Profitable farming: The sausage scheme

For the most part, my farm and procedures have settled down to a fairly stable routine.  Over the past 6 years I've worked out how to feed the animals, where to feed them, how to treat them, house them and how to sell them. 

Each part of that chain feed->house->care for->sell has  gone through revisions; I'd try something, and work with it a while to see how it went, and then if it works I'd adopt that practice.  if it didn't, I'd go back to what worked before. 

Part of that is the engineer training, where you do a lot of work refining an initial idea.  In software it's called version1, version 2, version 3 and so on. 

I've been working up to a new direction for the farm for the last two years; the area that I'd like to improve is the sale of animals.  I don't really want to produce more animals; I'm about the size that I'd like to be, but I would like to make more money per animal sold -- to increase the amount of money that the farm makes as a net profit. 

Lots of farms choose to keep their profit per animal the same and just increase the number of animals that they produce, and there's a logic in that argument. 

If you increase the number of animals produced, you don't have to do anything different.  The same procedures and technology (and make no mistake, your farm procedures are technology) remain the same, you just have larger numbers.   

That's fine, and in fact, is how our agricultural industry has moved to a confinement style of farming; the basic argument is that you can then minimize the amount of land (one of the more costly things on your farm) used to produce your product.  Less capital, more revenue, better ROI. 

In my type of farming, expansive, I  provide the animals with much more space and habitat.  So for me to double my output would require, if I were to do the same sorts of things I'm doing now,  that I double the amount of land I'm farming. 

It's a pretty seductive argument, and is easier than what I've been contemplating; let me give you a little more background to what I'm thinking: 

Instead of producing more animals, lets look at what we really want to do:  Make more money.  And in fact, we'd like to so in a way that is as invisible to the customer as we can.  Ideally, we'd like to make more money and have the customer think that the product is either the same cost or even to have the consumer think that it's cheaper than it used to be or cheaper than the alternative food supplies.  If we can convince the customer that it's cheaper and better the chances are good that they'll stick with us for the long haul.  And happy customers are the basis for any business, including farming.  

Kevin Kossowan wrote a blog entry the other day where he talks about upgrading his families food  to much better quality than he could buy at the supermarket, and the the fact that it actually REDUCED his food bill by doing so.  Now that's the reaction that I'd  like my customers to have.  That is the ideal reaction.  That's the reaction that I'd like to have for my customers, too.

So I don't want to raise customer prices; or better yet, I'd like to reduce their prices, but I'd like to make more money.  For me, the answer is pretty obvious:  I have to sell direct to the consumer, and  in fact, I need to concentrate on a product that the customer will pay a high price for that has margins big enough that I can play with pricing a little as a marketing tool.

Up to this point I'm talking about the general concept; what I've said above applies to any agricultural product you might produce; eggs, milk, cheese, beef, pork, poultry...  now I'm going to get specific about pork.  

If you ask someone to talk about the best part of the pig, you'll get a list.  It goes something like this:

1. Bacon
2. Ham
3. Ribs
4. Everything else

Bacon and hams are easy to sell.  And then there's the rest.  Sausage, for me, is the clear winner.  Most of the pig can be made into sausage, and fresh sausage is relatively easy to produce.  The recipes are simple, and the equipment pretty straightforward.    A bowl chopper, a mixer, a stuffer and a workspace.

But even better the consumer pays more for sausage in most cases than they do for the whole cuts.  Let me repeat this:  Sausage often sells for more retail than any part of the pig other than the hams and bacon.  So just converting the pig into sausage gives you a boost in revenue.

Much simpler inventory, too.  

So I've been exploring sausage, and there are various companies that will take my pigs and produce sausage from the pork, but I just haven't been able to make the math work yet. it just doesn't pencil out.    Here's some real numbers from my experience, assuming that I purchase the feed at current cost to produce the pigs. 

1 pig takes 800lbs of feed at $0.22/lb to produce.  The pig itself retails as a piglet for $95 around here.  So my cost of production (ignoring land, equipment, labor, fencing, bedding, etc etc) is at least $271 per pig with purchased feed. 

For $271 I get a 280lb live weight hog.   To produce a value-added product, I have to have it slaughtered at a USDA inspected facility, which costs $60 (I'm ignoring the transport costs; maybe I have a mobile trailer come to my farm). 

so my cost is now $331, and that gets me 220lbs of inspected pork. 
I then have it cut-and-wrapped at a USDA inspected facility, which costs me $0.61/lb.  Since I'm making sausage, I have them trim the hams and belly, and convert the rest into sausage. 

220lbs * $0.61 is an additional $135.81. 

My cost is now $465.81, and I now have 165lbs of mostly boneless cuts.  Lets say that the hams are 40lbs of that, and that the bacon is 30lbs of that.  That leaves 95lbs for sausage. 

The hams and bacon have to be cured, and then smoked.  Local costs for that are about a dollar a pound.  Add $70 to my cost, and then the place that produces the sausage charges $2/lb to do that.  Add another $190. 

Still with me?   My total cost is now $625.81, and for that I have 70lbs of cured meat, and 95lbs of sausage.  My average price  per pound is a minimum of $3.79/lb

...Which isn't bad at all when you look at it from a consumer point of view.  Good quality pastured pork that is completely cut and wrapped and cured, cook and eat.  Yum!

What I've talked about are the hard costs to produce this.  I'll need to mark it up to make a profit;  so with a hard cost of $3.79 a pound, what would I have to charge to make a profit?  What's a reasonable margin?