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Market Weights' Impact On Coast Of Production, Net Return

One of the classic questions facing all pork producers is what weight to market their hogs. Average market weight has slowly risen over the last 25 years, currently hovering around 250-260 lb. Taking hogs to these heavier market weights remains debatable, with limited evidence of the impact on pork producer profitability.Taking hogs to heavier weights is commonly associated with poorer feed conversion,

One of the classic questions facing all pork producers is what weight to market their hogs. Average market weight has slowly risen over the last 25 years, currently hovering around 250-260 lb. Taking hogs to these heavier market weights remains debatable, with limited evidence of the impact on pork producer profitability.

Taking hogs to heavier weights is commonly associated with poorer feed conversion, the additional fixed costs and interest associated with more days on feed.

The packing industry has always placed some emphasis on market weights in their pricing procedures so logically producer returns are affected. And, although packers prefer a heavier carcass because it lowers their fixed costs per pound of carcass weight, they also know that most hogs deposit additional fat at heavier market weights.

And, for some packers, the retail cut size from the heavier hogs presents a problem, so they levy penalties on carcasses that fall outside of their optimal carcass weight range and/or exceed fat limits on carcasses across weights.

Therein lies the challenge --lightweight hogs are heavily penalized due to the higher fixed costs incurred by packers; heavyweight hogs are penalized due to their additional fat content. Producers are challenged to market their hogs in the optimum carcass weight range yet keep them in acceptable backfat range.

No longer do packers derive pricing on a live weight basis. Instead they use carcass weight, carcass lean and, in some cases, meat eating quality traits.

In the past decade, producers have focused on genetic selection for leaner, faster-growing hogs. The old theories about growth rate, fat deposition and feed conversion may not apply to the new genetics with pigs taken beyond 250 lb.

The Quality Lean Growth Modeling Project (QLGMP), funded by the National Pork Board, was designed to accurately compare the effects of higher alternative market weights on factors that influence cost of production, market return and meat quality. Six different genetic types were selected for their biological diversity for appetite (feed intake), rate and composition of growth and meat quality traits. Pigs were taken to three different end weights --250 lb. to reflect current market weights, 290 lb. representing the upper end of current marketing weights and 330 lb. to serve as a more extreme market weight.

Because the sampling methods were not designed for genetic comparison, specific lines are not identified. Instead, they are referred to as Line A through F, respectively. The 'Key to Genetic Line Classification' at the top of page 47 serves as an easy reference to the diverse genetic types.

Four different diet protocols were developed for the project with the same energy and vitamin content, differing only in their levels of lysine. Two diets contained lysine levels, considered high and low of current recommendations. The other two diets were markedly higher and markedly lower in lysine content. Lysine levels were manipulated by changing the amounts of corn and soybean meal. (A more detailed description of the QLGMP sampling methods and test protocols may be found in the Blueprint: 'Understanding Lean Growth,' National Hog Farmer, Oct. 15, 1998, pages 18-24.)

To insure accuracy of the results from this project the pigs were tested in three different replicates. Barrows and gilts were included. This article will focus on factors influencing cost of production. (More specific information on the differences in market return at alternative market weights when slaughtered at different packing plants may be found in National Hog Farmer, Oct. 15, 1998, pages 48-56.)

Cost Of Production Factors Feed conversion, growth rate, feed cost of gain and days on feed were the key traits analyzed for their impact on cost of production.

Growth rate was collected from the time a pig left the segregated early weaning (SEW) facility until it was taken off test and marketed. Days on feed were tracked from the time a pig left the SEW nursery until it was taken off test. Feed consumption was measured by the Feed Intake Recording Equipment (FIRE) system. Data on feed consumption and weight gain was recorded from 140 lb. until market weight.

Because feed consumption for the entire postweaning period was not available, feed costs are reported as the increases in feed cost to reach the 250-, 290- and 330-lb. market weights. The differences in feed costs to the respective market weights are also shown across and within genetic types and diets. Feed costs for each diet were calculated using three scenarios:

* Low feed prices were defined as $1.50/bu. corn and $150/ton soybean meal;

* Moderate feed prices were defined as $2/bu. corn and $200/ton soybean meal; and

* High feed prices were defined as $2.50/ bu. corn and $250/ton soybean meal.

