Manitoba Agriculture, Food and Rural Initiatives

Managing for Efficiency in Grow/Finish Enterprises

By: Clarence Froese, DGH ENGINEERING LTD.

Introduction

Over the past several years, assessments of finishing pig profitability have tended to focus on individual pig or batch profitability rather than the profitability of the overall enterprise. Such assessments have led to an intense focus on individual pig production parameters such as carcass weight and merit, feed efficiency, and mortality, and the economic benefits associated with their improvement. Lost in this focus has been the effect of annual throughput and its impact on overall enterprise profitability. This has caused a chronic underperformance in many units in terms of annual profitability.

Rediscovering Throughput

The effect of annual throughput on an enterprise’s profitability is considerable. Efforts to monitor and improve this parameter are just as warranted as those aimed at feed efficiency or carcass merit, since the payback can be at least as great.

Table 1 illustrates the impact of deteriorating throughput on the gross margin realized per pig place per year. Note that a deterioration of merely one week results in a loss of $4.50 - $6.00 in gross margin/space/year. Therefore, a 4,000 space finishing enterprise will have $18,000 - $24,000 less revenue per year remaining if the average occupation time is allowed to slip by 7 days. This represents a loss of $1.50 - $2.00 per pig marketed, or the equivalent of 1.5 carcass index points, or 0.10 in feed : gain ratio. 

Table 1: Effect Of Annual Throughput On Gross Margin

	Throughput (Batches/Year)
	3.1	2.9	2.6
Occupation Time (days)	118	125	132
Gross Margin/ Pig ($)	30	30	30
Gross Margin/ Place/Year ($)	93	87	78

Factors Affecting Throughput

1. Target Market Weights

As with any critical production parameter, some of the factors influencing throughput are under the direct control of management, while others are outside of management’s control. The most obvious factor influencing throughput over the past several years has been target market weight, as dictated by revised grading grids.

Table 2 outlines the impact that heavier market weights have had on the various measurements comprising throughput. Over the past 20 years, throughput has decreased by an average of 17 – 20% and with current trends it is likely to decrease by another 5 – 8%. This means that a finishing facility will likely be marketing 20 – 25% fewer pigs per year in the near future than what would have been marketed in the same facility 20 years ago.

The decrease in throughput has been offset by an accompanying increase in gross margin per pig, as illustrated in Table 3. As processors have demanded heavier carcasses, the grading grids have been revised so that the higher premiums extend to these carcasses. Hence, even though more feed is required to produce a heavier carcass, the gross margin per pig has increased to the extent that the gross margin per pig place per year has actually been positively affected. This does not necessarily mean that net margin has increased, since operating costs (labour, insurance, utilities, etc.) have also increased over the past 20 years.

Table 2: Effect Of Increasing Market Weights On Annual Throughput

	Target Market Liveweight (Kg)
	90	100	110	120
Dressed Weight (Kg)	72	80	88	96
Average Days to Market	85	97	110	124
Total Occupation Time/ Batch	103	115	128	142
Batches Produced/ Year	3.5	3.1	2.9	2.6

Table 3: Effect Of Increasing Market Weights On Annual Gross Margin

	Target Market Liveweight (Kg)
	90	100	110	120
Gross Revenue/Pig	119	132	145	158
Feed Cost/ Pig	38	45	52	59
Weanling Cost/ Pig	55	55	55	55
Gross Margin/ Pig	22	28	34	40
Gross Margin/ Pig Place/ Year	77	87	98	104

2. Space Allowances

Heavier market targets have likely had a negative impact on growth rates in most finishing enterprises. Table 4 illustrates this likely impact. As pigs continue to be stocked at 8 sq.ft. per pig but target market weights increase, the number of weeks during which pigs are crowded before the first marketings occur has increased. From recent research at the Prairie Swine Centre, it can be anticipated that feed intake and daily gain are negatively affected by around 5% during the weeks of crowding. This had the effect of increasing average days to market by about 1.5 days per pig at 110 kg and 2.5 days if target market weights reach 120 kg. Attempting to avoid this effect by lowering stocking density to the requirements in Table 4 will clearly have a major negative impact on gross margin/pig place/year. The number of pig places would decrease by 13% and 20% at market weights of 110 and 120 kg, respectively. This far negates any potential gains made by decreasing stocking density.

