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Tracking True Costs

Producers involved in a unique wean-to-market program made money in 2002, when most industry analysts said it was nearly impossible to do so.

Producers involved in a unique wean-to-market program made money in 2002, when most industry analysts said it was nearly impossible to do so.

A handful of Minnesota and Iowa producers, using a two-year-old program offered by a Minnesota veterinary clinic, profited from finishing out hogs last year.

The grow-finish production service is overseen by Steve Hargis, swine production specialist for South Central Management Services (SCMS), affiliated with South Central Veterinary Associates, Wells, MN.

Tracking Performance

The multi-phase program covers production oversight and consultation. It runs the gamut, from assisting with day-to-day care and management, including fixing ventilation, feed and water systems and dealing with health challenges, to teaching producers how to sort and size hogs for market, developing selling strategies, training staff and organizing and overseeing all grow-finish production and financial records.

Unlike other systems that focus just on production records, this program ties together production and financial information. “We get every line item that you spend and every production data input that you put into your pigs, and that way we know your true costs,” says Hargis.

Table 1 lists five producers in the program, their basic production and financial costs for 2002 and the profits they received.

Hargis observes: “We've tied in all their costs and made it very simple for producers. They don't want to see 50 different items on a cash flow so we break it down into three categories: pig costs, feed costs and non-feed costs.”

Program Participation

Seven producers who market a total of 195,000 hogs/year utilize all phases of the wean-to-market program. Others choose to use a part of it. One producer uses the service to analyze kill sheet data. Other producers have Hargis and his team spot check the performance of contract growers.

Producers pay a fee for the service, based on time devoted to the consultation and the volume of production involved. It averages out to 75¢/pig, says Hargis.

He notes there are two key factors that have led to the need for this service. First, for the last two decades the pork industry has focused hard on improving reproductive performance and neglected the importance of feeding and marketing the product.

“It doesn't make any sense,” he declares. “We are so efficient, producing 23-24 pigs/sow/year, but we are losing money because all of our investment and focus is spent on sow farms, while nursery, grow-finish and marketing have been forgotten.”

Second, more and more grow-finish barns are being operated by contract growers who often lack expertise in pig management.

Table 1. Finishing Performance, Returns for Five Producers in 2002
Producer 1 2 3 4 5
Number purchased 5,813 7,395 20,000 31250 12,329
Average weight, lb. 47.95 46.60 50.00 11.00 11.66
Purchase price/ head $50.16 $50.12 $50.00 $37.74 $37.00
Days on feed 131 112 114 169 169
Market weight, lb. 260 261 260 262 265
Feed conversion 2.75 2.88 2.76 2.43 2.48
Average weight gain, lb. 212 204 210 251 254
Average daily gain, lb. 1.62 1.83 1.85 1.59 1.51
Number sold 5,656 7,023 19,650 2018 11,559
Optimal pigs marketed, % 97 95 98 98 94
Mortality, % 2.70 4.10 1.75 1.30 6.00
Feed/pig, lb. 582 588 580 611 600
Feed cost/pig $33.52 $32.50 $31.50 $38.10 $39.78
Income $114.74 $103.85 $111.25 $113.40 $114.08
Non-Feed Cost $16.00 $15.00 $16.00 $14.00 $16.00
Net per Pig $15.06 $7.80 $13.75 $23.56 $21.30

These growers need to learn how to monitor feed, water and ventilation systems. They must learn to walk every pen and check every pig every day.

If they don't follow procedures and achieve results, Hargis has authority to relocate the pigs and/or fire the grower. He has done both.

Answers in the Audit

Hargis conducts a complete environmental audit of each grow-finish system entering the wean-to-market program. Sometimes the problems are easily solved. Once, after conducting an audit of a producer's facilities, he identified ventilation problems as the cause for 10% mortality in a feeder pig finishing operation. In winter, the rooms became stuffy, the pigs got very agitated and tail biting worsened. It got to the point that tails were chewed down to the rump, infections ensued and a lot of pigs died as a result, he explains.

“It came down to counter-weighting some inlets, getting some pit fans fixed that weren't running correctly and basically restoring proper air flow,” states Hargis. “I am a firm believer that if you ventilate a barn right, ventilation will cure a lot of your performance problems.”

Marketing Advice

For St. Ansgar, IA, producer Gordon Lockie, using the management service was a matter of seeking help to oversee his grow-finish contract growers, recordkeeping and marketing programs. “The service helped us find contract hog buildings, source the pigs and do the vet-to-vet health consultation — all things that I could not have accomplished on my own,” says Lockie.

