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Striving for Continuous Improvement in the Swine Industry

Date: 
Author: 
Kent Bang
Educational Opportunities: 
Articles
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Swine
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It is remarkable how production and cost efficiency of the swine industry have improved over the years. There’s been constant progress in basically every production aspect of the pig business and the need to continue is evident. Those who do not continue to improve will one day find themselves at the higher end of the cost range and likely won’t survive.

It has always been interesting to watch what we measure and then watch the industry chase that measure and make improvements. There are helpful database products available for comparing sow farm performance. Comparing production measures in a broader group allows us to see where we are and what we should be working on. My goal with this article is to provide some context for measuring farms on a broader platform and leveraging that information to make meaningful continuous improvement on your farm.

Profitability
The big picture starts with profitability. Those numbers aren’t shared from farm to farm so they are harder to come by. I have for years used the Iowa State University profit model to have a sense of the trends in profitability and use it to understand how farms I have some familiarity with stack up.  Compeer Financial has kept a peer comparison from a financial standpoint for nearly ten years, which does help us track progress on a large group of producers and verify the progress over the long-term relative to the Iowa State Model.

The model indicates that profits for 2017 averaged $9.43 per head. A number of factors that drive that will be discussed below, but one has to realize this is an average that assumes the same number of pigs, at the same market weight, were marketed each month of the year. Breaking down the key drivers and understanding how your operation compares long-term is where the value lies.
 
Revenue relative to the LM_HG201
This model uses the 201 report on a daily basis to determine revenue, which averaged $66. 41 per carcass cwt. in 2017. Tracking your sales revenue to some standard (in this case the 201) helps provide a picture of how you compete on revenue compared to the industry. There are a lot of price discovery differences in the industry today, some of which would bring significant revenue enhancements at different times in the marketplace. In 2017, that range of revenue was $65 - $78 per cwt. equaling over $25 per head.
 
Cost of production relative to the Iowa State Model
I think one of the best uses of this model is understanding how a farm’s cost of production compares to the industry as a whole. In other words, are my costs competitive?  In my opinion, after watching for years and comparing to a large share of this industry, the model is representative of the top 25% of the industry. Production costs in the model for 2017 averaged $61.75. Based on what I see, a range of $60 - $68 would capture the upper Midwest costs.

Corn basis would obviously impact areas outside as the cash corn price in Iowa is used for the model. The range in costs would equate to over $15 per head in the Midwest, probably a little more.

The point is, there is wide variation in revenue, costs, and resulting profitability. Knowing where you are and how to attack it is the critical management decision you will make in striving for continuous improvement. For those asking what’s the next step, for me it is addressing biggest drivers of farm performance and recognizing there is not a good, widely used benchmarking system that compares them.
  1.  Percent of weaned pigs sold to the primary market, or sold at full value
  2. Feed Utilization (wean to finish) whether measured in pounds, calories, or cost
  3. Space Utilization (wean to finish), or what is the total cost of space per pig marketed
  4. Cost of weaned pigs (Sow performance and operating costs)
For more industry tips and resources, contact a member of our Swine Team today!
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