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NCBA, R-CALF, COOL, USDA (No Politics!)
What gross profit are packers REALLY making?
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<blockquote data-quote="TerraceRidge" data-source="post: 1622642" data-attributes="member: 21599"><p>Thanks for posting those links. That market report is helpful, and I think it would be good to discuss it.</p><p></p><p>I am not really in the cow-calf business anymore. Instead, I raise-pasture fed and finished beef and sell to local customers (most steers are supplemented but some are grass fed). It would be tough to make $138.50/calf on a cow/calf operation if you had to spend very much on inputs, but I can see it easily happening in a well-managed low-input forage-based system with year-round grazing (or nearly year-round grazing).</p><p></p><p>Note that the cow-calf margin you posted was calculated after annual variable costs had been subtracted out. However, the packer margin looks to be a gross margin without any of their expenses included.</p><p></p><p>I ran the numbers in an Excel spreadsheet based on the link you provided. I don't think I can attach the spreadsheet to a post, but I took a picture of my calculations so that you all can review them. </p><p><a href="https://postimg.cc/pyLrkzXV" target="_blank"><img src="https://i.postimg.cc/pyLrkzXV/Packer-Profits-Week-Ending-Aug-16-2019.png" alt="" class="fr-fic fr-dii fr-draggable " style="" /></a></p><p></p><p>Here is what stands out to me: In order to do the calculation, I assumed that the packers are making money from only two sources. First, they're making money from beef cutout, and second, they're making money from the drop credit. But here's the problem: when I ran the numbers, the only way for their reported margin to be accurate is if they're getting an 86.4% yield (beef cutout as a percentage of hanging weight). I have never heard of a steer yielding that well before, and I don't think that it is possible <u>unless their definition of "beef cutout" is vastly different from mine.</u> This makes it look like either (1) what the packers are calling "beef cutout" or "boxed beef" is a much broader definition than I originally thought or (2) the packers have at least one more source of income beyond boxed beef and the drop credit.</p><p></p><p>Think about any time you've had a steer butchered. Has anybody had one produce more than 75% of the hanging weight in retail cuts of beef? If so, that must have been an extremely lean, well-muscled animal that was probably yield grade 2 or better (according to that OSU source I posted earlier).</p><p></p><p>What do you all think about this?</p></blockquote><p></p>
[QUOTE="TerraceRidge, post: 1622642, member: 21599"] Thanks for posting those links. That market report is helpful, and I think it would be good to discuss it. I am not really in the cow-calf business anymore. Instead, I raise-pasture fed and finished beef and sell to local customers (most steers are supplemented but some are grass fed). It would be tough to make $138.50/calf on a cow/calf operation if you had to spend very much on inputs, but I can see it easily happening in a well-managed low-input forage-based system with year-round grazing (or nearly year-round grazing). Note that the cow-calf margin you posted was calculated after annual variable costs had been subtracted out. However, the packer margin looks to be a gross margin without any of their expenses included. I ran the numbers in an Excel spreadsheet based on the link you provided. I don't think I can attach the spreadsheet to a post, but I took a picture of my calculations so that you all can review them. [url=https://postimg.cc/pyLrkzXV][img]https://i.postimg.cc/pyLrkzXV/Packer-Profits-Week-Ending-Aug-16-2019.png[/img][/url] Here is what stands out to me: In order to do the calculation, I assumed that the packers are making money from only two sources. First, they're making money from beef cutout, and second, they're making money from the drop credit. But here's the problem: when I ran the numbers, the only way for their reported margin to be accurate is if they're getting an 86.4% yield (beef cutout as a percentage of hanging weight). I have never heard of a steer yielding that well before, and I don't think that it is possible [u]unless their definition of "beef cutout" is vastly different from mine.[/u] This makes it look like either (1) what the packers are calling "beef cutout" or "boxed beef" is a much broader definition than I originally thought or (2) the packers have at least one more source of income beyond boxed beef and the drop credit. Think about any time you've had a steer butchered. Has anybody had one produce more than 75% of the hanging weight in retail cuts of beef? If so, that must have been an extremely lean, well-muscled animal that was probably yield grade 2 or better (according to that OSU source I posted earlier). What do you all think about this? [/QUOTE]
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What gross profit are packers REALLY making?
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