His contract growers feed out segregated early weaned pigs from a sow co-op he is a member of, plus he contract finishes feeder pigs.

Lockie has a packer contract with Swift of Marshalltown, IA, with a guaranteed floor price and sells his heavier hogs to Tyson Fresh Meats (formerly IBP) of Waterloo, IA.

At Hargis' urging, Lockie now uses the futures market and forward contracting pig sales more. It paid off big in 2002. He bought 8,000 feeder pigs when there was a dip in the market and used forward contracting at the time of purchase to lock in some generous profits.

Three Oversights

“There are three areas that consistently get overlooked by people who aren't using this type of program (grow-finish) that can help make them money,” says Hargis.

First, far too many producers worry about market price. “They spend too much time every day checking the market forecasts, and then wait until two weeks before the hogs are ready to go to town before they call anybody to sell them to. That's too late,” charges Hargis.

“Why not take advantage of some risk insurance program or forward pricing contract, even if it locks you in at zero and covers your costs, you are still avoiding a loss,” he says.

Forward contracting needs to be done when weaner or feeder pigs are purchased, adds Hargis. That gives you a four- or six-month window to lock in a price. Call your packer to inquire about a forward contract.

Producers can also use what is called a VMR (value member relationship) if they are marketing hogs to Tyson's, he notes. It is a three-day rolling average of hog prices in the western Cornbelt that has been roughly $1.50/cwt. over the standard cash bid. That adds about $4/head over the daily cash bid.

Second, facilities must be adequate to raise pigs. Only bring in single-source pigs. “You can't afford 10% mortality rates; weaner- or feeder-to-finish mortality rates need to be in that 6% or less range,” he says.

Don't overcrowd pigs; finishers need 7.5-8 sq. ft. Crowding does reduce performance and adds to respiratory problems, he emphasizes.

Third, sell to the right packer and sell at the right weights. The wean-to-market program breaks producer kill data down into five categories: deads, lights, heavy pigs, culls and optimal pigs.

“Our objective with this program is to put all of your pigs into what we call the optimal category. That category is entirely based off of where you are selling your pigs,” states Hargis.

It is also based on the genetics of your hogs and the weight preference of your packer. He cites the example of one producer who had the right genetics to sell heavy hogs. He was selling to the right packer, Tyson Fresh Meats, which places a premium on heavy hogs. The problem was he was sending them too many light hogs “and selling light hogs to Tyson's will absolutely destroy you.”

It's vital that all hogs fit into the packer's buying grid for weight and quality to capture major premiums and profits on hogs, he says.

Don't worry so much about things that don't add appreciably to your bottomline, like backfat, sort loss and to an extent, costs. Most producers know how to raise hogs for $37-40/cwt. There's more to be made by doing a better job of marketing your product, he says.

Finally, one of the biggest obstacles to profits has been producers themselves. Realize that margins are narrower. Be satisfied with smaller margins. Don't gouge your supplier. And don't hold out for a market price boom that may never happen, Hargis emphasizes.

Pig producers and finishers need to realize they have to work together for both to survive. Otherwise, the whole structure of the industry is in jeopardy, Hargis says.

For more information on the wean-to-market program, click on

Paylean Pays Its Way

One producer on South Central Management Services' (SCMS) wean-to-market program was skittish about using the growth-enhancing product Paylean (Elanco Animal Health) because of its $1/pig cost.

“Four weeks earlier, we said these 150 finishing pigs weren't going to make it to town,” recalls SCMS production supervisor Steve Hargis. “We put Paylean in their rations and every single one in the group made it to town. We even made $5/head on those cull pigs.”

Paylean has produced dramatic differences in the growth of marginal pigs. “You can physically see the difference in the pigs within 10 days. It is definitely a product that has helped, especially with our wean-to-market program. It is the way to go for producers who are struggling with light pigs at the end of every group,” he suggests.

‘Group Tracker’ Tracks Costs

The goal of Iowa State University's (ISU) Group Tracker data collection program is to help pork producers know and control their cost of production, says creator Mark Storlie.

Storlie, ISU Extension swine field specialist, says the program is geared toward nursery, finisher or wean-to-finish phases of production.

Closeouts calculate all performance and production parameters using standards from the National Pork Board. Results are compared over time and benchmarked anonymously against other participants to tell producers how they are faring and whether they need to make changes in their operations, he says.

Group Tracker gives participants reasons for changes and then tracks whether those changes added to their bottom lines, says Storlie.

For Iowa producers, Group Tracker costs $30 if sharing data, $100 if not.

For outstate producers, the cost of the program is $50, $150 if not sharing data.

For program information, contact the Iowa Pork Industry Center at (515) 294-4103.