Eight factors to consider when making marketing decisions.

Eight factors to consider when making marketing decisions.

As pork producers focus on coping with record-high feed costs, one key area that may be overlooked is marketing hogs at the best time to maximize returns

As pork producers focus on coping with record-high feed costs, one key area that may be overlooked is marketing hogs at the best time to maximize returns.

There are eight factors that need to be considered in these marketing decisions: age, space requirements, pig performance, genetic potential, weight, buyer’s preference, expected price changes and convenience.

Age, space requirements and convenience are generally determined by the limitations within a production system. If the barn needs to be emptied by a specific date to make room for the next group, extending the marketing period is not an option.

Trying to anticipate price changes and sell hogs accordingly tends to increase volatility and decreases predictability of prices. For example, if hog prices are relatively high compared to predicted prices, more pigs are brought to market at lighter weights. This, in turn, restricts total pork production, which tends to support additional higher market prices. The opposite is true when prices are relatively low.

Modern genetics continues to push lean growth rate and finished weights higher. Packers generally offer incentives to meet ideal weight and carcass leanness parameters and, conversely, discount hogs that do not fit into their ideal marketing box (Table 1). As hogs grow older and larger, fat level increases and feed conversion suffers. The trick is to determine the optimum weight at which hogs should be marketed for maximum returns.

Calculating Returns

A simple way to estimate ideal marketing weight is to calculate the return vs. the cost of each additional pound. In doing so, a producer must know the pigs’ relative feed conversion at the target weight, as well as the cost of feed. The goal is to sell at the weight where the next additional pound costs more to produce than it will earn.

For example: if feed cost is $0.16/lb. and it takes 4.5 lb. of feed/lb. of gain, the cost is $0.72/lb. Using Table 1, assuming the market price is $72/cwt., live, and the pigs will average 56% lean, the optimum market weight is 290 lb. Price received at this weight is $217.50: ($0.72 + $0.03) x 290 lb. = $217.50.

If market weight is increased to 300 lb., the price received is ($0.72 + $0.01) x 300 lb. = $219. However, the additional 10 lb. of weight will cost $7.20 (4.5 x 10 x $0.16), thus reducing overall returns by $5.50/pig. This assumes carcass leanness will not be affected appreciably with small changes in market weight. Additionally, it assumes that all pigs are marketed at approximately the same weight and does not account for weight variation within a group. A more complete approach would factor in weight variability and differences in discounts/premiums.

Kansas State has developed a helpful tool for using this approach, utilizing packer kill sheet data, and is available at http://www.asi.k-state.edu/DesktopDefault.aspx?tabid=1229.

Whenever there is an appreciable change in feed cost, market price or a packer’s pricing grid, the optimal market weight should be revisited. When feed costs are relatively high compared to market hog prices, it may be better to decrease market weights. Still, feed cost alone should not drive marketing decisions, especially when market prices are climbing.

Mark Whitney is a swine Extension educator and associate professor with the University of Minnesota Extension at Mankato, MN.