Costs for days on feed were assumed to be 4 cents/day for the fixed costs of owning and operating a finishing facility and 3 cents/day for interest costs giving a total cost/day on feed of 7 cents.

Impact Of Market Weight First, let's look at the effects of alternative market weights on growth rate, feed conversion and market return across all diets and genetic types.

Figure 1 shows the effect of higher market weights on growth rate for the entire post-nursery period. Growth rates were comparable at 250- and 290-lb. market weights. At that rate (1.61 lb./day) it will take 25 additional days on feed for a pig to reach 290 lb. This is an added cost of approximately $1.75/pig. However, as the pig's market weight was extended to 330 lb., growth rate slowed. Therefore, taking pigs from 290- to 330-lb. market weights compiles more days on feed, naturally because 40 more pounds are being added, but also because growth slows. The extra 40 lb. took 38 additional days on feed at a cost of $2.66/pig.

Feed conversion was also significantly influenced by the incremental increase in market weight (see Figure 2). Pigs taken from 250- to 290-lb. market weights required an additional 0.12 lb. feed/lb. gain. Similarly, pigs taken from 290 to 330 lb. required an additional 0.21 lb. feed/lb. gain .. Figure 3 shows the added costs versus returns from marketing at heavier weights across all genetic lines and diets. (These returns were taken from the article by John McKissick entitled: 'Lean Growth: 10 Carcass Value Buying Programs,' National Hog Farmer, Oct. 15, 1998, page 48.)

The lower feed conversions resulting from adding 40 more pounds (250-290) added from $6.55 to $9.45 in feed expenses, depending on the diet fed. Likewise, taking pigs from 290 to 330 lb. added $8.03-11.66 depending on the diet fed. Therefore, the total additional costs to market pigs at 290 vs. 250 lb. then ranged from $8.30 to $11.20, depending on price of feed.

When hogs were priced at $39/cwt., the added return was approximately $7.42/pig. With a $47/cwt. market, the added return climbs to $9.90/pig. When hog prices are low, the added return did not cover the added costs of taking pigs to 290 lb.; however, if hog prices are somewhat higher it might be worth considering.

The total additional costs to market pigs at 330 lb. vs. 290 lb. ranged from $10.69 to $14.32 depending on price of feed. Some of these costs could possibly be recovered if the pigs could be marketed without penalties for sort loss or excess fat. But, that's not the case here. The added return per pig in going from 290 lb. to 330 lb. was less than a dollar. Although a pig had additional pounds of carcass weight, the penalties for additional backfat and sort loss made the net return negligible. It does not appear that taking pigs to 330-lb. market weight has the potential to enhance net returns regardless of the genetics, diet protocol or feed cost level.

Diet-Genetic-Weight Interactions The interactions of diet and genetics with the alternative market weights were also studied in this project. Figures 4 and 5 show the effect of different diet protocols on growth rate and feed conversion. Since diets 1, 2 and 3 did not differ significantly in pig performance, they were combined for this discussion and compared to diet 4.

Diet 4 appears to slow down growth (see Figure 4) when compared to diets 1-3. The effect is larger when 330-lb. end weights are the target. In the 250- to 290-lb. span, pigs fed diet 4 took two days longer to reach 290 lb. than those fed diets 1-3. This added 14 cents/pig in cost. And, pigs allocated to the 330-lb. market weights reinforced the slower growth trend of diet 4, indicating it took approximately four days longer to reach that end weight than pigs on diets 1-3. That extra 40 lb., from 290 to 330 lb., added another 28 cents/pig in costs.

The use of diet 4 results in poorer feed conversions compared to the diets 1-3 at all end weights (see Figure 5). This is not unexpected, as diet 4 is sub-standard in its lysine levels compared to National Research Council recommendations. The additional feed cost required to take pigs to heavier market weights under the different diet protocols would then be a factor of the relative feed conversion and cost specific to that diet.

