Detailed plan of action helps keep hundreds of contract growers throughout the Midwest competitive.
About three years ago, when the streak of hog profits in the United States began its long run, South Central Management Services (SCMS) didn't sit on its laurels.
Instead, in service to its expanding list of wean-to-finish contract growers, the Wells, MN-based company, affiliated with South Central Veterinary Associates, started a string of initiatives to help secure the future of its clientele.
“We formed a partnership with the Provimi Group, North American Nutrition, known as SCA in America, which has its U.S. corporate offices in Lewisburg, OH. Provimi, which controls 8% of the global market for feed ingredients, manufactures a lot of blend packs for our starter pig programs,” explains Steve Hargis, CEO of SCMS, which also supervises production of 25,000 sows in Iowa and Minnesota. “One of the biggest things they do for us is input analysis every week.”
The reports provide a detailed breakdown of all feed ingredients, vitamins and trace minerals that may be used in wean-to-finish diets, as well as their availability and corresponding price trends.
For example, when lactose prices skyrocketed about three months ago, SCMS was on top of it and quickly switched to a by-product to get around that $64/ton cost of the raw product, Hargis observes.
An analysis for Jan. 9 indicated corn prices had stabilized on the futures board, for example. “So we feel $3.40 to $3.80/bu. is going to be pretty good for the next three months,” Hargis says. Of course, the weather could throw a wrench into corn prices. Wet, mild conditions through winter could delay spring planting.
The lesson here is to keep close track of feed costs, not just corn. At the end of the day, about 70% of what makes that pig “go” relates to feed usage, he points out.
“I think the take-home message, when you look at pricing competitive feedgrains, is you need to be doing economic modeling (cost projections) on every group of pigs. You want to make sure that you understand not just the corn, but the impact of the cost of all of those ingredients, and what it's going to take to meet breakeven costs,” he says.
That's part of the services SCMS provides to producer clients.
Producers should also forge closer ties with swine nutritionists, veterinarians and other consultants to advise them on tracking variable feed costs, he urges.
Strategic Planning Accelerated
About 1-½ years ago, Hargis says SCMS' efforts got a lot more aggressive in focusing on survival by providing single-source pigs to the 352 contract growers they serve. Those growers market about two million hogs/year, mainly from Illinois, Indiana, Iowa, Kentucky and Minnesota.
Growers commonly run 2,400 to 5,000-head, wean-to-finish sites; to fill a 2,400-head building in one week requires a sow farm of at least 5,600 sows, Hargis explains.
“The math on this flow is simple: 5,600 sows running 22.5 pigs/sows/year will produce 126,000 pigs annually, which comes out to 2,423 pigs in a week,” he says.
For optimum nutrition and health, it is important to cut fill times to a week to reduce age spreads.
“A lot of guys will take pigs from 2-3 smaller farms and commingle those flows. With the current challenges with circovirus, porcine reproductive and respiratory syndrome and Actinobacillus pleuropneumonia in finishing pigs, we don't want to take the risk that one of those source farms is going to get sick and end up hurting one of our contract farms down the road,” he says. “Death loss costs about $1.05/pig for every 1% of loss, so it is an expensive cost that gets applied to the whole group. It shows how important it is to buy healthy pigs.”
To single-source pigs, SCMS has intensified efforts to align itself with large sow farm systems that can consistently provide clean sources of weaned pig flows. They've identified isolated sow farms in southern Illinois, northern Missouri and central Nebraska.
“We try to fill those barns in about five days from the last pigs out to the first pigs in,” Hargis says. “That grower has about a week to get completely down, washed up, disinfected, dried and ready again for pigs.” Hargis figures those 5-7 days of downtime add an average of $0.50/head in cost for that next turn of pigs.
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By economic modeling, when producers sign a contract on a purchase price for a set of single-sourced pigs, they know just about what the cost of production will be.
Most pig contracts come with sliding scales for weight. For instance, a sow farm will sell a 10-lb. weaned pig at a base price of $33. For every pound a pig weighs above 10, the producer is charged $0.50 to $1.00/lb.
Segregated-early-weaned (SEW) pigs are running $36-38 on a pig contract. Systems weaning big pigs, which are becoming more common, can cost up to $3/pig in premiums, making pig contracts fairly expensive.
Hargis comments the latest wrinkle in pig buying is a sliding scale for corn, which takes into account the increasing cost of corn.
“Sow farms have concluded that for every 10-cent increase/bu. over the $2.50/bu. set for their cash flow, there is an increased cost against the sow farm of $0.15/pig. So if corn prices are $2.60/bu. today, you are going to pay 15 cents extra on top of your base weaned pig price, plus your weight slide, plus the freight cost, to buy those SEW pigs,” Hargis states.
When corn jumps from $2 to $3.50/bu., that's a $15 jump/pig in feed costs, plus an extra dollar or two for weight premiums.
“You are never going to make up the difference in $17/pig additional feed costs, even with peaks in the hog futures market,” he notes.
That's where economic modeling can help monitor production costs on a regular basis.
