Corn and soybean carryovers remain uncomfortably small, meaning pork producers, ethanol plants and other end users will have to manage those small supplies. This makes risk management strategies crucial for your operation.
According to USDA’s November 2012 Crop Report, this year’s corn crop averaged 122.3 bushels per acre, resulting in a 10.7billion bushel crop with an expected carryover of 647 million bushels. Soybeans averaged 39.3 bushels per acre, for a 2.97 million bushel crop and only a 140 million bushel carryover.
While the current soybean crop was a mild surprise, soybean exports could really drive the price. Two months into the new marketing year, over 70 percent of USDA’s projected exports have already been booked. This means the price for soybeans (and soybean meal) may have to increase to ration demand.
Because of the tight corn and soybean meal supplies, producers may need to review alternative ingredient options. The need for alternative feeds is somewhat regional, as the upper Midwest saw better than expected yields and has less demand for other feedstuffs. However, reduced supplies and increased risk of aflatoxinsmay force pork producers in the East, West and South to search for other feed ingredients, regardless of price.
Finding the most favorable feed sourcing situation requires working with your feed supplier and reviewing all options.Producers we’ve worked with found they need to take into account how many pigs theywill have on feed,market prices both nearby and in the future and the optimal weight based on the packer they are selling to determine what type of feeding program provides the best return over feed costs.
Last year was a very dynamic and volatile market for both input costs and pork supplies. The number of pigs sent to market during the last half of 2012 increased 5–6 percent while at the same time the average market weight declined. Pork supplies were near record levels and prices still rebounded dramatically from their September lows. This demand was likely driven by high beef prices and tight supplies causing some consumers to choose pork over beef. Pork supplies are expected to tighten through the summer creating significant profit potential in June, July and August.
Market volatility means producers may want to consider full hedges on both their inputs and market price when an acceptable level of risk mitigation is achieved. Such actions can minimize losses or ensure an acceptable rate of return, depending on the market situation.
What we are seeing, with reduced feed supplies and higher prices, is that it’s imperative to conserve your corn and soybean resources. Efficiency has never been more important. Pelleting and corn micron size are two big impact items that can improve efficiency. Hubbard Feeds research has repeatedly shown a 5% improvement in efficiency on pigs fed pelleted diets and 1 percent improvement in efficiency for each 100 micron reduction in corn micron size.
Another thing that can be done to minimize losses or maximize returns is to make sure pigs are marketed at the most favorable weights possible, thereby optimizing return over feed costs. To do so, you need to:
- Know all of your costs of production
- Fully understand packers grids
- Understand your genetics feed conversion curve to heavier weights
- Determine if your operation is space-limited or space-long
- Decide if you can re-fill the barn faster, if you sell at lighter weights.
If you are on a fixed time schedule, then maximizing gain is important to get the most pounds of pork from that group of pigs before the next one arrives. However, if you are on a fixed weight system with days to spare, then feeding strategies that allow pigs to grow slower, without sacrificing efficiency may provide the best return over feed costs.
To determine the best strategies for your operation, there are a number of resources you can seek out. University Extension Swine Specialists represent great resources, and Hubbard Feeds has a staff of swine specialists to assist you, as well. Another great resource is the Hubbard Feeds Smart Choices Feed & Marketing Dashboard, which can help you see the impact of changes in inputs and prices (see sidebar).
One Producer’s Marketing Weights Story
Dave Uttecht, managing partner at Heartland Pork, a 6,500 sow farrow-finish operation in Alpena, South Dakota, remains concerned about the availability of feed ingredients. Uttecht says he has looked at alternative feed ingredients, and also keeps a close eye on the price of corn, soybean meal and distiller’s dried grains withsoluble (DDGS), as part of his integrated risk-management plan. The first goal is make sure he can get an adequate feed supply, then Uttecht looks at every pricing opportunity to secure that supply at the most favorable prices.
In an effort to be as efficient as possible, Uttecht lowered marketing weights by about 15 to 20 pounds from a year ago. With the roller coaster markets of today, Uttecht emphasizes more risk management. Uttecht uses his resources to determine how to sell pigs and secure feed to make the most profit, or reduce losses, as much as possible.
One resource Uttecht uses to analyze his opportunities is the Hubbard Feeds Smart Choices Feed & Marketing Dashboard, a computer model that can assist you in your decision making process. The Dashboard allows you to input information from your operation, including:
- Commodity input costs
- Weaned pig costs
- Animal health cost, mortality and culls
- Transportation costs
- Facility costs
- Interest costs.
The Smart Choices Dashboard takes all this information into account, figures the feed inputs, feed efficiency curve and calculates how the pigs fit into the packers matrix based upon farm specific variation for hot carcass weight, lean and backfat. Once you’ve entered all this information into the interactive Dashboard, you can make adjustments to see how each variable affects the complete picture.
Uttecht says he inputs feed price and hog market price information into the Dashboard, and moves variables until he determines the optimal marketing weights. Uttecht says it’s nearly impossible to make all those calculations, with all the necessary variables, by hand.
For example, you can adjust the settings to show the impact of a $1/bushel increase in corn prices or improvement in load hot carcass weight standard deviation by 1 pound. Depending on marketing options in your area, you may have more than one packer, each with a different matrix. While one packer may pay premiums for heavier pigs and that may be the best option when feed costs are low(er), in other times, you may be more profitable selling lighter hogs to the same or another packer, when high feed costs dictate it.
The Dashboard allows Uttecht to look at marketing weights more often, because the model makes it so easy. It allows Uttecht to review information every week rather than every month, and contact his employees, who can modify their sorting and adjust their marketing weights to achieve the best return, or the least amount of losses. The Dashboard allows Uttecht to make these changes more quickly and improve efficiencies.
Uttecht recommends the Smart Choices Dashboard to other pork producers, particularly those that have multiple choices for packers or availability of a variety of feed ingredients, like DDGS.
To learn more about the Smart Choices Feed & Marketing Dashboard visit http://www.hubbardfeeds.com/swine/swine.aspx or call 1-800-869-7219