Beef Packing Margin - General Question

[kenhoho]

Greetings from a newbie,

I’ve been trying to refine my calculation of industry-wide wholesale beef gross margins and am using this formula, but I seem to be coming up with a number that’s too low. If someone could look this over I'd be grateful!

GROSS PROFIT PER CWT = ($/CWT FOR BOXED BEEF * CWT OF BEEF SOLD) + ($/CWT FOR BY-PRODUCT * CWT OF BY-PRODUCT SOLD) – ($/CWT PAID FOR CATTLE * CWT OF CATTLE BOUGHT)

For simplicity’s sake, I’m assuming that (1) 100% of the animal is sold as either boxed beef or by-product and (2) 60% of the animal goes to boxed beef and 40% to by-product.

So for example, the week of 2/25/11 would look something like this

GROSS PROFIT PER CWT = ($171/CWT FOR BOXED BEEF * 0.60 CWT OF BEEF SOLD) + ($13/CWT FOR BY-PRODUCT * 0.40 CWT OF BY-PRODUCT SOLD) – ($110/CWT PAID FOR CATTLE * 1 CWT OF CATTLE BOUGHT)

or

GROSS PROFIT PER CWT = $103 +$5 – $110

or

GROSS PROFIT PER CWT = $(2)

This seems awfully low to me. Should I perhaps be using the “dressed equivalent” by-product value rather than the live figure in http://www.ams.usda.gov/mnreports/nw_ls441.txt? Or am I just a mo-ron? Or is this actually accurate?

I guess what I’m asking for is this: what is the standard industry calculation for beef gross margin???

 

[jack1234]

When you use CWT, you've generally got to state a basis for clarity's sake-- either live weight basis or dressed carcass basis (which about 60-63% of live weight).

Assuming you want gross profit/CWT on a live weight basis, your calculation shouldn't multiply the by-product price by 40% because the price of $13/CWT is itself based on a live weight basis.

Also, this won't change the calculation, but the by-product percentage isn't 100 less the dressing percentage (100-60). There are some unusable parts! From the link, they're assuming 19.13 lbs by-product per 100 lbs live weight.

 

[kenhoho]

thank you! very helpful.