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