Table 4: Effect Of Increasing Market Weights On Space Allowance

	Target Market Liveweight (Kg)
	90	100	110	120
Dressed Weight (Kg)	80	90	100	110
(1) Space Requirement/ Pig (ft.2)	7.8	8.4	9.0	9.65
# Weeks Requirement Exceeded @ Stocking Density of 8 sq.ft./ Pig	0	2	4	6
1) Based upon equation: Requirement (m2) = 0.39(weight)0.667

One possible strategy for dealing with overstocking near market weight is to remove the heaviest pigs from each pen early, thereby creating the proper amount of space for the remainder. This practice, however, is questionable since it is likely these pigs that have grown the fastest would attain the heavier, more profitable marketing weights the earliest. Marketing them at a lighter weight is foregoing extra profits that would normally accrue to the batch.

3. Growth Rate

Table 5 outlines the impact of the average growth rate of a batch of pigs on total batch occupation time and projected annual throughput. A decrease in average growth rate of 100 grams per day results in a two-week increase in both batch occupation time and a 10% drop in annual throughput rate. A 4000 head finishing facility would thus market about 1200 fewer pigs per year under this scenario. If throughput rate was maintained despite the lower growth rates, enterprise profitability would still suffer because of an increased percentage of pigs marketed below the optimum weight.

Table 5: Effect Of Growth Rate On Throughput

	Growth Rate (G/D)
	850	750	700
Average Days to Market	102	116	124
Occupation Time (days)	116	130	138
Throughput (batches/year)	3.1	2.8	2.6
First Pigs Marketed	87	98	105

The single most important determinant of growth rate is feed intake. It is the key variable determining overall batch performance, since high intakes generally indicate a good health status, good growth rates, and efficient feed conversions. Yet there are very few finishing enterprises where feed intake patterns are tracked on a routine basis. The norm is to calculate an average daily feed intake level after the batch has been marketed. This does not allow for adjustments to be made as problems are occurring. As well, a lack of knowledge of the pattern of feed intake during the batch makes it very difficult to diagnose feed intake problems. The negative consequences of subnormal feed intake levels can partially be offset by adjusting ration nutrient densities. However, if nutritionists are not provided with a clear picture of the feed intake pattern experienced, it is difficult for them to make the appropriate adjustments in specifications. Table 6 illustrates a situation where some improvement in performance was obtained by reformulating rations for a lower intake.

Table 6: Adjusting Ration Specifications To Reflect Feed Intake Levels

LEVEL OF FEED INTAKE ®	90% of NRC	80% of NRC	80% of NRC
FEEDING PROGRAM ®	Regular	Adjusted	Regular
Gain (g/day)	828	729	716
Feed : Gain	2.97	2.88	2.94
Index	107.8	110.3	109.6
Gross Margin ($/place/year)	98.50	92.50	89.00

4. Weight Variation

Despite our best efforts to understand the causes of weight variation in market pigs, little can be recommended at this point on how to significantly reduce it. Sizeable variation still occurs even in batches where sex, initial weight, and other known factors are uniform. Although the problem of weight variation is more evident in all-in, all-out facilities, its cost is just as great in continuous flow operations. Grading grids have been adjusted in the past few years to provide a wider acceptable carcass weight range, but the adjustments have been made to the upper end of the range rather than the lower end. Hence, the problem of dealing with pigs whose weight falls below the lower limit of the range at a given point in time still exists.

The dilemma faced in dealing with weight variation is to manage it in such a way so that gross margin/pig place/year is optimized. As shown in Figure 2, optimum gross margin is obtained when pigs marketed per year (largely determined by throughput) is balanced with gross margin per pig (largely determined by carcass weight and premiums). If too much focus is placed on pigs marketed per year, gross margin per pig will be less than it could be, and hence the gross margin per pig place per year will be less than optimum.

Conversely, if too much emphasis is placed on gross margin per pig, pigs marketed per year will suffer. Slower growing pigs will be retained for further weight gain, hence increasing the batch occupation time and decreasing the throughput rate. This causes the gross margin per pig place per year to move past its optimum point. This is the case with many finishing enterprises today and has been reinforced by finishing contract incentives which stress optimum carcass value at the expense of throughput.

