Figure 1. Western Canada. This paper was presented at the 2001 Focus on the Future Conference, February 20-21, 2001 Red Deer, Alberta, Canada

Transcription

1 13 Manipulating the Market: How to Get the Most from Grid Comparisons Ken Engele Prairie Swine Centre, Saskatoon, SK. Introduction Efficient production and maximizing total return per hog are two ways in which producers can maximize the returns to their operation. Assuming production is continuing at a constant efficient level, hog price has the largest single impact on the profitability of an operation. Rather than hog price, hog value is the single biggest impact on profitability. Hog value is composed of four main components: price per kilogram, transportation, packer settlement grids and packer premiums or discounts. Price per kilogram The base price a producer receives for their production is dependant on many factors: hog basis, exchange rate, origin of price base. One item that influences price is the hog basis (difference between cash and futures price), which is largely dependant on the excess supply or demand of the marketplace. In Canadian markets, the exchange rate also is an important part of the basis, as most prices are set using a US based market (Western Cornbelt, Interior Iowa S. Minnesota). Transportation Proximity to the marketplace, or packer in the case of hog production can potentially change the value of the hog in certain examples. Figure 1 shows the proximity of producers based in central Saskatchewan. A transportation circle of approximately 800 km that represents approximately a transportation cost of $ $9.00 per hog encompasses all the major packing plants in western Canada, and even some packers located in the northern US states. Therefore, assuming the producer can supply a 250 hog load, all packing plants are within a reasonable delivery distance. Figure 1. Western Canada

2 14 Packer Settlement Grids and Premiums / Discounts Packer grids differ according to their weight range, lean yield range, index, and premiums/discounts offered. The most rewarding grid to the producer depends on the quality of hog produced. The variance in weight distribution (wide vs. narrow), and type of hog (gilt vs. barrow) are two of many factors to examine when choosing the highest yielding grid. All things considered, hog price still has the largest impact on the value of the hog. However all factors must be considered in unison, after all it is the total value of the hog that producers receive that is important, rather than any one individual component. How can producers effectively maximize their return from the marketplace? One way to compare return between markets is to send test loads of hogs into each market then compare the net return between the two markets. Another method is through a spreadsheet. Through plotting packer settlement grid, bonus structures, and carcass information producers are able to analyze carcass returns across various packers. How can producers set out to accomplish this task? Input Required The information that is required in order to complete a packer analysis can be readily obtained from grading certificate and the local marketing agency. 1. Settlement weight 2. Fat (mm) 3. Lean (mm) 4. Trim 5. Weekly pool prices 6. Forward hog contract prices 7. Feed conversion 8. Feed cost/tonne (for each stage of growth) 9. Transportation rates to each packing plant 10. Shipping weight (live) 11. Individual packer grid 12. Packer premiums and discounts Procedure Fat and lean measurements are required information in order to calculate the lean yield of individual carcasses. Once the lean yield is calculated, the carcass dressed weight is analyzed to determine the appropriate carcass index. Weight (kgs), loin and lean (mm) are then analyzed in order to determine the appropriate weight, loin eye and lean premiums associated with individual packer grids. When all indexes and premiums/discounts are calculated the value of the hog can be determined on a hog by hog basis. Individual hog data is then summed for each packer represented and totalled in a summary sheet. Results 1. Comparison of packer hog settlement grids and relevant lean, loin eye and weight bonus structures 2. Individual carcass data outlining lean yield, index, various bonus values and total value per hog for individual packer settlement grids 3. Lean yield distribution for individual packer settlement grids 4. Weight distribution for individual packer settlement grids 5. Total hogs marketed for individual lean yield and corresponding weight category 6. Total value of hogs marketed for each lean yield and corresponding weight category 7. Average value of hogs marketed for each lean yield and corresponding weight category 8. Weekly packer generating hog value from each settlement grid

3 15 9. Rank of each packer settlement grid 10. Calculates marginal return to each weight category by assessing feed conversion and feed cost/mt 11. Calculates optimal shipping weights, determines which lean yield and weight category will generate the highest marginal return per hog Conclusion In conclusion producers need to consider the cost-benefit of any technology or management change within the production system. Knowing your product distribution better can effectively increase your bottom line of the operation. Changes within the physical barn environment if it is changing your nutrition program for room environment may impact your product distribution. The following table shows the comparison between increasing production by 1 pig/sow/year and the increase in pool price return that would be required to equate to this increased production. Number of Sows: Pigs weaned/sow/year: Post-weaning mortality: 3.5% 3.5% Pigs marketed/sow/year: Pig marketed/year: 14, ,880.3 Avg Shipping Wt: Avg Index: Dressing %: 79.0% 79.0% Avg Dressed Wt: Kgs / year: 1,287, ,340,119.8 Sask. Weekly Pool Price (1999): $ ckg ckg $ ckg Sask. Weekly Pool Price (2000): $ ckg ckg $ ckg Total Est. Value (1999): $1,637, $1,703, Total Est. Value (2000): $2,181, $2,269, Total Value difference 1999 $66, Total Value difference 2000 $88, $66, / 1,340,119.8 kgs / (108/100) x 100 = $4.77 ckg $88, / 1,340,119.8 kgs / (108/100) x 100 = $6.35 ckg Using the average pool return in Saskatchewan for 1999 of $ ckg, an increase in productivity by one pig/sow/year would require a increase in pool return of $4.77 ckg. Likewise, in 2000 an average pool return of $ ckg would require a increase in pool return by $6.35 ckg to match the increase in

4 16 productivity. The next question that requires answering. Which is easier to attain? When production is already at a high level a considerable amount of effort would be required to attain the increase in productivity. However, relatively speaking a smaller amount of work is necessary to attain the additional increase in pool price to match the productivity increase, especially in low priced hog markets.

5 17 SCOTIABANK Proud sponsors of the Focus on the Future Conference 2001 Optimizing the Production System February 20-21, 2001