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High Input Costs and Market Weights

by 5m Editor
13 December 2011, at 12:00am

Optimum market weight depends on lean growth potential, marginal feed efficiency through heavier weights, the packer grid, space availability on-farm and feed costs, according to Ronald O. Bates (State Swine Specialist, Michigan State University MSU), Thomas Guthrie (Extension Educator, Jackson CO) and Dale Rozeboom (State Swine Specialist, MSU) in the latest issue of MSU Pork Quarterly.

The pork industry is struggling with an unusual set of economic conditions. Prices received for market hogs are at an all time high. However input costs are also at or above record values. To be successful, pork producers must have a good understanding of not only their herd efficiency and cost of production but also where the efficiency break-points occur, indicating points of diminishing returns. This is especially true for market pig weights.

Over the last two decades, lean growth and efficiency have dramatically improved, which has resulted in pigs with improved lean gain at heavier market weights. Compared to historical averages, pigs are leaner at heavier weights; however, the underlying biological principles have not changed; notably, that as pigs get heavier body fat increases and feed efficiency worsens. Most contemporary terminal cross pigs have been profitable at heavier weights but differences in lean growth exist across different terminal cross lines. Yet this has had less economic consequence during times of lower grain prices. Unfortunately, as input prices have increased, so has cost of gain. Pigs with less-than-ideal lean growth may no longer be profitable at heavier market weights due to increased cost of gain compared to the past decade. Therefore, it has become more critical to establish an optimum market weight in order to market pigs before they become an economic liability. The objective of this article is to determine optimum market weights, using varying scenarios based on contemporary assumptions of input costs and pig performance.

Estimation Methods

Optimum market weights were calculated for three different scenarios with differing input prices of corn, soybean meal and the resulting cost per ton of the last ration fed to finishing pigs. An existing spreadsheet tool from Dr John Lawrence, Iowa State University was used. This Excel™ spreadsheet tool is available to pork producers onlinee click here. In addition, the marketing information for an existing packer marketing matrix was used. The buying programme used was considered to be more favourable for heavy weight pigs. Lean percent premiums and discounts along with possible sort loss were included in the calculations to determine results applicable to contemporary pork production.

Assumptions

To complete these calculations, background information and assumptions were needed to set typical feed costs and pig performance. Information used in these analyses is provided in Table 1. Dried distillers grains with solubles (DDGS) were held at a constant price. Pig performance used is listed in Table 2. Pigs were assumed to grow 1.88lb per day, regardless of the final weight in which they were marketed. Pigs were not considered for marketing until they reached 258lb. Furthermore, it was assumed that the decision to market pigs would occur in weekly increments. That is, if pigs were not marketed at a given weight, they would be held for an additional seven days. In addition, it was assumed that space was not limiting, such that pigs could be marketed at any weight chosen without space concerns for the rest of the production schedule. Furthermore it was also assumed that there would be no change in the percentage of dead or downer pigs observed if pigs were marketed at heavier weights.



Marginal feed efficiency as pigs increased in weight was also estimated. Typically, feed efficiency is measured from pig placement, either as a weaned pig or feeder pig, until reaching market weight. However, to determine optimal market weight, it is critical to know what feed efficiency is from two different ages or weights that occur later in the growth phase. In Figure 1 is an example. Feed efficiency is shown two ways. The first is feed efficiency calculated for the entire growth phase to different end weights starting at 220lb. For instance, with an end weight of 220lb, feed efficiency, measured as pounds of feed per pound of gain, is approximately 3.0 for the entire growth phase. For an end weight of 290lb, feed efficiency is 3.4 for the entire growth phase.

The second representation for feed efficiency is for marginal feed efficiency. That is the feed efficiency between two different weights, regardless of the feed efficiency up to the initial weight. For instance, the marginal feed efficiency from 220 to 230lb is approximately 3.8lb feed per pound of gain while from 280 to 290lb, the marginal feed efficiency is approximately 4.8. Marginal feed efficiency was developed for each of the beginning and ending weights evaluated adapting results from previous research completed at Michigan State University (Edwards et al., 2006).

Lean percentage also changed as pigs increased in weight. For example, the initial market weight evaluated was 258lb with an estimated lean percentage of 55 per cent. When pigs were held for an additional week, their subsequent end weight was 271lb (Table 3). Feed efficiency for the additional week, measured as feed/gain, was 3.8 and at marketing their percent lean was 54.5 per cent. Under the packer grid used, there was no sort loss for 271lb pigs. In addition, each carcass achieved an additional $2.57 per head in lean premium.

Optimum Weight and Feed Price

To determine the influence of differing feed input costs, differences in pig performance for different market weights are listed in Table 3. The results of the three different feed price scenarios are found in Figure 2. The results are reported as the value change per head for pigs kept to the heavier weight. For example in Scenario 1, the results state that if pigs were marketed at 271lb, they would be worth $5.73 more than if they were marketed at 258lb. The interpretation holds true for each category. For instance, within Scenario 1, pigs marketed at 284lb would be worth $4.72 more than pigs marketed at 271lb. However, within Scenario 1, pigs marketed at 297lb would be worth $1.08 less than pigs marketed at 284lb. The results are also cumulative across each category. For example in Scenario 1, pigs marketed at 284lb would be worth $10.55 more ($5.73+$4.72) than pigs marketed at 258lb.

With the underlying cost and animal performance assumptions, pigs continued to increase in value up to 284lb, even for Scenario 3, which listed corn at $9 per bushel. For all three scenarios, pigs at 284lb were of greater value to the farm than pigs marketed at either 258 or 271lb. However, for all three scenarios, pigs lost value after reaching 284lb, with the greatest loss logically occurring in Scenario 3, in which corn was valued at $9 per bushel and soybean meal was $400/ton.

