Over the past year, there has been a marked rise in feed costs. Various strategies to address managing feed costs are currently being explored. This article is the second in a series that began last week, with "High feed costs: time to rethink marketing weights?"
In the previous article, Alberta Pork highlighted some of the strategies that may be employed to curb feed costs. In particular, we focused on the delivering hogs a week earlier. Based on our estimates, a total of 26 kilograms of feed savings could be realized if hogs were delivered a week earlier. Nevertheless, is it profitable to do this? This article looks at the economics of delivering a week earlier.
Putting a price tag on feed savings
Alberta Pork estimates that feeding a hog to 102 kg dressed weight (or 128 kg live weight) would cost around $135.60, based on $420 per metric tonne of wheat on a 97 per cent wheat-based diet. Shipping a week earlier would result in 26 kg less feed at a cost around $124.55. This would mean that, if your bins are empty and you had to go out to buy feed grains at these currently high prices, you could buy 26 kg less per hog, which could result in estimated cost savings of around $11.05 per hog. Each farm is different, and these numbers may not represent your farm. Alberta Pork stands ready to assist with these calculations.
Estimating the impact on packer grids
Estimating cost savings is only half of the battle. Shipping a week earlier means that hogs will be lighter, and this will have implications for how the lighter hogs fit the grid. Will shipping a lighter hog drastically impact the index received? It depends on the packer contract.
To aid in this analysis, actual settlement data was compiled to illustrate the impact of shipping a week earlier on the index. Data used represents more than 170 hogs shipped with an average carcass weight of 105 kg. Shipping a week earlier would, on average, result in a reduction of 5 kg to 100 kg carcass weight.
In short, if you are on grid designed for heavier pigs (such as Maple Leaf Foods’ 101 kg grid, the OlyWest 2020 102 Pay plus or the OlyWest 2021 R2 wide grid), then the cost saving benefits of shipping a week earlier would have been wiped out by weight changes in the grid.
However, if you are on a grid designed for slightly lighter pigs (such as Maple Leaf Foods’ 97 kg grid, the OlyWest 2020 98 Pay plus or the OlyWest 2021 Ungraded), then cutting back a week earlier could generate some savings.
Out of the $11.05 per hog of feed cost savings, if you ship a week earlier on the OlyWest 2020 contract grid, changes could claw back around $6.45 per hog of the savings. If you are on the OlyWest 2021 R2 wide grid or Maple Leaf Foods’ 97 kg grid, then shipping lighter hogs would claw back almost $7.50 and $7.75 per hog, respectively. Since there is only one Britco contract grid available, there are no changes to the Britco grid impacts.
Estimating the impact on producer bonuses
Weight changes also impact the bonus structure on shipped hogs. Except for the Britco contract, shipping lighter hogs could decrease net feed cost savings anywhere from $0.25 per hog on the Maple Leaf contract to $1.15 per hog on the OlyWest 2021 R2 contract. Due to contract bonuses giving slight preference to lighter pigs under the Britco contract, the bonus impact slightly reduces the net cost losses, but it is not enough to turn it to net cost savings.
Overall, slightly adjusting your shipping date may result net savings from $2.40 to $3.60 per hog or $400 to $600 per load shipped. It should be noted here that only weights were changed for this analysis. There may also be changes to the yield, fat content and loin depth that could affect both your index and bonuses.
In summary, if you are contracted with Olymel or Maple Leaf Foods on a lighter grid or the ungraded grid (OlyWest 2021 R2), there may be a good reason to ship your hogs a week earlier.
The effect of weight changes generated from shipping a week earlier could result in net savings anywhere from $2.40 to $3.60 per hog. Ultimately, it boils down to where your cost of production sits relative to your revenue. Alberta Pork’s Cost of Production initiative can provide answers.
This is where a conversation with your packer would be a good thing, as a slight reduction in weights could be helpful with minimal grid and bonus losses during times of high feed costs. This could also be a benefit to your packer versus bigger shifts in alternative feed usage.
The next article in this series will explore the use of Alberta Pork’s feed cost modelling calculator, developed by Gowans Feed Consulting.
For more information on the data shown here, please contact Bijon Brown, Production Economist, Alberta Pork by email at email@example.com or by phone at 780-440-8460, toll-free at 1-877-247-PORK (7675).
If you have any further questions about this article, please contact Darcy Fitzgerald, Executive Director, Alberta Pork by email at firstname.lastname@example.org or by phone at 780-491-3529, toll-free at 1-877-247-PORK (7675).