The COVID-19 Pandemic has really accelerated consumer and producer interest in beef sold directly from the ranch. Disruptions to supply chains, apparently unnecessary price fluctuations, allegations of packer collusion, mistrust of “Big” Ag, and increasing interest in regenerative ag have created a perfect storm, further accelerating an already growing trend.
One thing drawing producers in is the lure of bigger profits. Whether it’s through higher margins, consistent pricing, or just cutting out the middleman, direct marketing of grass-fed or conventional beef looks appealing. The number of websites and YouTube channels that are willing to teach you the in’s and out’s is truly staggering.
If this is something you are considering, there are a lot of factors to examine. From a business perspective there are two things that stand out in spades: CASH FLOW and STOCKING RATE. Cash flow is the life blood of our business. It’s how we pay our bills, buy groceries, and pay the mortgage. It’s like oxygen, you can’t live long without it. And in an overhead intensive industry, stocking rate determines how many costs each cow carries.
Raising a calf from birth to slaughter takes a LOOONG time. What does that mean for you? Reduced cash flow. If you’re a typical cow-calf producer, you are accustomed to a significant paycheck about once per year. And we all agree that that makes business a little tough compared to more frequent payments. Now imagine increasing the time between checks by 50-100%. Yes, the checks might be bigger, but you’ve got to make sure you can eat in the intervening 18-24 months. Of course, there are ways to ameliorate these effects, such as borrowing money and taking deposits. Both of these things, however, cut into your margin.
Reduced stocking rate is the other significant cost. Assuming you live in a resource limited world, if you’re a cow-calf producer and hold your yearlings, they are eating grass that otherwise would be going to your cow herd. So, now you have fewer calves to sell (each with higher overheads) and your grazing plan might be more complex. Again, there are work-arounds: you go off ranch or bring in additional feed. And while that frees up your grass for your primary herd, it ties up capital. Again, cutting into the anticipated margin.
How many of us look at our ranch business and think I’d like to get paid less, less frequently? Probably not many. I’ve spent most of my career trying to figure out how to get paid more frequently. If you’re considering a direct marketing enterprise look carefully at your carrying capacity, cash flow, and free capital. Please don’t imagine that I’m against finishing cattle. It can be a GREAT business. But it has some real pitfalls for which you’ll want to plan. Have a solid plan before you start and plan for some contingencies (this year for example, we saw huge bottlenecks at custom slaughter facilities). The added costs might cut into the new income enough to make it less profitable than what you’re doing now. Or, it might be more profitable, but you have a starvation period at the beginning. How long can you hold your breath?
Of course, there are other factors to consider. These are two where we can help. You’ll have to decide if your beef tastes any good, you want to go to farmer’s markets, or manage a retail website, and a host of other things. Funny enough, the only time in my life I used the Heimlich was at a grass-fed promotional event in the late 1990’s.
I’m a good swimmer, I’m pretty comfortable diving to the bottom of a 20-foot pool to retrieve a golden ring. Make that pool 30 to 40-feet deep and I’m not as confident I’ll get to the ring. If I fail in the pool, no worries, I’m not going to drown trying, I’ll swim to the surface. If I run out of cash or grass with a bunch of 1100# steers that aren’t ready to slaughter, I’m in a real pickle.