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Prairie Swine Centre is an affiliate of the University of Saskatchewan
Prairie Swine Centre is grateful for the assistance of the George Morris Centre in developing the economics portion of Pork Insight.
Financial support for the Enterprise Model Project and Pork Insight has been provided by:
Local polynomial fitting and spatial price relationships: price transmission in the EU markets for pigmeat
Posted in: Production by admin on January 1, 2006 | No Comments
Managing the Risk: Price Protection Through Insurance
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Studies are currently being done to examine whether a price insurance program would work in the hog industry. Producers (for the most part) are willing to pay 1 to 2 dollars per pig for a reasonable insurance due to the wide price fluctuations that have occurred over the past few years (producers tend to remember 1998 and 2002 in particular). Producers wish to guard against scenarios where the hog margin after feed is insufficient to cover the remaining costs. This has occurred before for a period, as long as half a year, and it took even longer to recover from it. Consultations with producers and other related observations suggest there would be good receptivity to having an insurance alternative to add to their available tools in the risk management package, and costs should be held within $1-2/hog to obtain fairly wide coverage.
Bogies and Birdies of Pig Production
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Things have been pretty good since 1998. In fact, pick out any 10-year period since the 2nd World War and they all have been great. Hogs have been the “mortgage lifter” for the farmer. It is a fact that over time the hog production business is and will probably continue being a highly profitable business providing you can overcome swine disease and avoid going broke during “market adjustments”. One strategy is to partner with your packer by having a packer marketing agreement. A market price window relating to the cost of production seems a fair deal to both packer and producer. If spot prices are over the window you, the producer, receive only part or none of the price overage and vice versa for prices below the price window. An important thing to remember is that over time an efficiently run pork production business has had a better return on capital than the packing business. This means the marketing window may not be as high as you might have thought fair. But in return for this lower price window, your partner, the packer, is taking on part of your marketing risk. A packer agreement is a must if you are planning a major increase in the size of your production system by taking on a lot of debt. In fact, it is usually impossible to borrow large amounts of capital without some sort of packer marketing agreement. However, over time, taking on all the price risk is the best strategy. No hedging or no marketing agreement! When you got into the pork production business you correctly assumed it would be profitable enough in the winning years to far offset profit losses in losing years. But, somehow you must avoid going broke during bad years. That’s the paradigm of any cyclical business. How can you do this without hedging or a marketing agreement? This can be accomplished by having enough financial resources behind the hog operation to absorb losses taken during hard times or for that matter when your operation has unusual losses due to disease or other unexpected production problems. What resources do you need? A rule of thumb for farming operations in general is to maintain working capital equal to or greater than one year’s operational expenses plus personal living expense (drawing account). Working capital is short-term assets (cash, hogs, feed and supplies) minus short-term debt (accounts payable and notes due within one year). If the hog operation goes into a negative cash flow, working capital is maintained by taking on long-term debt on other assets or actually selling other capital assets, such as land or stocks. When market prices are low it seems like an everlasting event as you watch your balance sheet slowly deteriorate. This is the paradigm of any cyclical business especially a commodity business. The slightest change in supply or demand has a multiplying effect on the price of the commodity. However, don’t be a masochist and just sit there and go broke. Prepare your financial situation or obtain a packer marketing agreement and above all, operate at maximum efficiency at all times, but especially during times of low profitability.
Role of Cooperative in Improving Accessibility to Production Resources and Household Economy of Backyard Pig Raisers in Batangas, Philippines
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Backyard pig operation is characterized by the main use of available household resources. The size of animal holding per farm is relatively small and usually accounts for only 2-4 % of the commercial farm. The ownership of household labor at low opportunity cost is one of their comparative advantages with those commercial operators that require more hired labor to run their enterprise. However, being a resource poor and non-organized, they are unlikely to get, on their own, access to the limited resources relating to high quality genetic stocks, animal nutrition and health services and premium markets for output. Backyard pig raisers have been shown to be a heterogeneous entity. Nevertheless, it has been regarded as forefront of the country’s agricultural growth by contributing the highest and consistent average annual growth of 4.6% in gross value-added in agriculture from 1990-2000 despite the financial crisis which struck Philippines and other Asian countries in the latter part of this decade. For years, this sector dominates the country’s pig industry by producing 70% of the total domestic pork supply; comprising 80% of the aggregate pig inventory and providing livelihood to 3.8 million dependents that rely on this livestock activity as their substantial source of income (Tibayan, 2003).
