Poultry Production and Processing Economics

Jeff May, Regional Manager, Dawes LaboratoriesJeannette Beranger,

ALBC Research & Technical Program Manager

First things first….

Define your mission

I bet I can be the best marksman in the world.

Same target same distance…

My only condition is that he wear a blindfold.

Which species do you want to produce?

Industrial breeds or standard breeds?

What kind of system will be used to raise the birds?

Living Environment

IndoorsEnclosed yards

Free rangePasture

FeedAll vegetable

feedOrganic

Anti-biotic freeCustom blend

Calculating Operational Costs

Primary expenses include:

1. Feed – Cost dependant on the feed prices and feed conversion of the birds.

2. Chicks – Cost dependant on species, breed, and numbers of chicks ordered.

3. Fuel – Cost dependant on heating needs for brooder and vehicle fuel prices.

4. Housing – Cost dependant on expenditures for set up & clean up.

Feed Conversions based on Good Shepherd Data

Corn/Rock Cross

2 lbs of grain / lb of weight gain with 5-6 weeks of age

for grow out

Standard breed

4 lbs of grain / lb of weight gain with 14-16 weeks of

age for grow out

per birdper pound of product

$ 0.62 $ 0.18 Chick (bought or produced)

$ 1.32 $ 0.38 Feed

$ 0.24 $ 0.07 Fuel (propane)

$ 0.12 $ 0.03 Housing

$ 0.01 $ 0.00 Water medication, vaccination, disinfection

$ 0.01 $ 0.00 Depreciation Equipment

$ 0.01 $ 0.00 Depreciation Building

$ 0.03 $ 0.01 Property Taxes (current assessed value multiplied by 1.5%)

$ 0.02 $ 0.01 Electrical

$ 0.10 $ 0.03 Building Cleanup and Setup

$ 0.01 $ 0.00 Operating Loan Interest

$ 0.02 $ 0.01 Water Sanitation

$ 0.01 $ 0.00 Flock Insurance

$ 0.02 $ 0.01 Building Insurance (Buildings)

$ 0.01 $ 0.00 Business Interruption Insurance

$ 0.01 $ 0.00 Farm Equipment (truck, tractor, bobcat)

$ 0.01 $ 0.00 Repair & Maintenance

$ 0.01 $ 0.00 Supplies & Misc.

$ 0.02 $ 0.01 Farm Fuel

$ 0.13 $ 0.04 Hauling to processing plant ($1.25 per mile + fuel)

$ 2.73 $ 0.78 Total

Average Costs of Production with Hybrid Cross Chickens

per birdper pound product

$ 1.42 $ 0.47 Chick (bought or produced)

$ 1.54 $ 0.51 Feed

$ 0.24 $ 0.08 Fuel (propane)

$ 0.12 $ 0.04 Housing

$ - $ - Water medication, vaccination, disinfection

$ 0.01 $ 0.00 Depreciation Equipment

$ 0.01 $ 0.00 Depreciation Building

$ 0.03 $ 0.01 Property Taxes (current assessed value multiplied by 1.5%)

$ 0.02 $ 0.01 Electrical

$ 0.10 $ 0.03 Building Cleanup and Setup

$ 0.01 $ 0.00 Operating Loan Interest

$ 0.02 $ 0.01 Water Sanitation

$ 0.01 $ 0.00 Flock Insurance

$ 0.02 $ 0.01 Building Insurance (Buildings)

$ 0.01 $ 0.00 Business Interruption Insurance

$ 0.01 $ 0.00 Farm Equipment (truck, tractor, bobcat)

$ 0.01 $ 0.00 Repair & Maintenance

$ 0.01 $ 0.00 Supplies & Misc.

$ 0.02 $ 0.01 Farm Fuel

$ 0.13 $ 0.04 Hauling to processing plant ($1.25 per mile + fuel)

$ 3.74 $ 1.25 Total

Average Costs of Production with Standard Breed Chickens

ProcessingYour flock size will be limited by the

capacity of the processing plant.

A good working relationship with the processor will be key to the

farm’s ultimate success with poultry.

Product Pricing

Don’t undercut the market.

Familiarize yourself with current prices for comparable product on a

regular basis.

General Rule of Thumb for Setting Price

Cost of production x 1.2 plus the cost of processing equals your total cost.

Your cost plus ~20% equals the baseline price for the product.

This price needs to be re-evaluated often as costs for various aspects of production can

fluctuate as will the market price for comparable products.

Value-added Considerations

Advantages

Can increase profit margin is some cases

Can utilize product that may otherwise have little to no value

Can diversify the farm’s offerings to the public

Pitfalls

May be difficult to have access to value-added processing

The cost of the processing may be high

The profit margin could be very low

Food For Thought on Value-Added products

• In the case of heritage turkey hotdogs, the cost of turkey production equals the cost of creating the product.

• Since the cost of creating the hotdogs is high, mark-up and profit margin of the product is extremely low in order to be successfully priced to the public. However…

…without the hotdog product, the farm may be stuck with meat that

has little to no market value.

The point is that you have to have balance. Moving product is equally

as important as your profit margins.

Good Shepherd Ranch Hatchery & Production Model

• Farmers with Good Shepherd Lines recovered standard chickens provide eggs to Frank who incubates the eggs for $0.50 per chick.

• The chicks cost the producer $3.74 to raise up to market weight.

• Grown birds that pass inspection and are ~3 lbs are purchased from the farmers by Good Shepherd for $6.00 per bird giving the producer a profit of $2.26 per bird.

• Birds that do not pass inspection (but are not condemned) will be purchased for a minimal price of only ~$1.00.

• The cost of processing for whole birds is $2.00 each.

The total cost to Good Shepherd Ranch for a 3 lb processed whole bird is $8.00

The processed whole standard breed bird is sold to the public for $11.00

The profit per bird for the producer is $2.26/bird

The profit per bird for Good Shepherd Ranch is $3.00