Forward purchasing corn may not look like a good idea right now. But for example, if you are feeding 5,000 pigs and it takes 10 bu. of corn to finish them, that adds up to 50,000 bu. of corn. If the Chicago Board of Trade shows prepaying the cost of corn for that whole group will save you $10/pig, that $50,000 savings can offset a major portion of the cost of purchasing that grain in advance, Hargis says.
As corn prices have risen, so have costs for soybean meal and other feed ingredients, raising breakeven levels to the low $50s.
Watch all feed costs, but focus on best-cost nutrition, Hargis stresses. That means not scrimping on feed ingredients, locking in the best return possible; keep marketings current. Waiting for a better return to materialize can be costly.
To remain competitive Hargis suggests taking these actions:
Sourcing healthy pigs. “It's the key to minimizing substandard pigs. With $3.40/bu. corn, you can't afford to have pigs dying at 150 or 200 lb.”
Feeding dried distiller's grains with solubles (DDGS) can put a dent in feed cost hikes. “We do it a little differently than some — we add 10% DDGS from 60 to 200 lb., which can reduce the impact of higher corn costs by 15-20 cents/pig,” Hargis says.
Adding ractopamine (Paylean from Elanco Animal Health) can balance out some of the yield drag seen with DDGS. Hargis likes the step up program, using Paylean at 4.5 g/ton for three weeks and 9 g/ton for two weeks.
“If you are feeding DDGS and you want to maintain the same (carcass) yield you were achieving prior to higher corn prices while using DDGS, you are going to have to put Paylean in that feed,” he asserts.
Addressing health challenges. Just as some producers mistakenly try to cheapen up feed when costs rise, some will try to cut back on vaccine and drug costs to save money.
Especially in pig-dense areas, where pigs are probably at risk for health challenges, is the last place to cut treatment costs. Circovirus vaccines average $1.60/dose, but have been shown to cut death losses in half, providing a positive return on investment. Other vaccines, such as for Mycoplasmal pneumonia, have proven especially effective.
Feed medications still have a place in the ration to control health challenges. Hargis says the Micro-Meter from Automated Production Systems provides precise and immediate application of feed additives directly into the feed line.
Ensure effectiveness of your feeding system by having your feedmill audited twice a year.
Driving throughput to lower costs. The focus should be on getting more pigs out the door against those same costs.
Capturing as much market value as possible on every kill sheet. Sell healthy pigs in the weight brackets packers prefer. Use carcass modeling, sending pigs to different packers to determine which one offers the best prices and premiums.
Selling market hogs at lighter weights. Hargis expects producers will reduce selling weights to 255-260 lb. A lighter hog reduces pork tonnage and provides smaller cut sizes that are more cost-effective for retailers.
Lighter market hogs are also more efficient, leaner and easier to handle.
“When you look at the problems that we've got in the industry with downers and deads on semis, there is no reason why we should be selling 300-350-lb. hogs to a packer,” Hargis declares.
Equally troublesome is that no one really analyzes what that extra 35-40 lb. of gain costs, he says. Producers lose lean premiums and are discounted for sort loss, but argue as long as they meet margin over feed costs, the extra weight is worth it. What they don't realize by marketing heavy hogs, is that they greatly add to the number of cuts it will take to empty a finisher.
On a 2,400-head barn, you will end up with about 150 head at the end of the group that will add a month to completely cleaning out that barn, while costing you the same amount in fuel, labor and capital costs.
Finishing barns aren't made to accommodate 300-plus-lb. hogs. They're tough on building materials and equipment, not to mention increasing the potential danger of injury to staff, says Hargis.
Ramps and loading chutes aren't set up to handle these larger hogs, adding to lameness, downers and injury issues.
Adding another 40 lb. to market hogs will also cost you in sort loss.
“Producers say sort loss doesn't mean anything, but to me it means everything, because sort loss is your indicator that you are either selling them too heavy or too light,” Hargis says.
“I can assure you that with $3.50 corn, you are not going to get margin over feed costs by putting another 40 lb. on that pig,” he notes.
To learn more about SCMS, contact Hargis at (507) 553-5038 or e-mail him at [email protected].
Anew educational program for pork producers is being offered by South Central Management Associates of Wells, MN, in association with swine consultant Mike Brumm of North Mankato, MN.
Patterned after the multi-university PorkBridge, PartnerBridge provides producers flexibility in learning through a home computer and phone line.
One week before each session, producers receive a packet in the mail containing a CD with detailed materials.
On the day of the session, producers call a toll-free number to participate in that day's session. Producers follow along on their computer as the speaker goes through the presentation.
A 10-15-minute question-and-answers period concludes each session. CDs also contain contact information for individual followup with speakers.
Producers may chose noon or 7 p.m. time slots for each free session. To participate, contact Jessica Yokiel at South Central Management Services by phone (507) 553-5038, fax (507) 553-3656 or e-mail [email protected].
Upcoming sessions include:
April 3: On-Farm Necropsy with Locke Karriker, DVM, Iowa State University.
May 29: Summer Management of Growing Pigs with Mike Brumm of Brumm Swine Consultancy, Inc.
Aug. 7: Grow-Finish Biosecurity (speaker to be announced).
Nov. 13: Basics of Ventilation Controllers with Rick Stowell of the University of Nebraska.