Finisher Close-outs

John Deen

University of Minnesota Swine Center

The frustrations:

•the variability of weights of pigs within a barn•the complex pricing grid given by the packer •the cost of both maintaining the pigs and the barn•the lack of records of contributions to value•The work

What can you do?

Find an understanding packerSort out heavy pigsRun barns longerRevise barn designReduce variationFind alternate markets for lightweight pigs

Proportion sold at lights weights

0%

2%

4%

6%

8%

10%

12%

14%

16%

<200 <210 <220

Rule # 1:

• shipping is an end decision, not an overall strategy.

• averages are not applicable in most cases • decisions are made on marginal economic performance, usually marginal profit

Rule # 2:

Building costs and other fixed costs are only important in capacity decisions. most marketing decisions should ignore fixed

costs marketing decisions must focus on opportunity

cost in marketing decisions this involves the

opportunity cost of not marketing a pig or conversely marketing a pig earlier

in AIAO barns this involves the opportunity costs of closing out a group

Is it weight accuracy or timing

Weight accuracy by eye: Absolute is poor Relative is good Can people sort out the heaviest pigs? Is sorting forced by space requirements?

Timing of trucks often not in response to season

Proportion light and heavy pigs

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

light

heavy

Why are differential payments weight-based

Lower potential margins on small carcasses Low prices for small primals Increasing supplies of small carcasses Inability to modify processes to fit varying

carcass size Association with more lesions

Carcass vs Primal Values

$-

$50

$100

$150

$200

150 170 190 210 230 250 270

LiveWt (lbs)

Val

ue

meat pig

Skinned Ham Picnic Bellyweight Price weight Price weight Price

12 58 4 34.8 5 5417 58 6 34.8 10 5420 55 8 34.8 12 5423 55 14 6627 50 16 7230 48 18 65

20 5325 53

Regular Loin Boston Spareribsweight Price weight Price weight Price

8 45.03 4 64.03 2 87.9719 62.1 9.5 64.03 4 87.9723 12430 118

Rest PriceSk Jowls 19.01Neckb. 10.07Feet 14.32tails 28.27L. Lards 24.7

Losses

Not cost of productionMostly opportunity costs

Margin over feed costs

Resocialization Especially in small pens

Financial effects

Sort lossOpportunity costsConsistency bonusesAlternative rearing systems for slow-

growing pigs

Determinants

Variation of weightsGridChange in carcass over weightPerformance effects of sortingClose-out schedule, profitabilityCosts of sorting

M a in

D e n s ityP h ys ica l sp a ce

(1 ) C a p a c ity

O ccup a n cy ra tesM o rta lity ra tesP ig f low

C o n tin u o us f low

O ccup a n cy ra tesM o rta lity ra tesP ig f low

A I/A O

(2 ) B arn tu rn o ver

A I/A OC o n tin u o us f low

(3 ) S p a ce u tiliza tion

F e edE n e rgyE ff lue n tM e d ica tionT ra nsp o rta tionM o rta lity

In com e rsS lo w G ro w th

(4 ) V aria b le co s ts

P a cker se le c tionS a le w e ig h tY ie ldL eanT rim lo ss

(5 ) P rice

B io se cu rityF a c ilityIn pu ts

(6 ) R isk m an a g em e nt

C o n site n t M a rg in= (p rice - cos t o f p ro d n) x vo lu m e/ye ar

w ith a lo w risk

What is quality in market pig production?

contaminant freeethically producedleangood color and water-holding

capacityEase of processingconsistent in characteristics, flow

and delivery

Why is consistency important?

ease of further processingease of productionrefinement of inputsreduction of riskincrease in demand

Proportion sold into target range

75

80

85

90

95

100

Sequential closeouts

Sa

lab

ilit

y (%

)

Components of variation of profits

0%

10%

20%

30%

40%

50%

60%

CDL's ADG FCR

Distributions differ

0%

2%

4%

6%

8%

10%

12%

14%

16%

Proportion o

f group

50 100 150 200 250 300 Weight (lbs)

Barn 1 Barn 2

Definitions

Lightweight pigs are either too young at time of market or have not met their expected growth rates

Amplified by restricted capacity and little flexibility to address these pigs

Age is a minor problem when pigs are raised in age cohorts

Slow growth in a proportion of pigs that is too small to justify maintaining those pigs while underutilizing the capacity

Do not meet consumer requirements

Unmeasured costs

Feed conversionTreatment costsMortality rates“Typhoid Mary” effectSorting costsInput costsPlanning costs

Why are differential payments weight-based

Lower potential margins on small carcasses Low prices for small primals Increasing supplies of small carcasses Inability to modify processes to fit varying

carcass size Association with more lesions

Carcass vs Primal Values

$-

$50

$100

$150

$200

150 170 190 210 230 250 270

LiveWt (lbs)

Val

ue

meat pig

Skinned Ham Picnic Bellyweight Price weight Price weight Price

12 58 4 34.8 5 5417 58 6 34.8 10 5420 55 8 34.8 12 5423 55 14 6627 50 16 7230 48 18 65

20 5325 53

Regular Loin Boston Spareribsweight Price weight Price weight Price

8 45.03 4 64.03 2 87.9719 62.1 9.5 64.03 4 87.9723 12430 118

Rest PriceSk Jowls 19.01Neckb. 10.07Feet 14.32tails 28.27L. Lards 24.7

Equation for calculating the quality loss of a product. The further the product is from its target state, the greater the loss will be.

Definition: Loss function

Marginal Curves

-1

-0.5

0

0.5

1

1.5

Dollars

160 180 200 220 240 260 280 300 320 Weight (lbs)

Marginal Value

Marginal Cost

Marginal Profit

Loss function of market hogs

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00150

160

170

180

190

200

210

220

230

240

250

260

270

280

290

300

Wt (lb)

Definitions

Lightweight pigs are either too young at time of market or have not met their expected growth rates

Amplified by restricted capacity and little flexibility to address these pigs

Age is a minor problem when pigs are raised in age cohorts

Slow growth in a proportion of pigs that is too small to justify maintaining those pigs while underutilizing the capacity

Do not meet consumer requirements

Total margin over feed costs

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

02/16 03/08 03/28 04/17 05/07 05/27

Sold as group

Marketed by weight

MOFC for a single pull system

($500)

$0

$500

$1,000

$1,500

02/16 03/08 03/28 04/17 05/07 05/27

Average Daily MOFC

Marginal Daily MOFC

MOFC for a multiple pull system

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

02/16 03/08 03/28 04/17 05/07 05/27

Average Daily MOFC

Marginal Daily MOFC

Things to do:

Reduce losses when lightweights occur Retain pigs Sell to alternate market

Prevent variation in growth rates Disease control Feed intake

enhancement others