maximizing return marketing at the right weight phil rincker

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Maximizing Return Marketing At The Right Weight Phil Rincker

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3 How Heavy Can I Go…? Genetics Stocking Density Marketing Strategy Space Needs Seasonal impacts Feed Cost Carcass Price Packer Transportation Risk – Will not include discussion on risk management

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Page 1: Maximizing Return Marketing At The Right Weight Phil Rincker

Maximizing ReturnMarketing At The Right Weight

Phil Rincker

Page 2: Maximizing Return Marketing At The Right Weight Phil Rincker

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What weight should I market at?• Not a one size fits all answer• Too many variables at play

• Disclaimer:– All data and grids contained in this presentation are completely

fictional. The actual numbers presented here will not apply to your situation.

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How Heavy Can I Go…?• Genetics• Stocking Density• Marketing Strategy• Space Needs• Seasonal impacts• Feed Cost• Carcass Price• Packer• Transportation• Risk

– Will not include discussion on risk management

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Genetics• Commercial vs. Maternal vs. Specialty• What is the growth potential?• What is the FC at different weights?• What happens from a lean perspective?

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Genetics• What does a 200 lb carcass look like? 230lb?

• What is your animal depositing at these weights?

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Stocking Density• Initial stocking density will influence late finishing

performance– K-value or K-factor– Caused by declining amount of space available

• This is also responsible for the increase in growth and feed efficiency after first cuts are removed

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Stocking Density• K-Values (Gonyou, et. al.; 2006)

– Performance declines when pigs reach a given weight per unit of space – 0.033 meters2/kg metabolic body weight (aproximately 26-28 lbs/ ft2)– Pigs stocked at 6.5 ft2 will hit this at a lighter weight than pigs stocked at

7.5ft2

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Stocking Density

• Initial stocking density and the subsequent decrease in performance may dictate when to take first cuts

• In order to take pigs heavier, initial stocking density may need to be adjusted

• Need to balance stocking density, target weight, and performance

Estimated weight at 27 lbs per ft2 and different initial stocking densities

Stocking Density (ft2/pig) 7.9 7.6 7.3 7.0 6.7 6.4 6.1Average Pig Weight (lbs) 231 218 205 193 181 169 157Top 20% Aveerage Weight (lbs) 269 254 239 224 210 196 183

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Marketing Strategy• # of cuts / site visits– Precision vs. Simplicity– Biosecurity

• Acceptable Variation– How narrow is the target on my grid?

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Space Needs• When do I need to empty this barn so other

pigs can enter?• Do I have enough time to hit my desired

weights?• Managing pig flow with today’s health

challenges…

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Seasonal Impacts• Cool season– Maximum intake– Maximum growth rate– Easier to hit target weight

• Hot season– Reduced intake and growth– Space needs may dictate marketing weight

rather than an optimal weight

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Transportation• Bigger pigs will require more trucks to empty

a site– Should try to keep lbs/ft2 constant

Measurement 67.9 64.8 61.5 58.2 55.0 51.7

Dead on arrival at plant, % 1.37a 0.81ab 0.11c 0.09c 0.00c 0.32bc

Non-ambulatory at plant, % 1.46ab 1.08abc 1.76a 0.89bc 0.13c 0.66c

Total Losses at plant, % 2.84a 1.88ab 1.87ab 0.98bc 0.13c 0.98c

Effects of loading density on transport losses at the plant1.Loading Density (lbs/ft2)

1Means within a row with different superscripts differ (P < 0.05)Adapted from Ritter et. al. 2007

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Transportation• Bigger pigs also show a tendency for

increased chance of DOA or fatigued animals– May need to modify handling and loading SOP’s– Follow TQA guidelines for ventilation, showering,

etc.

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Risks• Markets could change• Morbidity and Mortality• Wear and tear on facilities and equipment

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What is the goal?• Minimize sort loss/discounts– Packers grids are pretty stable

• Maximize revenue– Heavier pigs will bring a bigger check

• Maximize return (profit)– Targets will fluctuate depending on different

economic scenarios– Carcass price, fixed and variable costs, other

influences

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Minimize Sort Loss

• Typical Weight and Lean Grid• No sort loss area highlighted in green and white

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Maximize Revenue

• Biggest check is highlighted in green

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Maximizing Return• Fixed Costs – hard to influence short term• Variable Costs (feed, labor, utilities, vetmed…)

– Largest contributor is Feed Cost– Where is the animal on its growth curve?– What is the Feed Conversion

• Carcass Price– Open market, contracts, formulas…

• Packer Grids

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Maximizing Return• Need to understand how all of these fit together…Can be

complicated

• Simplified– Is there positive return on additional pounds of gain– Is Carcass Price > Additional Feed Cost– What is my maximum achievable return?– Every profitable lb of gain increases return

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Simplified Examples

• Additional considerations– Facility, labor, etc.– Packer discounts at heavier weights/fatter pigs

Carcass Price ($/lb)

Feed Cost ($/ton) Feed:Gain

Feed Cost/lb Carcass Gain1 Return

$1.00 $220.00 3 $0.44 $0.56$1.00 $220.00 3.5 $0.51 $0.49$1.00 $320.00 3 $0.64 $0.36$1.00 $320.00 3.5 $0.75 $0.25$0.70 $220.00 3 $0.44 $0.26$0.70 $220.00 3.5 $0.51 $0.19$0.70 $320.00 3 $0.64 $0.06$0.70 $320.00 3.5 $0.75 -$0.05

1Assumes a 75% carcass yield

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What drives the decision?• 18 months ago…– Higher feed cost, Lower carcass prices– Driven primarily by feed cost and feed conversion

