Of all the aspects of your pork operation, selling and pricing are the only ones that generate rather than eat up cash. But those areas are too often overlooked. Now there is a new spreadsheet program to guide you through the trickier parts of pricing.

The Objective-Based Pricing model, available from the National Pork Producers Council, lets you identify prices necessary to cover various expenses involved in production.

"The goal is to put together a cost of production that establishes pricing objectives that cover various production factors and lets the producer assign meaning to the hog prices he's offered," says Steve Meyer, NPPC's economics director.

Let's say your cost of goods sold, which includes purchased livestock and all feed, is $23.48 per hundredweight, the program then adds the next step, which includes other production expenses at $6.10. This shows that you need to receive $29.58 per hundredweight to cover your costs of goods sold and other production expenses. The program then moves on to add interest, depreciation and the like.

"Unfortunately the return to management is the last thing most people pay for, yet we want people to think about it in the model," says Meyer. "The program also computes the return on equity at each pricing level."
The program uses your tax records, balance sheet, basic production estimates and depreciation schedules, to determine the net farm income from the operation and the return on equity. The program then uses that information to develop your pricing objectives.

While the program is primarily designed for farrow-to-finish operations, it can be used for other types of operations as long as you can accurately estimate cost of purchased animals. Meyer says the program shouldn't have trouble calculating information for alternative management systems like wean-to-finish buildings.

"Anybody can use this program," says Meyer. "It gives you some context to look at your forward pricing options, whether that be packer contracts or futures and options."

The reason it's so helpful for forward pricing is because the program lets you see what prices you need to cover various costs.

That's not to say this program is for everyone, it does have limitations.

"It's really designed for stable operations that aren't growing rapidly, in part because it uses tax information from the year before," says Meyer. "But there is a feature in the spreadsheet that lets you put in estimated data for the coming year."

The Objective-Based Pricing model has a user-interface set of dialog boxes. As you put information into the dialog boxes the spreadsheet assigns them to the correct cells. The program can handle multiple enterprises, including cattle, hogs, poultry and row crops. For pork enterprises, it keeps pricing records by quarter, as opposed to monthly, but Meyer believes that's plenty of detail.

The program is available in Windows Microsoft Excel 97. It will use about 1 megabyte of hard-drive space. An Excel 95 version is in the works and will be available on the NPPC Web site. The program is available on disk, which you can order from NPPC for $15 by calling (515) 223-2600. You may also download it from NPPC's homepage at www.nppc.org. The program is located under Especially for Producers in the "checkoff-funded" activities heading. The download is free.