When the cattle market goes up or down the price does not seem to be reflected in my price?
By Bob Oros
To get a picture of how the market works we have to follow the process from start to finish. To purchase a two year old pregnant heifer ready to calf we would have to invest $500. We would keep the calf for eighteen months and sell it at the feeder stock yards. It would now weigh 750 pounds and sell for $.74 cents per pound, giving us a total of $565.
The cost to raise it from a calf to a 750 pound feeder would be $355, giving us a profit of $200 or $11 per month. The "feeder cattle" is now owned by the feed lot company, or the investors, where it stays for 140 days. It is fed 35 pounds of feed and corn per day and gains 3.3 pounds per day. It is now called a "slaughter cattle" and has gained an additional 450 pounds for a total weight of 1200 pounds. The slaughter cattle is purchased by the meat packer at $.74 cents per pound, or $888. The feed lot cost was $565 plus $275 to feed and maintain it. This gives the feed lot a profit $48, or $10.50 per month.
The meat packer has to have 20% gross profit to pay their cost of doing business, bringing the per pound price form .74 cents to $.93 cents per pound. This would be the whole cattle price. Keep in mind that the packer has whole cattle coming in so they have to have whole cattle going out. The various cuts are priced according to supply, demand and quality. Each cut represents a certain percentage of the whole carcass which also determines the price.
The product is then delivered to the distributor who must get at least a 15% gross profit to deliver it to a restaurant, bringing the cost per pound up to $1.09 for the whole cattle price. A cattle price of $1.09 would equate to a rib eye price of $3.50 per pound. A restaurant would sell a 10 oz steak for $12 giving them a total food cost, including all items on the plate, of 35%.
When they say the cattle market is up $1, they mean per hundred pounds (.01 cents per pound), which will have very little effect on overall prices.