Is there any way to make money in the cattle business?

[TennesseeTuxedo]

https://www.foxnews.com/us/coronavirus-cattle-industry-may-lose-billions-covid19

Gonna be a rough stretch for the foreseeable future.

 

[jltrent]

Back to the OP and what your definition of making money is. With current input cost and on the hoof sale prices you will live very poor with no insurance. A lot of poor people around here live that way, so IMO the answer is yes and no. As far as selling a finished product from the calf to the consumer in any volume good luck.

 

[shaz]

The problem I ran into with my meat store is we were selling individual cuts. we had 7 chest freezers to separate cuts. We also had 3 freezers on a trailer.

This kind of operation appeals to the steak crowd. Mostly men who liked buying meat for the grill. Within a year or two we had very little steak but 3K lbs of hamburger. This is obviously a cash flow problem and we didn't have enough restaurants to ease the problem. We never had more than one person working the store at any given time.

To mitigate the inventory problem we ended up buying steaks from a wholesaler in Nashville to resell. This is clearly not what our customers wanted.

If you can only sell 1/4, 1/2 and whole beef you can bypass this issue but there's no reason to have a meat store if you do it this way.

I expect you are correct. I highly doubt I get past the trailer stage. Our processor seems to be a good marketer and warned me of the same thing. His answer to the problem was what he called meat bundles with prices ranging from $75 to $300 containing fast and slow moving items.

I have often been accused of being stubborn. I do know I have to sometimes take a punch on the nose to learn a lesson.

I appreciate your words of wisdom, and experience. Thank you

we did meat bundles. It doesn't help. You just don't get the hamburger helper crowd because they're all at Walmart.

What I do now is sell 1/4, halves and wholes at 4.30lb packaged out the door. Cuts are bone-in and include liver, flank steak ect. I have a digital meat scale that I weigh meat on frozen. I have found that a 1200-1300 pound steer is quite profitable but a 1000 pound steer not so much.

You could make a meat store work but it would help if you're retired and willing to do the marketing and hauling cows every week.

 

[WFfarm]

Yes, you have to find people in a bind and get their cattle on the cheap and then sell them to a bright eyed new comer that wants pets or doesnt know there is no money in it.

Sounds like the Dexter raisers around here.

 

[Brute 23]

The Dexter people have done a great job marketing those things. All these 30-40yr old guys coming out of Houston all want 20 acres, a mule, and some Dexters.

Yes, you have to find people in a bind and get their cattle on the cheap and then sell them to a bright eyed new comer that wants pets or doesnt know there is no money in it.

Sounds like the Dexter raisers around here.

Like an old family friend use to say... there is no money on the front or the back... only for the middle man.

 

[Dave]

The opinions expressed in the following commentary are those of Kate Miller, a third-generation rancher and tenured beef salesman working in both domestic and international channels. She can be found on Twitter @the_meat_lady, Facebook: Kate Miller-The Meat Lady or by email: [email protected]

"We need more small plants!"—-The tiny violin solo of the beef industry.

To start: there are 853ish USDA beef kill plants in the US, the big four run 27 of them.

Plant ownership is three business models in one: cattle buying, production operations, beef sales. Guys who jump into small plant ownership usually have ONE of these areas covered. Cattle social media spins this fairytale of plant ownership being easy—but the big four run them all out of business.

Not quite.

Here is a campfire story about a guy who buys a beef plant:

He goes and buys a beef packing plant. He sinks a couple hundred thousand or a couple tens of million into the building and upgrades. He knows he can buy cattle better than anyone else, and he hires a plant manager—usually a retired packer manager—to come handle production. The stage is set and it seems bulletproof. Buy fairly, make great product.

By some stroke of luck he gets his USDA establishment number, meaning he hired a consultant who knew what they were doing or he bought a plant that had a number and it was an easier process.

While he is getting started, he sells product locally. Things go okay in small loads. Then he ramps up and product stalls on the dock.

He call a trader someone recommended.
He calls local retail.
He calls local food service.

They tell him he needs a 3rd party audit.

He googles "third party audit" and sees 1000 different choices. He finds out the one audit his potential customers want cost thousands of dollars and takes 6 months to complete.

Meanwhile—-
Product starts backing up.
He ends up fire selling to the trader who mostly ignored him for pennies.

He starts losing money.
Product keeps backing up.
He stops being able to pay for cattle.
Cattle stop coming into the plant.
He shuts down.
The next person lines up to buy the place for pennies on the dollar.
The cycle begins again.

It gets blamed on the Big 4, but the reality is that the Big 4 didn't even know he existed.

This guy flew blind the whole time! The Prime Act would not have saved him. mCOOL would not have saved him. No piece of today's watercooler diatribes would have fixed this situation. He just didn't know what he didn't know. Even if he bought cattle better than anyone else. Even if he hired an operations guy with 30 years' experience. Even he hired the best operations consultants.

