customers an affordable price, but I have a profit figure in my head that I have to reach too,” Stockmaster said.
Stockmaster follows Ruff’s model, by taking his cost of production and then setting a margin he would like to achieve.
“I try to also compare to the market prices at that time too for both the live animal and retail cuts, and try to set prices in that ballpark,” Stockmaster said.
While beef and pork are proteins that many consumers are familiar with, Rose Hartschuh is looking to drive demand for lamb. Hartschuh and her family, also in Crawford County, currently have a small freezer lamb business, with around five to 10 lambs a year being sold directly to customers.
“It’s different than selling freezer beef and pork. With beef and pork, you can get a customer to commit to a half or a quarter. With lamb, people are more hesitant, so we sell lamb by the cut,” Hartschuh said. “We have to be above what the sale barn charges every week. We try to work backward a little bit. We also have to keep into account the dressing percentage of the lamb too. They are lower yielding animals than a steer or a hog.”
Hartschuh goes to a processor that is about an hour away from her farm in Lykens. The processor is more familiar with lambs and goats and offers a wider variety of cut options. One way they market lamb is by offering cuts that anyone can cook.
“We like to get burgers and bratwursts made because they are easy to grill. We also do a lot of boneless leg of lamb, because those are easy to cook in the oven, crockpot or smoker. We also sell beef and pork, so we’ve created bundle deals or we throw in some lamb for people to try,” Hartschuh said. “Our goal is to continue to grow our freezer lamb business because we can set our price, it’s consistent revenue and additional cash flow through the year. It’s got big potential to grow.”
For those producers who are looking for help in establishing pricing for cuts, Penn State Extension recently published a model for pricing to remain profitable. First, start with the per pound cost of the live animal. This would include all costs of production. Next, divide this amount by the dressing percentage. The average dressing percentage is 60% for cattle, 70% for hogs and 50% for sheep and goats. This is now the hanging cost. Next, add any processing or trucking fees to the hanging cost. Divide the total by 65% to get a cut-out cost, and then divide that cut-out cost by the percentage markup the producer desires to reach. This will lead to a price that should be charged per pound.
Ruff and a team of other Ohio State Extension personnel are working to address the big push for local foods and direct-to-consumer meats. They are in the process of putting together a self-paced course on how to start and maintain a food business.
“This past winter we had good attendance in the webinar series we did on starting a local food business. Our team can offer resources on food safety, labeling and understanding all the legalities of selling meat directly to people,” Ruff said. “We’ve seen some mislabeling the last couple of years, so those are things we talk about in our programs quite a bit. You can’t use USDA quality grades to sell your product unless it’s truly been graded. Those are things you need to know upfront if you are going to sell directly to consumers.”
It is important to note that all meat sold direct-to-consumer needs to be USDA or Ohio Department of Agriculture inspected for food safety. Producers looking to sell at farmer’s markets or local businesses need to work with their county health departments in order to do that. The OSU Extension webinar series on starting a food business from this past winter is available to view at https://farmoffice.osu.edu/our-library/food-law/starting-food-business