By Kent Bang, AgStar Financial Services
Setting and establishing performance goals for an operation isn’t always easy. In order to set realistic and attainable goals, I believe you need to have a sense for what can be, and what is being attained in the industry among your peers.
There are many production and financial metrics we can measure, and don’t get me wrong, they are all important and together drive the success of your business. However, if I had one number to compare farm margins, it would be the percent primary market sales. In other words, the ratio of the pigs sold to your main market or markets divided by the number of pigs that were transferred from farrowing to nursery or wean-finish. The lost opportunity is pigs rejected at entry, mortality at the farm and in transport, sales to a cull market and pigs that are rejected at the packer. These costs are staggering in the swine industry.
Getting the actual numbers should be fairly routine for a farm. Closeouts should reflect the numbers that were obtained and give a good baseline for current performance over time. What is not so easy is establishing reasonable goals.
What I have used below is a goal of 94% marketed to the primary market. That may not be obtainable today on a specific farm primarily due to the farm or group’s current health status. At any rate, using my number in this example would indicate a difference in margin of $8.38 per pig placed or $9.03 per head marketed. Cost of production per hundredweight difference would be $3.22 on a live weight basis.
Another way to look at it would be looking at the lost opportunity. Theoretically, we could market 100% of the pigs placed. Looking at it that way, the cost of averaging 86% primary market pigs would be $15.15 per pig in my example below.
Tracking this margin in this way versus what is attainable helps us focus on ways to capture the value of the pigs we wean and move into the nursery or wean-to-finish system. It should be on our dashboard of metrics to track and understand to get continual improvement on the farm. Finally, and most important, it should help us strive to gain additional margin.
Bang has 20 years of experience of financing in the swine industry. For more insights from Bang and the AgStar swine team, visit AgStar.com. If you’d like more information on AgStar’s Margin Manager Tool check it out at AgStar.com/MarginManager.