• Today…– Lower feed cost, Higher carcass prices– Additional gain is profitable…to a point– Driven primarily by packer grids

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Carcass Price ($/lb)

Feed Cost ($/ton) Feed:Gain

Feed Cost/lb Carcass Gain1 Return

$1.00 $220.00 3 $0.44 $0.56$1.00 $220.00 3.5 $0.51 $0.49$1.00 $320.00 3 $0.64 $0.36$1.00 $320.00 3.5 $0.75 $0.25$0.70 $220.00 3 $0.44 $0.26$0.70 $220.00 3.5 $0.51 $0.19$0.70 $320.00 3 $0.64 $0.06$0.70 $320.00 3.5 $0.75 -$0.05

1Assumes a 75% carcass yield

If I feed to a heavier weight, where do I land on the grid and how will I handle the discounts?

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Margin Over Feed Cost (MOFC)

• Revenue – Input Costs = Return – hopefully profit

• Feed costs can account for nearly 73% of wean-finish production costs1

• Revenue – Feed Cost = MOFC– Pretty good indicator of return

1 Iowa State University Cooperative Extension Service. 2014. “Estimated returns for farrowing and finishing hogs or producing weaned pigs in Iowa.” Addendum to M-1284c. Accessed 5/2/14. < http://www.econ.iastate.edu/estimated-returns/files/FWF/FWF14.pdf >.

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Margin Over Feed Cost

• Assumed– $220/ton ave diet cost– $1.00/lb carcass price

• Excludes fixed costs

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How does Sort Loss compare to MOFC?Sort Loss Grid

MOFC Grid

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Targeting Maximum MOFC

• My pigs average 54% lean, not 58% lean• So I should target 240 – 250 lb carcasses (320-333

lb pigs)?• Only if you sell one pig at a time

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Single Pig vs. Population Model

• Really dealing with a distribution of weights, so where should I center that distribution?

• To far in either direction is sub-optimal

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Margin Over Feed Cost CurveDistribution of individual carcasses

160 170 180 190 200 210 220 230 240HCW

Mar

gin

Ove

r Fee

d Co

st

At some point, return starts to decrease due to poor feed efficiency, packer discounts, or both. The goal is to minimize the damage done by the tails of the distribution and maximize the return where the majority of the pigs land on the grid.

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A distribution of carcasses

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Ave HCW = 205.5 lbs; Std Dev = 19.6 lbs

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A distribution of carcasses

Ave HCW = 205.5 lbs; Std Dev = 19.6 lbs

Most profitable weight categoryat 54% lean

•How far to the right can I afford to shift this distribution of pigs?•5 – 10 lbs?

Carcass Weight (lbs) <149 150-159 160-169 170-179 180-189 190-199 200-209 210-219 220-229 230-239 240-249 250-259 260+ Total Count48% 1 7 22 53 45 35 18 3 2 18649% 1 3 14 52 31 14 8 3 12650% 3 8 46 61 89 102 121 99 66 15 13 4 62751% 6 17 39 42 156 202 289 301 217 151 35 22 8 148552% 12 180 300 223 486 652 721 932 712 213 108 56 29 462453% 9 153 189 607 1193 1896 2012 2568 2312 705 305 108 44 1210154% 51 308 286 702 2286 3213 4483 3153 2861 805 275 115 39 1857755% 23 283 189 302 1236 1536 2243 1583 1463 403 159 75 24 951956% 13 98 75 189 831 1069 1492 793 689 201 86 35 12 558357% 9 32 8 23 54 42 8 3 17958% 0Total Count 115 1043 1105 2179 6362 8756 11445 9519 8367 2549 983 424 160 53007

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A new distribution

0

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4000

6000

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10000

12000

14000

16000

Ave HCW = 205.5 lbs; Std Dev = 15.2 lbs

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The same new distribution

Ave HCW = 205.5 lbs; Std Dev = 15.2 lbs

•How about this distribution?•15-20 lbs?

Carcass Weight (lbs) <149 150-159 160-169 170-179 180-189 190-199 200-209 210-219 220-229 230-239 240-249 250-259 260+ Total Count48% 049% 050% 61 89 102 121 99 66 53851% 156 202 765 301 217 151 3 179552% 120 280 670 700 1045 1234 870 133 37 508953% 189 306 1193 1896 2976 2568 2312 348 45 1183354% 286 489 2286 3213 4867 3153 2861 647 74 1787655% 189 407 1236 2238 2876 2234 645 445 34 1030456% 189 831 1069 1553 953 723 128 26 547257% 23 54 18 5 10058% 0Total Count 0 0 784 1671 6433 9430 14238 10582 7732 1918 219 0 0 53007

Most profitable weight categoryAt 54% lean

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What Causes Variation at Marketing?• Fill Time vs Marketing Period• Health Status/Challenges• Marketing Strategy and Timing (tops)• Short Space• Pig Selection and Loading

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Reducing variation allows us to target a more profitable weight for the entire population

Mar

gin

Ove

r Fee

d Co

st

HCW

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How much more weight?As much as is profitable for the entire population

135

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Margin Over Feed Cost

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What weight to market at?• Understand your playing field– Prices (feed, pigs, etc.)– Packer grid– Marketing strategy– Expected HCW variation

• Identify the correct weight for your system– Maximize MOFC for the entire group, not the individual pig

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Measure and Review• Important to review these decisions and evaluate

execution– System and site level– Immediate and longer term– Did we have the appropriate target weight?– Did we execute our marketing strategy and get the right pigs

on the right truck?– What should we do differently?

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Thank You

Questions?