Optimal Hog Marketing Weights

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Optimal Hog Marketing Weights

• James Mintert, Ph.D.
• Professor
• Department of Agricultural Economics
• Kansas State University

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Hogs Have Been Getting Heavier for A Long Time
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Why Have Weights Gotten Heavier?

• Technology
• Genetics
• Feeding regimens
• BECAUSE ITS PROFITABLE

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How Does Weight Impact Returns?

• Three keys to examining impact of weight
• More pounds
• Sort Loss
• Lean Premiums

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Sort Loss Is Highly Correlated With Weight
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Lean Premiums Are Also Correlated With Weight
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Adding Model Results for Lean Sort
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Expected Net Prices At Various Weights
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Premium/Discount Schedules Vary By Firm
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Which Changes Weight-Net Price Relationship
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Expected Net Prices Vary Across Firms
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Economic Principles

• Goal is to maximize profits
• Determine marginal revenue for a weight change
• Determine marginal costs for a weight change
• Maximize profit when
• Marginal revenue marginal cost

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Compute Marginal Revenue

• At each weight
• Estimate base carcass value
• Estimate expected sort loss
• Estimate expected lean premium
• Base sort premium
• Exp. Net Carcass Value
• Calculate revenue gain for additional pound of
  gain

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Compute Marginal Cost

• Pounds of feed per lb. of gain
• Increases as weight rises
• Feed cost per lb.
• of feed X cost/lb marginal cost

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Profit Is MaximizedWhen Marginal Revenue Equals
Marginal Cost
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Optimal Weight Declines When Base Price Falls
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Higher Feed Prices Reduce Optimal Weight
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Estimating Your Optimal Weight

• Use your kill sheet data to estimate relationship
  between weight and
• Sort loss
• Lean premium
• Use models to predict sort loss and lean premium
  at each weight
• Calculate expected marginal revenue for a one lb.
  weight gain

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Estimating Your Optimal Weight

• Estimate your marginal costs
• Know your costs
• Key is feed costs
• Pounds of feed per lb. of gain
• Cost per lb. of feed
• Other variable costs per lb. of gain
• Compare your expected marginal costs to your
  expected marginal returns
• Profit Max occurs when MR MC

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Next Step

• Development of a downloadable spread sheet tool

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Thank You