Costales’ (2002) study on backyard pig raisers’ production and market characteristics in Southern Luzon revealed that access to scarce production resources necessary for expanded smallholder participation is not a sole working of the market force and is unevenly distributed across locations (provinces). It is found greater in areas with institutions like cooperatives where members are encouraged and taught to pool together their available scarce resources to benefit
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everyone in the group. As everyone gains access to these resources, they are enabled to expand their operation, which consequently empowers them to gain more revenue, better profit, and greater income for the household. Thus, the challenge to assemble these backyard pig raisers into institution like cooperatives, which adheres to principles of cooperation, is viewed as a potential measure to directly link them with the whole spectrum of market chain ranging from the acquisition of available production resources and services to the efficient marketing of their differentiated final products. Based on a field survey1, this paper aims to highlight the role of the cooperatives in improving the backyard pig raisers’ access to various production resources and their household economy.
Contract Finishing: Getting Your Facts Straight
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Labor shortage and the rising Canadian dollar are concerns in the hog industry and have brought about the idea of contract finishing and contracting out manure. Upon analysis, Western Canada should be able to slaughter 1 to 2 million more pigs per year for the next three years with the planned construction of packing plants in Saskatoon and Winnipeg. Higher prices for finished hogs in the U.S., a shortage of Western Canadian slaughter capacity, and an arguable advantage in the U.S. contract finishing cost of production appear to be the reason for increases live exports. This trend will continue if Canadian packing plants cannot offer competitive prices. The general consensus among several large-scale producers is that yes, the U.S. can and will offer better prices over the next few years. Factors that influence the desire to slaughter in Western Canada includes increased slaughter capacity, enough pigs being finished to warrant a double-shift, and low feed costs. The most negative factor was the exchange rate. Contracting finisher barns usually involves the hog owners providing everything necessary for the pigs, but sometimes the barn owner will provide the labor. A 20-year economic model was created for a 2400 capacity finisher operation with earthen manure storage (EMS) and four 2400 finisher capacity operations without EMS. The single 2400 unit produces 1,638,120 gallons of manure per year. Given that the manure is spread on the land once every 3 years, a total of 819.15 acres are needed within close proximity, approximately 2 miles from the barn (the 9600 head unit requires 3,276.24 acres!). Hauling the manure extra distances would add numerous complicated costs to the model.
FACTORS INFLUENCING ILLINOIS FARMLAND VALUES
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Profitability, Costs & Benchmarks
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Latta Harris Hanon & Penningroth L.L.P. (LHHP) has been around since the early 1950’s with approximately 50 full-time equivalent personnel and 50% of their business is agricultural clients. LHHP works with producers and sells over 4,000,000 market hogs per year. With approximately 250 swine producing clients. LHHP provides value-added services emphasized for pork producers. Key factors regarding pork producers profit potential is the herd health, because the highest cost producers have poor herd health. Feed efficiency and feed cost also contribute to producer’s profits. Each 5% increase in feed cost/lb of feed = $1.14/cwt. Feed only for need, do not overfeed. Design and adhere to efficient feed budgets. Also purchase feed in a competitive fashion. Producers could also sell at a heavier weights and sell some wean pigs from time-to-time. This should cause a 5% improvement in capacity utilization. Increased sow herd productivity should also increase profit. The producer’s priorities should be getting the right people on the bus, and the wrong ones off. If you are the owner ask yourself if you are the right person? After obtaining the right people, focus on training and development. Also get on top of herd health issues fast; stay on top because all producers have recurring health challenges. Low-cost producers recover much faster. The keys are the quality of vet, personnel and a system that allows adaptations of pig flows. The producer must also use proven bio-security methods. In order to reduce feed costs to the 90th percentile or better you must own your own mill; do a KSU-type analysis; get your key ingredients directly; improve sow herd productivity; have your farm evaluated by two top-flight consulting DVMs, at least once a year. Evaluate genetic performance, sourcing, be willing to change; and overall, get efficient before getting bigger