Although diet 4 was less costly to manufacture than diets 1-3, the poorer feed conversions simply require more pounds of feed per pound of gain. Combining feed cost with feed conversion showed there was no significant difference in feed costs between diets 1-3 ($6.75-9.67) vs. diet 4 ($6.42-9.75) when market weight was increased from 250 to 290 lb. However, when diet 4 was fed, feed costs were higher at all levels of feed price when market weight was extended from 290 to 330 lb. ($7.58-11.00 vs. $8.48-12.29). These increases in feed costs within a market weight are the direct result of the poorer feed conversions and slower growth rate associated with the insufficient protein level in diet 4. Overall, diet 4 is not a realistic option since it always resulted in less net return when compared to diets 1-3.

Figures 6 and 7 show the differences between the genetic types for growth rate and feed conversion when pigs were marketed at heavier weights. In general, each genetic line showed a similar growth rate pattern when taken from 250 to 290 lb. However, all lines had a decreased growth rate when taken from 290 to 330 lb.

Line D was consistently the fastest growing, while Line F was consistently the slowest growing. In general, all lines had poorer feed conversions when taken to heavier weights.

Line A consistently had the poorest feed conversion at all weights. Lines C, D and E required less additional feed costs to go from 250 to 290 lb. compared to Lines A, B and F.

Figure 8 shows the added costs and returns by line for marketing at 290 lb. vs. 250 lb. when market price is $47/cwt.

In terms of total costs to grow from 250 to 290 lb., Lines D and E were the best, Lines A, B and F were the poorest, and Line C landed in the middle. Additional market return was greatest in Lines C, D and E. The key point to evaluate is whether the added return paid for the added costs at the various high, medium and low feeding regimens. At all feed cost levels, only Lines C and D had more return than costs. Line E had more return than costs at all but the high feed cost scenario. Lines B and F had equal or more return than costs at only the low-feed-cost scenario, while Line A's returns never exceeded costs.

Sort Loss Estimates Figure 9 shows the effect of the target end weights on the variability of weights. The variation of weights within a group in a designated weight class was calculated based on the age of the pigs when the average weight in the pen was either 250, 290 or 330 lb.

Using a constant age, the weight of each pig in the pen was estimated using each individual's growth rate. The variation in weights at this age was then used to estimate the percentage of pigs that fell either below 200 lb. or above 300 lb. This provided some indication of vulnerability to sort loss.

As the end weight class increased, the variability of pig weights also increased (from a standard deviation of 25 to 34). Sort loss was applied at live weights under 200 lb. and over 300 lb. At the 250-lb. end weight, 2.5% of the pigs would be expected to be less than 200 lb. and 2.5% over 300 lb., or an anticipated sort loss of 5%.

At the 290-lb. end weight, 0.5% of the pigs would be expected to weigh under 200 lb., but 42% would be expected to weigh over 300 lb., therefore, anticipating 42.5% fell ou tside of the acceptable parameters.

At the 330-lb. end weight class, it is unlikely any pigs would weigh under 200 lb., but 87.5% would be expected to weigh over the 300-lb. sort loss ceiling. This sort loss has to be accounted for in the relative return for each pig marketed.

Lessons Learned In summary, it appears that marketing pigs at weights higher than 250 lb. does add significant additional costs through higher feed costs, additional days on feed, and more sort loss due to a combination of poorer feed conversions, slower growth rates and more variation in market weight. The 290-lb. market weights did result in additional return. But at 330 lb., market penalties for added backfat and sort loss overcame the additional market return.

Use of diet 4 (substandard in lysine) slows growth rate and results in poorer feed conversions when compared to diets 1-3, resulting in higher total costs, especially in the growth phase from 290 to 330 lb. Lines D and E appear to be the most cost efficient in growing from 250 to 290 lb.

Marketing at 330 lb. compared to 290 lb. appears to slow down growth rate, increase sort losses and add feed costs at such a level that it is not cost efficient. The true profitability resulting from marketing at these heavier market weights varies by the genetics. Only Lines C, D and E have the potential to profitably market at 290 lb. when prices are at normal levels ($47/cwt.). At lower market prices, none of the lines can be profitably taken to heavier market weights.