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Danish Pig Research Centre: Annual Report 2010: Economy

by 5m Editor
11 August 2011, at 12:00am

The productivity of pig production in Denmark in 2009 is outlined in the latest annual report from the Danish Pig Research Centre.


Export of weaners

Since 2001, weaner prices have been generally similar for exporting and for selling nationally, but there have been large fluctuations from year to year. Despite largely identical prices, pig producers continue to export weaners as the possibilities for selling the animals in Denmark are inadequate. Over the last years, investments have not been made in expanding the capacity of finisher place units required to produce the increase in weaners.

The production of weaners continues to increase. It is therefore necessary to establish more finisher place units, as export of weaners will otherwise continue to increase as weaner production increases.

Development in productivity

Danish sow farms wean an average of 27.6 pigs per sow/year (+14 per cent since 2003), which is an annual increase of 0.5 pig the last seven years.

Since 2003, weaner producers have improved the feed conversion ratio by 0.05 and daily gain by 37g.

Since 2003, finisher producers have improved the feed conversion ratio by 0.06, daily gain by 61g and lean meat percentage by 0.02 percentage points.


The increase in the export of weaner slowed in 2010

Production results 2009

The tables comprise 666 sow farms with a total of 385,000 sows/year (35 per cent of all sows); 545 weaner farms with a total production of 3.7 million weaners (26 per cent of all weaners); and 849 finisher farms with a total production of 5.4 million finishers (28 per cent of all finishers).

Sows 2009
Top 25% 50% quantile Bottom 25%
Sows/year 660 588 477
Feed units per sow/year 1,522 1,532 1,529
1st parity litters, % 23.4 23.9 24.6
Born alive/litter 14.8 14.2 13.6
Weaned/litter 13.0 12.2 11.4
Weaned per sow/year 29.9 27.6 24.8
Farrowing rate 89.1 86.8 82.8
The top 25 per cent of producers wean five pigs more than the bottom 25 per cent.


Weaners
Top 25% 50% quantile Bottom 25%
Pigs produced/year 16,008 14,829 12,324
Daily gain, g 512 460 413
FCR/kg gain, feed units 1.79 1.93 2.10
Mortality 2.1 2.5 2.9
Weight/sold pig, kg 32.1 31.5 31.00
The top 25 per cent of producers have a production value that is 39 per cent higher than that of the bottom 25 per cent.


Finishers
Top 25% 50% quantile Bottom 25%
Pigs produced/year 7,034 6,542 5,427
Daily gain, g 974 902 812
FCR/kg gain, feed units 2.68 2.82 3.05
Av. slaughter weight 82.2 81.4 80.7
Av. lean meat % 60.2 60.3 60.1
Mortality 2.7 3.6 5.3
Rejected, % 0.3 0.3 0.4
The top 25 per cent of producers have an output that is 30 per cent higher than that of the bottom 25 per cent.



Danish sow producers demonstrate an annual increase of 0.55 weaned pigs; feed conversion among weaners and finishers improve by 0.01 feed units annually.

Production Economy

Operating result

Operating results for Danish pig producers improved in 2009, but are still too low. The development in operating results is shown in Figure 1, which shows that all groups had negative results in 2009, though the trend in negative results is now stopped. There is, however, still a long way to go before a balance is reached in the economy.

Recent prognoses reveal that weaner producers are expected to get a profit in 2010, while finisher producers still find it difficult to balance the economy. However, these calculations were made before the most recent increases in grain prices that have a negative impact on the average pig producer. However, this will depend on the self-sufficiency of the producer in grain, and this varies greatly between producers.


Development in operating results for Danish pig producers, DKK1,000.


Table 1. Operating results in 2009 for the top 25 per cent in each group
Weaner
production
Finisher
production
Integrated
production
Gross profit 6,194 3,948 5,551
Costs per unit -3,244 -2,392 -3,060
Gross margin 2,951 1,556 2,491
Cash capacity costs -1,456 -713 -1,159
Operational depreciation -599 -178 -498
Result of primary operation 896 665 835
Decoupled direct EU aid 267 304 334
Financing costs -725 -419 -693
Operating result 438 550 476

Large variations in results

Figures from 2009 reveal large variations in the results of Danish pig producers. The best make money, as shown in Table 1 that shows the profit of the best 25 per cent in 2009.

Where the producers as an average had a negative operating result of more than minus DKK0.5 million, the best 25 per cent had a bottom line result of more than DKK1 million. However, there does not seen to be a correlation between a large production and operating result as the last years have demonstrated that earnings were not large enough to pay interest on production facilities. Many producers with new production facilities and large debts have had a low income the last years. Those with the least debt, and thereby the lowest financing costs, have managed best financially in the last years.

