Monday, April 16, 2012

Profitable farming: Sausage scheme (continued)

To see the previous sausage scheme entry, click here.

In the previous entry, I talked at length about bringing pigs to market in a way that made the farm more money.

Kelly Johnson made a very astute observation, which I'll quote here (from the comments section of the first post)

"...Let me first say I have no experience in marketing pork to consumers (yet). With that said I believe a major factor in your decision that was not listed in your blog is what would you get for the hog without going the extra step in making it into sausage...."

When you raise hogs, your choices become either wholesale, or retail.

  I have advised many people not to take their pigs to auction; the results in this area are highly variable; and the market isn't big enough to even it out.   A good pig at auction will get between $0.60 and $0.80 per pound, live weight. 

So for a 280lb live weight pig I'd expect to get at auction somewhere between $168 and $224.  If i had purchased feed and a piglet, that pig would have cost me at least $271 (see previous post) to produce.  So selling at auction would net me a loss in raising that pig of between $103 and $47

I have sold pigs at auction, and still do, from time to time.  They are often animals that have some sort of issue that makes them unthrifty for my farm (slow to grow, inefficient gain, physical defect like hernia, or treatment that makes it unsuitable for sale at my farm), and it is possible to make money at auction sales, but in terms something that I would count on, I'd rule auctions out as a regular market for my pigs. 

The prices at auction represent a recognition by the market that the pigs being sold may have some sort of issue.  You see good animals at the auction, too -- but the market can't tell the difference and prices them accordingly. 

I do not recommend that people plan on selling their production at auction except in limited circumstances.   If someone told me that a farm was regularly selling at auction I would immediately think that they needed to change something about the farming to make that less likely.

Whole or half, direct to consumer
  This is how I currently sell the majority of my production.  I charge $2.25/lb hanging weight for the pig, and the customer pays the cut-and-wrap and kill fees.  

  A 280lb pig will yield a carcass that is 210lbs hanging weight, which I get $472.5 from.  Subtracting the cost of raising the pig ($271) I get a gross profit of $201.5

This is where another comment from the previous post comes in.  Bill Gauch said:

"Seems like you're missing a big cost item in your math. Labor cost is missing."

The additional labor required for this particular method of sale is very little.  We select the pig to be marketed, schedule in the farm kill guy, and the farm kill guy and the meat shop handle the rest.   Having many retail customers is perhaps the most stable sales platform you can build your business on. 

Whole or half, direct to the meat shop
What happens with most of the area meat shops is that they get customers who want a whole or half pig, and call the meat shop seeking one.  The meat shop doesn't have pigs; I have pigs.  So I become basically the "house brand" pig.  One of my pigs gets customer slaughtered for the customer, who picks it up at the meat shop.   The sale is arranged by the meat shop and they pay a lower price than the consumer does; usually around 30% lower.  Using the same 280lb pig, I'd  have a gross profit of $140 per pig. 

Each of those methods has its advantages and disadvantages.  The auction is the most certain way to sell a pig.  If you have a customer cancel an order and suddenly have too many pigs, if you have a pig you can't sell at your farm, if you need to liquidate some animals for cash, it's the pawn shop of farming.

Whole or half direct to the consumer involves marketing and salesmanship, which many people don't like; it often involves creativity, and can involve quite a bit of handholding.  Customer expectations for levels of communication, questions, people who can't make up their minds; all of the stuff involved in retail sales come into play here -- and all of that is labor cost.  You earn the extra money.
Whole or half to a meat shop gets you a profit, and the meat shop handles all of the customer interaction.  I am now supplying pork to three meat shops in the area this way, and it is a relatively painless way for me to sell my pork; I can concentrate on my farm and practices and not so much on retail sales or customer care.  Um, strike that.  I go from many customers to a few.  My customers become the meat shops.  I still have to care for customers, just different customers.    I don't have to explain my product to the meat shops.  They know the value of meat, and they know I need to make a profit, and it's mutually beneficial that we treat each other fairly.   There is also a risk in having fewer, large customers. 


Kelly Johnson said...

Ok. So I may be looking at this the wrong way but this is what jumps out at me.

You want to make more profit. To do that your thinking more cost for processing and more work on your end. Now if you end up with 95 pounds of sausage then if you put it in 2# packs you have to deal with 47 sales/customers.

All your hogs are being sold. The problem is that customers are calling the meat processors and not you. They are getting 30% more profit for answering the phone. Figure out how to get them to call you first and you take back that 30%.

Currently you are supplying those meat processors because they have to deal with the customer and it frees up your time to work on the farm. If you make sausage wont you have to deal with even more customers and lose a lot of time making and selling the sausage?

Last thought. Instead of hiring someone to work on the farm so you have more time to market your hogs you could hire someone to market your hogs and give you more time to work on the farm.

Kelly Johnson said...

One last idea and I will shut up. This will work if you make sausage or stay with selling half or whole hogs.

Print you up a mailer and send it to all the local churchs. In the mailer tell the chucrh they will get a xx% discount for buying a hog from you. Also say in the mailer that if they are nice enough to put it on their church message board you will give that same discount to any member that buys a hog or if that member chooses you will make a donation to the churches building fund. (all churchs have some kind of building fund going on)

With just a few mailers you can market to a large amount of people this way. Plus you have given them a reason to buy from you instead of someone else. The "word of mounth" among the members is priceless. This is a spin on a way car sales use to be done.

CS said...

We sell pigs/pork in North East Ohio. Although we'd like to sell whole/half hogs, at a smaller profit, we've found very few people in our mostly rural area that are interested. So, instead we sell individual cuts and sausages..etc.

The problem that arises is we slaughter 2-4 hogs at a time. It may takes 3-6 weeks to sell that much meat (for us at least). So that ends up taking a lot of storage space. If you were a larger operation, killing 10-20 hogs at a time (or however many it takes to sell out in 3-6 weeks) you'd need correspondingly more freezer space.

Also, certain cuts don't sell as well as others, but that appears to be seasonal. For example, hams are popular around Turkey-Day, Christmas, Easter, but don't sell at all in the summer. Italian sausages/brats sell well in the summer, but not as well in the winter...etc.

Basically what I'm trying to say is, when you start selling cuts/parts, you may make a bit more money per pound, but you gain a whole host of new issues that you may not have had before.

Additionally, and this might not be a problem for you, finding a USDA inspected smoke-house was quite difficult for us and the only one we were able to find is a 2 hour drive away. So, we can either use our local smoke-house and our customers have to basically buy the meat from the smoke-house, or we have to have 2 4 hour trips to get smoked meat that we can sell at our farm.