The profit opportunity of increased ADG
Posted on June 4, 2013 in Swine Performance
By Nate Brown Over the past several years, pork producers and consultants have increased focus on concepts such as optimum market weight, Full Value Pigs© and other measures that attempt to define the dynamics of optimizing profits based on hog market weight. No matter what model or calculations are used, the process of defining what we will call optimum market weight (OMW) is complex and involves several variables. At the end of the day, what we are trying to do is market as many pigs as possible at the best possible weight to optimize revenues over costs for a given production system. One part of the concept that tends to get undervalued is the cumulative effect of selling pigs that are lighter than the calculated OMW for a single pig going to a certain packer. Often times, producers focus on how many pigs they are selling under the lowest weight of the packer grid that does not discount the base price. For many packers, this weight is around 230 pounds live weight. Determining why pigs are sold at weights less than OMW is an important part of assessing what can be done to reduce the economic impact. If pigs are consistently sold lighter than OMW prior to the barn close-out date, then sorting and marketing strategies need to be analyzed. On the other hand, if the majority of pigs that are sold at lighter than optimum weights are coming from the last few market loads of a group, you need evaluate days on feed and/or ADG (through-put). Adding days on feed (space and time) is a straightforward method to increase the number of pigs that have an opportunity to get closer to the OMW. By adding space to a system, we theoretically give each pig more days to achieve the desired weight. Of course, adding space comes with a host of issues and costs. These need to be evaluated to see if the potential economic benefits outweigh the costs associated with adding space. Increasing ADG The other method that can improve profitability is to increase ADG. By increasing ADG, we will improve the opportunity for more pigs to get closer to the OMW. Like adding space, improving ADG generally comes at a cost. Strategies like feed additives, increased dietary energy and pelleting of diets have all shown potential to increase ADG. By using the metrics of OMW, we can determine if the costs are outweighed by the economic returns of selling more pigs closer to the OMW. By understanding the opportunity costs of selling pigs at various weights and the population distribution of a group, we can put some economics behind the effect of improved ADG. To do this, we will model a wean-to-finish system that has the space to allow 180 days on feed. The current WF ADG is 1.60. The calculated OMW is 300 pounds (live) for this particular packer under the current market conditions ($270 per ton feed and $85 per cwt hog price). To model this effectively, we have to assume the sort was nearly perfect, meaning that pigs were not marketed lighter than the OMW prior to the close-out date. In this example, let’s say 456 of the 1,000-head group are lighter than their OMW at Day 180. Based on the distribution of weights within the group, the opportunity cost totals about $2,900. Now let’s say we apply a 4-percent improvement in ADG to this group. If we do, the number of pigs lighter than the OMW is knocked down to 352. This also drops the opportunity cost to about $1,900. That equals about $1 per pig with improved ADG. Now that we know this number, we can determine if dietary energy, pelleting or feed additives, or the potential feed efficiency response is worth the investment. Increased ADG has a potential economic return that is often “hidden” in the noise of typical production and kill-sheet data. By analyzing factors such as OMW, you can more accurately determine the economic returns of management and feeding strategies. Work with your consultant to decide what strategy might work best for your system. About the author: Nate Brown is the swine sales manager for Vita Plus and has been with the company for the past 19 years. He received his bachelor of science from St. John’s University in 1991. Brown has been involved in the feed industry for 20-plus years. His area of interest is nutrition and growth and its influence on the profits made for the producer. Brown is an executive board member for the Minnesota Pork Producers Association, a board member for the Martin County Pork Producers Association, and a Minnesota Pork Congress committee member. He lives in Minnesota with his wife, Sarah, and his four children: Hank, 21, Ben, 19, Zach, 17, and Gabby, 12.
Markets and economics