Result for 2009 and 2010
2009 2010
RESULTS PER 30-kg PIG
Gross profit 328 338
Costs per unit 192 208
Gross margin 136 130
Cash capacity costs 93 86
Capital costs 87 71
Result -44 -27
RESULT PER FINISHER
Gross profit 400 405
Costs per unit 300 323
Gross margin 100 82
Cash capacity costs 52 49
Capital costs 82 67
Result -34 -34

Economy – weaners

For 30-kg pigs, the expected 2010 gross margin will be DKK130 per pig versus DKK136 in 2009. Accounts for 2009 demonstrate that gross margins varied from DKK82 among the bottom 25 per cent to DKK177 among the 25 per cent best of Danish weaner producers.

The result for a 30-kg pig in 2010 is expected to be minus DKK27 when all costs have been paid. This is a slight improvement compared with 2009 figures of minus DKK44 per pig. The improvement is attributed to decreasing capacity costs and interest.

Economy – finishers

The gross margin for finishers in 2010 is expected to be DKK82 per pig versus DKK100 in 2009. Accounts for 2009 demonstrate an average gross margin of DKK91 varying from DKK19 among the bottom 25 per cent to DKK150 among the 25 per cent best of Danish finisher producers.

The result per finisher is expected to remain unchanged at minus DKK34. Decreasing capacity costs and interest only compensate for the reduction in gross margin.

The project was financially supported by the EU and the Danish Ministry of Food, Agriculture and Fisheries.

Cost-Effectiveness in Production of Finishers

Conditions

In analyses of the cost-effectiveness of a new finisher house, the most important conditions are:

  • pig prices
  • feed prices
  • production efficiency
  • investment per place unit

In the long run, pig prices and feed prices are expected to be fairly correlated. These two price categories are both decisive to the economy in finisher production. A realistic estimate of future pig prices can be obtained by analysing the trends over a long period of time – minimum of five years and preferably 10 years. Since 2000, pig prices have averaged DKK9.09 (excl. bonus payment) and on that basis, the average pig price is set to DKK9.60 (incl. adjustments and bonus payments). This is the expected pig price. If feed prices globally increase more than expected in the coming years, pig prices will adjust to the new cost level.


The figure shows the development in terms of trade between feed prices and pork price.

Terms of trade – feed/pig prices

For the last 20 years, terms of trade have averaged 7.8. If pig feed costs DKK1, pig prices will be DKK7.8 per kg. A pig price of DKK9.60 will result in a feed price of DKK 9.60/7.8 = DKK1.23 per feed unit.

Production efficiency

A new production facility must be reliable and economical in terms of labour, and meet environmental requirements. It must not be a limiting factor in achieving results that are among those of the 25 per cent best in the national average. If higher production efficiency figures are being used, they should be documented by current figures. The national average is available at Pig Research Centre's web site. Below, an example is shown of how the cost-effectiveness of a new finisher house is calculated.

Basis:
  • Price per place unit: DKK2,720
  • Pig price: DKK9.00
  • Settlement price: DKK9.60
  • Feed price per feed unit: DKK1.20
  • Weaner price, delivered: DKK366
  • Interest: 5 per cent
  • Depreciation, equipment: 12.5 years
  • Depreciation, buildings: 25 years
  • Feed conversion: 2.65
  • Mortality: 2.5 per cent

The price of a place unit expresses huge competition in the construction industry. The example is a pig house with 500 livestock units and air cleaning. All other conditions (medication, labour etc.) correspond to the Calculated Weaner Price.

Analysis of cost-effectiveness
DKK/ pig sold
Sale of finishers 797
Purchase of weaners incl. delivery (1,025 pigs) 377
Gross profit 420
Costs per unit 271
Gross margin 149
Cash capacity costs 56
Depreciation 36
Result of primary operation 57
Interest 30
Result 27
The table shows a gross margin of DKK149 and a result per pig of DKK27.

Key figures

Different projects are compared on the basis of their key figures. The most important key figures are:

  • Gross margin = GM/gross profit
  • Net profit ratio = result of primary operation/gross profit
  • Rate of return = Result of primary operation/assets (invested capital)
  • Break-even, settlement price, DKK/kg
  • Break-even GM, DKK/pig
Key figures for the project
Repayment period 16
Break-even for pig price, DKK/kg 8.33
Break-even for settlement price, DKK/kg 8.93
Break-even gross margin, DKK/pig 122
Gross margin, % 35.5
Net profit ratio, % 13.6
Rate of return, year 1, % 6.7
Rate of return, annual, % 11.4
The table shows key figures characterising the project. The requirement for break-even settlement price is DKK8.93/kg pork.

On average, DKK3,340 is tied per place unit in Year 1. During the life of the pig house, DKK1,940 is tied per place unit.

Surplus is realistic

The project is not sensitive to changes in interest and price per place unit. Productivity is important, but break-even gross margin can be achieved with the national average, ie. mortality can increase by 1.1 percentage point; feed conversion ratio by 0.14; and daily gain can drop by 70g.

If the productivity is level with 25 per cent of the best, investment in finisher production must be considered a fairly safe investment.

Further Reading

- You can view the full report by clicking here.


August 2011