He couldn't generate revenue.

Because he didn't know the first thing about trading product.
He didn't have the right audit.
He didn't have the insurance.
He didn't have the right testing.
He didn't know about marketing agreements.
He didn't have the skill or relationships to move his product off the dock.

Without a sales pipeline with those things in place—he wasn't able to optimize production, so he focused on the things he could move like ribeyes. Which is great during grilling season and Christmas, but then he gets hung in a down market. Like clockwork, his one sales pipeline goes dry because he is out of the market.

He starts calling people crooks about this time. Customers flakes on commitments because he was 25% out of the market. Meat traders tell him he can't sell at USDA because he isn't audited or the product is old. And from his vantage point, everyone looks like a crook! They are robbing him blind—-because he didn't know what he didn't know.

The packer gets blamed for undercutting him, and we start all over with this song and dance. When all that happened was he didn't know the seasonality of ribeyes or tenders. He didn't know what he didn't know.

The reality is that a small plant asks ownership to be skilled traders of two inherently different commodities while being technically skilled operations managers. Does this sound reasonable to you? It doesn't to me. It sounds like a lot of sleepless nights and heartburn.

Big Daddy doesn't need to run these guys out of business. "Not knowing what you don't know" breeds an inherently inefficient system where small plants are constantly in a state of bankruptcy—taking cattlemen and the plants down with them.

So we constantly live in a black hole where small and medium sized plants are a revolving door of ownership.

BUT WE NEED MORE PLANTS!!

You bet. This is the part of the story where some organizations start playing another tune about plant consolidation and captive markets and monopolies.

We had more plants once.

The largest wave of plant consolidation happened back in the 70's and 80's. When WW2 era plants started closing down. Why? They had not reinvested in the building since it opened. These were highly profitable institutions that didn't reinvest, and as the market changed towards a more quality oriented consumer---they pocketed the money and closed shop. In the 1970's, there was 10 plants around Los Angeles alone and by 1985 they were all gone. The big 4 didn't force them out. The market place changed, and they didn't evolve.

The next big wave of plant closures was 2013-2014 when we cattlemen were printing money. No one complained when the Big Four closed 9 plants in 13 months on the back of record prices and margins in the red. Yes, I know you don't want to hear that. The claim is that packer's closed building and sit in empty plants as a conspiracy against cattlemen. It fits this creative narrative. When the truth is less sinister: they have the ability to control their ledgers. Is that a conspiracy or smart business?

I'm not trying to ruin a pipe dream—-In fact I'm offering my services to small plants get started. I'll help you sell, and I'll connect you to the resources to do so. I know this wasn't a warm and fuzzy sales pitch, but it's high time we stop glamorizing an uphill battle of establishing a market and romanticizing plant ownership. We have to stop creating this victim narrative.

It's not for the faint of heart. It's not for the closed minded. You'll only survive if you connect all the pieces of the puzzle: procurement, operations, sales. If you've got 2/3—you are still DOA.

There is no shortage of cowboy packers who have never picked up a knife, but you don't know what you don't know. And what you don't know—-will put you under much faster than any boogeyman packer theory. They don't have to cheat you. They really don't even know you exist. They just have to let you learn what you don't know the hard way.

 

[HDRider]

Regardless of how the story is spun, the fact remains there are four major packers. It does not matter if they own a small percentage of the plants, they still process the lions share of the beef. They move between 80 to 90% of all beef retailed. That gives them an inordinate amount of influence on setting prices.

They can stockpile frozen beef a lot longer than a feed lot can hold live beef.

Beef producers need alternative sales outlets. Everything else is noise.

 

[Richnm]

Becoming a millionaire is easy in the cattle business. .. As long as you start with a billion!

 

[sstterry]

One has to wonder just what amount of collusion between the big 4 may be going on. I have first-hand knowledge of how one big Dairy Cooperative was raping its own farmers. I suspect the same is going on with the Packers.

 

[HDRider]

One has to wonder just what amount of collusion between the big 4 may be going on. I have first-hand knowledge of how one big Dairy Cooperative was raping its own farmers. I suspect the same is going on with the Packers.

I am not sure they would have to collude.

All they have to do is not buy until the feed lots get full and desperate.

How many days of inventory of frozen beef can packers have?

 

[sstterry]

One has to wonder just what amount of collusion between the big 4 may be going on. I have first-hand knowledge of how one big Dairy Cooperative was raping its own farmers. I suspect the same is going on with the Packers.

I am not sure they would have to collude.

All they have to do is not buy until the feed lots get full and desperate.

How many days of inventory of frozen beef can packers have?

But it certainly doesn't look like there is a lot of price competition when they are selling to the retailers.

 

[HDRider]

One has to wonder just what amount of collusion between the big 4 may be going on. I have first-hand knowledge of how one big Dairy Cooperative was raping its own farmers. I suspect the same is going on with the Packers.