It must emphasised that the results provided were developed to illustrate how pig performance, including growth, marginal feed efficiency and lean percentage at different market weights can impact return to the farm. If pigs grew slower, or had worse marginal feed efficiency, the final results could have indicated that pigs may need to be sold at a lighter weight than 284lb. On the other hand, the results also provide some reasoning as to why pig market weights have been at or above 270lb for much of first six months of 2011.

Optimum Weight with Increasing Feed Costs and Changes in Feed Efficiency

There are some terminal cross lines that can maintain lean percentage through heavier weights. To determine how this may influence the decision on market weight, a subsequent analysis was developed that included the initial three scenarios for differing feed prices, however, lean percentage remained constant and feed efficiency was changed to reflect improved lean percent through heavier weights. The assumptions used for this evaluation are listed in Table 4.

Within this assessment, compared to the initial evaluation, lean percentage and feed efficiency was more desirable through heavier weights. This led to heavier optimum market weights. Pigs remained profitable through 297lb (Figure 3) for all three feed price scenarios. For Scenario 1, pigs remained profitable through 310lb. This demonstrates how important it is to know the marginal feed efficiency and lean percentage at different market weights. This information allows a pork producer to determine if their pigs can remain lean and maintain favourable feed efficiency through heavier weights. If so, then profitability per pig may be increased due to improved cost of gain. However, if producers know their pigs do not maintain favourable feed efficiency and lean percentage through heavier weights, marketing pigs at a lower weight could improve profitability per pig sold, versus selling them at a heavier weight with an unfavorable cost of gain.

Optimum Weight if Growth Rate Declines

The initial evaluations of optimum market weight assumed a favourable growth rate (ADG = 1.88lb per day) through heavier weights. Though the pig has its highest growth rate in the later phase of growth as it reaches market weight, not all terminal cross pigs will growth as fast as stated in the initial evaluation of this exercise. Therefore a lower growth rate was evaluated to determine how optimum market weight may change. Average daily gain was changed from 1.88 to 1.58lb per day. As in the previous evaluations, growth rate was maintained through a four-week scenario. Since pigs grew slower, lean percent and feed efficiency was altered to reflect slower growth. The assumptions used are those listed in Table 5.

Compared to the initial evaluation for market weight (Figure 2) returns per pig improved through 291lb except for Scenario 3, in which feed costs were higher (Figure 4). However, it should be noted that increases in pig value were marginal from 276 to 291lb for feed price Scenarios 1 and 2. For instance, the lowest feed price scenario, Scenario 1, the value of each pig marketed as they increased in weight from 276 to 291lb was just $1.35 per head. In Scenario 2, pigs increased in value by only $0.43 per head for the same weight increase. In those cases where pork producers have growth performance similar to that evaluated in this analysis, other factors impacting profitability and farm operations may be considered in determining optimum market weight.

Optimum Weight with Increasing Feed Costs and Feed Additive Use

As feed prices have increased pork producers have evaluated usage of feed additives that may either improve pig performance, feed efficiency or both. Once such feed additive is Paylean™, marketed by Elanco. Paylean has been reported to improve growth, feed efficiency, lean percentage and yield. To use Paylean effectively, the ration, compared to typical finisher rations, must contain higher levels of amino acids to support the increased lean gain as feed consumption declines. This results in higher ration costs. For this evaluation, the different grain prices listed in Table 1 were used but, the cost per ton of finishing ration was increased $33.30 to account for the inclusion of Paylean and increased levels of amino acids. The assumptions used in this evaluation are those listed in Table 6. However, this evaluation was conducted differently than those previously discussed. Initial weight was 245lb instead of 258lb. This was the pig weight when Paylean was first included in the feed. In addition, Paylean was fed for two weeks before pigs would be marketed. Therefore, no pigs were assumed to be marketed until they had been consuming Paylean for two weeks. Thus, pigs were not marketed until they reached 276lb. As can be seen in Table 6, average daily gain was improved along with feed efficiency, lean percentage and dressing percent as compared to Table 3.

The potential returns are in Figure 5. Pigs remained profitable under all three feed price scenarios to 276lb. For the lowest feed price scenario, Scenario 1, pigs remained profitable through four weeks on Paylean to 303lb, while under Scenario 2, pigs neither lost nor returned any further value while on Paylean to 303lb.

In closely reviewing the results, some practical considerations become apparent. For Scenario 1, pigs returned just an addition $1.13 when retained from 290 to 303lb. In this case, other production system factors may drive the decision on what weight to market pigs. The same was true for Scenario 2, when pigs were held from to 276 to 290lb. These pigs returned just an additional $1.36 per head. Furthermore, under Scenario 3 in which corn was price at $9 per bushel, retaining pigs from 276 to 290lb returned the farm a meagre $0.18 more per head for seven additional days in the barn. Under circumstances of high grain prices, it may be prudent to market pigs soon after feeding Paylean for two weeks, if circumstances allow for that and pig performance is similar to that simulated in this evaluation.

Conclusion

Determining optimum market weight will differ from farm to farm. This decision will be based on lean growth potential, marginal feed efficiency through heavier weights, the packer grid in which market pigs are priced and space availability within the production system. Many have suggested that feed costs will remain above historical averages for the foreseeable future.

Producers should carefully determine optimum market weight to improve profit potential and reduce risk.

Literature Cited

Edwards, D.B., R.J. Tempelman and R.O. Bates. 2006. Evaluation of Duroc- vs. Pietrain-sired pigs for growth and composition. J. Anim. Sci. 84: 266-275.

December 2011