Beef Price Ready Reckoner

HOW IT WORKS

Meat price inflation is something new to the industry. Certainly since the gloomy days of BSE in the mid 1990s prices have never risen that sharply. Then along came 2008 and as you can see from the chart below – rapidly rising costs of raw material.

So when beef costs you 26% more just how much do you put up your prices. Unfortunately the gut feeling that 10p or 20p on a kilo every now and then will do is not likely to look too clever after your accountant prepares your end of year results. By then it is far too late to do anything about it.

In response to members enquiries a Beef Ready Reckoner was placed on the Members only website back in March 2008.

Price rises have not been easy to pass on at the top end and what has happened throughout 2008 is a narrowing of the gap. Mince and stew has borne the brunt of price increases when it has been felt that to increase steak prices would only create customer resistance.

So how does this ready reckoner work? Firstly an average yield from a side of beef was worked out over a dozen freezer orders (that's why there is no beef brock). You can use this but really you should work out your own average yield based on your maturation, your trimming and your cattle.

Next the cost price of a side of beef was logged and the prices for each cut entered in the column beneath the cost price at the time. Retail prices used were taken from this Newsletter. The selling prices established in this case a 52.4% gross margin. This was not a target it just happened to be the answer when the retail prices were entered into the spreadsheet.

The next thing was to see what increases in selling price were required to maintain the same margin when prices went up. Before this could be done we need to work out what weighting each cut is going to have to achieve the same margin. A factor that appears in column A was worked out for each cut e.g. Hough was H8 divided by H4 = 4.

This factor appears in cell A8 and this value is then multiplied by the cost in I4 to get the new selling price in cell I8. This is then replicated through the whole sheet to give the mathematical answer on just how much to move each selling price.

The spreadsheet on the website allows you to alter factor values to better reflect your desired gross margin and the prices you feel achievable. In other words if you could not raise the price of Fillet Steak, by keeping it the same at £26.65 (key that in I14) the gross margin reduces by 0.1%.

This is not as complicated as it sounds. Please give it a go. If you have any questions or would like a spreadsheet made up using data from your own beef please contact Douglas on 01738 637472.

Analysis of the figures reported weekly by QMS for abattoir prices paid to farmers show increases:-26% increase in Steer Beef, 30% increase in lamb and 22.5% increase in pigs since January. DATE STEER BEEF SHEEP/ LAMB PIGS
18/10/08 287 284 136
20/09/08 294 289 136
16/08/08 284 282 137
12/07/08 283 289 136
07/06/08 271 367 127
10/05/08 269 391 121
16/04/08 260 321 118
08/03/08 250 282 113
09/02/08 235 268 111
05/01/08 224 216 111