I am not sure they would have to collude.

All they have to do is not buy until the feed lots get full and desperate.

How many days of inventory of frozen beef can packers have?

But it certainly doesn't look like there is a lot of price competition when they are selling to the retailers.

To a point retailers have no choice but to pay packer prices. They have nowhere else to buy.

 

[ccr]

I wonder how it got this way. 4 processors that control 85% of the market and 2 of them are foreign owned (JBS - Brazil, and Smithfield - China). Am I understanding this right?

 

[jltrent]

I wonder how it got this way. 4 processors that control 85% of the market and 2 of them are foreign owned (JBS - Brazil, and Smithfield - China). Am I understanding this right?

Yes

The Big 4

https://www.hcn.org/issues/43.5/cattlemen-struggle-against-giant-meatpackers-and-economic-squeezes/the-big-four-meatpackers-1

 

[Lucky]

Raising cattle is a business. It's also a skilled trade if you will. Same with growing stocker calves, and feeding feeders. Same with running a store. Do you have experience in all these things.?
I can't count the people I've seen fail in a few months of opening a business. They expect to hang a shingle and the money starts rolling in.
It very rarely works that way. I was taught not to start anything and expect a profit in the first three years. I found that to be true. Don't expect the business to pay any of your personal bills for some time. And you better be capable of supporting the business for several months.
Experience is very important, the most important. Alot of the money in a small business is hidden. You learn to see where the money is over time. A lot of people won't understand that, but a few will know exactly what I mean.
You see it all the time.... someone opens a cafe because they are a good cook. In 60 days their broke. They may be the best cook in the world, but they knew nothing about running a restaurant, and didn't have the funds cover the bills without immediately becoming profitable.

You nailed it on this one Fence!! SmokinM followed it with another great post. Most people have no idea how hard it is to actually run a small business. When I first bought cattle I did the math and thought this is a no brainer. A good friend of mine that had been in the biz his entire life told me " you'll never see a dime out of those cows" another man overheard that and said " don't listen to him, he just doesn't know how to count his money". Well they were both right.

I've got an actual small business and the cattle. There's really very little difference in the two. Some days things are great and some days I'm trying to think up a way to hang myself and make it look like an accident. I always see post on here about how putting money in a yearling is a losing proposition and now we're talking about opening a packing plant. Calves don't go from 550# to 1,500#'s on their own and nobody wants to eat 6 oz grass fed steak. It takes money to make money and you can't starve a profit out of anything.

 

[hillbilly beef man]

O we dont eat those. I thought u wanted to sell em, not eat em.
We let someone else make em bigger.
Are u the someone else?

I do see your point tho. When we feed one out to butcher, it costs quite a bit as we have to buy feed.
Idk how anyone can afford to make em bigger and then sell em and still make money. Not the way practices and prices are now.

Where does one find feed cheap enough to make em that big at a big scale? Ya got me..

You can't make a profit the way most of us go to market. I want to take out the backgrounder, feedlot, distributor and the retailer with minimal processing cost. I'm thinking if I take their profit margins and make them my profit margins, even at a small scale, I can make a profit.

The butcher will take a good chunk of your profit! Last steer I did cost me $1050, or my price on 1/4 of the beef cut and wrapped.. so I do 2 years of work and the butcher takes 1/4 of it in a few days work..

Holy Smokes that's high!!! Where I take mine charges $35 kill fee and .45 lb hanging weight processing fee. My half on a 625 lb dressed heifer was $160.

 

[Nesikep]

You can't make a profit the way most of us go to market. I want to take out the backgrounder, feedlot, distributor and the retailer with minimal processing cost. I'm thinking if I take their profit margins and make them my profit margins, even at a small scale, I can make a profit.

The butcher will take a good chunk of your profit! Last steer I did cost me $1050, or my price on 1/4 of the beef cut and wrapped.. so I do 2 years of work and the butcher takes 1/4 of it in a few days work..

Holy Smokes that's high!!! Where I take mine charges $35 kill fee and .45 lb hanging weight processing fee. My half on a 625 lb dressed heifer was $160.

It is stupid high.. that is CAD, so about 750USD at the time.. still high... but that's what happens when the regulations get stupid and no one wants to do it.. that's the nearest one at 2 hours away, how far do you want to bring a steer?

 

[jltrent]

Meat prices rise in stores from shortage. Another price increase that will never come down............lol

 

[hurleyjd]

I will start staying at home more now after the Covid 19 is moving to the small towns of America. Yesterday at Walmart there was meat and chickens in the meat market. Sirloin steak was $19.75 a pound.

 

[Ky hills]

I wonder how it got this way. 4 processors that control 85% of the market and 2 of them are foreign owned (JBS - Brazil, and Smithfield - China). Am I understanding this right?

A little money and influence can go a long way, and just keeps getting more of both.