Nick Pihakis of Jim 'n Nicks BBQ is encouraging small scale hog farmers to provide him with product for the restuarants. He has purchased a USDA processing facility in north Alabama. If Walter Jefferies could weigh in on what he thinks about the prices offered (400 hogs/year with a $68K earn out - seems like he's paying about .75 cents per pound on the hoof if avg weight is 225 lbs) I'd like to hear his thoughts as to whether thats a profitable income stream.
He is looking to do "Mangalitsa-Berkshire cross" according to the articles and that is a high end, high value niche market product. A bit slow growing and prone to fat so it may be longer than my estimates of time and the food expenses may be higher than I estimated below on typical pigs.
75¢/lb live weight divided by 72% live weight to hanging weight = $1.04/lb on hanging weight. Compare that to the $3.50/lb we get at wholesale on hanging weight, buyer pays processing and delivery. That's too low. Those are confinement animal feeding operation (CAFO) prices.
225 lbs/livepig x 75¢/lb x 400 pigs/yr = $67,500/yr which is probably the "$68K" figure he describes as "Net" which is really gross, not net unless he's also paying for all the feed and other expenses of the farm. Based on reading the articles I think the $68K is the gross he is paying, not a true net, and it needs to cover the costs of the feed, farm infrastructure, fuel, electric, labor (the farmer), health insurance, mortgage, loans, etc.
Pigs eat about 800 lbs of feed if you feed them candy (commercial hog feed / grains) to get to market weight in six months. I would expect that is the plan. In bulk that is going for about $150 per pig. So that is $150/225lbs = 67¢/lb to cover the cost of feed or about $60,000 per year for 160 tons of feed for 400 pigs. If you're not using commercial feed, we don't, then you'll need lots of land, seed, and other resources. Our truly pastured method is more labor intensive than the confinement barns and takes a lot more thinking and experience so the lead time to startup without commercial grain based feeds could be long.
Since they must be pastured that means at least 400 pigs / 10 pigs per acre = 40 acres minimum which you'll need to buy, fence, seed, maintain and pay the real estate taxes on. That will likely come to a goodly part of the $68K if not more. You will need some equipment as well. A tractor runs $40K to $150K with basic implements. There will be other equipment needs, buildings, etc.
There was no mention of breeder stock, no boars or sows so there is the cost of the feeder stock, the piglets. High quality Mangalitsa-Berkshire crosses won't be cheap. We get $150 to $250 seasonally for our weaner feeder piglets, the extras we sell from our sows beyond what we need for our meat customers. Perhaps he has a very low price source for 16,000 of them a year. That would be over 500 sows and over 35 boars on pasture - no farrowing or gestation crates I hope. For comparison we have 40 to 60 sows, varies a bit over time, and three main boars for our 400 pigs on pasture. AI can replace the boars at a higher labor cost but the sows are hard to replace.
Based on the available information I would not buy in. I sell my meat for about four times that direct to stores, restaurants and individuals. Putting a middleman in just takes it out of my slice of the pie. I would rather have a side of ice cream and do the processing myself.
Perhaps there is something more to it that wasn't revealed in the articles. Not unusual for articles to be missing important details. Maybe he's paying for all the above expenses, providing farms, tractors, supplying the piglets and the feed so the 75¢/lb live weight is truly your profit and thus the $68K "Net". It will be interesting to watch how this pans out. I'm sure there are many details to come that will make things clearer...
I don't raise hogs for a living, but I have some experience in restaurants, so let's look at this from the other end.
In my part of the world, BBQ (yes pork, is there any other kind? ) sells for somewhere around $12 a pound. A restaurant has to multiply the ingredient costs by 2 to 4 times, depending on the type of restaurant, in order to make a profit. Best guess would be 3 for a typical BBQ joint. Therefore the $12 pound of BBQ will have about $4 of pork cost in it. This is processed cost, so say 25% of this cost will be for getting the meat from walking to ready to cook. That leaves about $3 a pound in live meat cost. Within range of what Walter's numbers are. If the processing costs are controlled by owning the plant, he might be able to pay a premium over market price to attract the best producers. So, with these admittedly rough numbers, it could be possible to make this work. A lot of this would depend on the overhead costs of the restaurants, the expectations of the producers, and the contracts negotiated.
I just don't see enough info in the articles to pin it down any closer.
My girlfriends parents and siblings were staying with us last week and I had promised them BBQ. I went to the farmers market to find some grass fed swine. I had already talked it up but my usual guy wasn't there. The one guy there was selling baby back slabs for 19$ a pound. WTF?! I was over a barrel. I had to do it. It made me ill.
jonathan white wrote:baby back slabs for 19$ a pound. WTF?
Wow. I have been told of prices like that by people who buy our pastured pork and ask us ship to it them. They tell me that even with the shipping cost it is cheaper than buying locally - which is what I suggest. It is hard for me to imagine - I don't get out much. We charge $7.86/lb† for ribs (retail) and shipping adds $40 to $100 a box or about $2 more per pound (a box holds up to 40 lbs or so and shipping costs are very dependent on location) in the insulated box ($20). The result is it comes to around $10/lb delivered.
I personally have serious qualms about shipping because it seems like pastured meat ought to be able to be found locally and the shipping seems so... energy intensive. But I do it because I concluded it isn't my place to judge. Your experience makes that point.
†One might be wondering the difference between the above mentioned $7.86/lb and the earlier mentioned $3.50/lb. That's the difference between buying By-the-Cut vs buying By-the-Pig. In the latter case (pig) one is purchase all the meat on an animal and then paying processing on top of that which was the original question. In the former case (cuts) one is paying for just a small quantity of a specific part of the pig and the price includes the processing and is at retail (low volume). Most of what we sell is actually wholesale pricing (higher volume for resale) which is about half the retail pricing. I don't mind that the stores and restaurants get their cut because they keep the meat in their coolers, freezers and display cases, provide the sales employees, deal with the individual small customer sales at retail, etc. We're all part of the chain that makes it happen, pastured to pork to fork.
Thanks for running out those numbers Walter. As I thought, there's not much room for profit on labor or covering fixed costs in that $68K number, unless he's providing stock and feed. His goal is laudable (pastured pork for the masses) but its not going to help the farmer if the pricing is CAFO standards.