5. When to Liquidate Slower Growing Pigs

Table 7 illustrates a typical emptying pattern of a 4800 head finishing unit in Western Canada. On today’s grading grids, this pattern results in a high gross margin per pig, with those pigs marketed within the last week obtaining an average carcass weight falling within the high value core of the grading grid. If this emptying pattern was maintained over the course of one year, it would not optimize gross margin for the entire enterprise (Table 8). Duration of marketing should have been curtailed 2 weeks earlier in order to produce the greatest annual gross margin for the enterprise.

Table 7: Typical Emptying Pattern Of 4800 Head Unit

	Week
	14	15	16	17	18	19
Number of Pigs Marketed	264	1104	1200	1152	768	312
% Marketed (cumulative)	5.5	28.5	53.5	77.5	93.5	100
Average Market Weight (Kg, dressed)	90	87.9	88.6	87.2	85.8	81.6

Table 8: Comparison Of Annual Revenues And Costs By Emptying Week

	Barn Empty After Week #:
	14	15	16	17	18	19
Av. Market Wt. (Kg, dressed)	77.6	81.4	84.2	86.1	87.0	87.3
Average Index	103.3	107.3	108.6	108.9	109.4	109.4
(1) Av. Gross Revenue/ Pig	120.24	131.01	137.16	140.64	142.77	143.26
(2) Av. Feed Cost/ Pig	45.00	47.65	49.65	50.95	51.58	51.76
(3) Av. Weanling Cost/ Pig	57.00	57.00	57.00	57.00	57.00	57.00
(4) Av. Gross Margin/ Pig	18.24	26.36	30.51	32.69	34.19	34.50
Projected Cycles/ Year	3.70	3.45	3.25	3.05	2.85	2.70
Gross Margin/ Year	324,000	437,000	476,000	479,000	468,000	447,000
ASSUMPTIONS: Index 100 Market Price.       Average feed cost of $0.18 per Kg for finisher feed, 4 Kg carcass gain/week,       4.4 Kg feed : Kg carcass gain. Based on 150/c Kg slaughter price. Gross revenue – Weanling Cost – Feed Cost.

The process of determining when to liquidate the remaining pigs in a batch is represented in Figure 2. This figure illustrates that each pig remaining in the barn after marketing has the potential to generate additional revenues by increasing its weight and, in the process, possibly increasing its carcass value with additional index points. On the other hand, this pig will also incur some costs for this gain.

These costs are:

1. The feed required to produce the extra gain, and
2. The lost future gross margin on those spaces being kept empty due to retaining the pig for an extra week.

The difference between the increased revenue produced per remaining pig and the costs of retaining them represents the net added revenue per pig. As illustrated in Figure 2, the optimum point at which to liquidate all the remaining pigs is when the net added revenue per pig is at its optimum. By definition, this point is reached when additional costs are balanced with additional revenues.

The optimum net added revenue point will vary with the following factors:

1. The market price received for additional weight gain on the remaining pigs,
2. The feed cost required to produce additional weight gain,
3. The percentage of the barn being kept empty because of the presence of the remaining pigs, and
4. The projected gross margin of pigs that could fill the empty places if the remaining pigs were liquidated.

In Table 9, a reference has been constructed which quantifies the optimum point under various conditions at which extra revenue/remaining pig equals the extra costs. For example, if the barn is 60% empty, and the likely gross margin on the next batch is estimated to be $30, then the remaining 40% of the pigs will need to average additional revenue $6.01 to warrant being fed for another week instead of marketed. If the current price is $1.50/c kg and the average carcass gain is 4 kg over the next week, then each pig will produce $6.00 per head of extra revenue, plus any applicable carcass premium.

Table 9: Additional Revenue Required Per Remaining Pig To Warrant Another Week Of Feeding

% Of Barn Empty	Projected Gross Margin (Next Batch, $/Pig)
	0	10	20	30	40	50
	(Extra Revenue Required/ Remaining Pig)(1)
50	3.15	3.79	4.42	5.06	5.70	6.33
60	3.15	4.10	5.05	6.01	6.97	7.92
70	3.15	4.61	6.08	7.54	9.00	10.47
80	3.15	5.70	8.24	10.79	13.33	15.88
90	3.15	8.88	14.60	20.33	26.06	31.79
Average feed cost of $0.18/Kg for finisher feed, 4 Kg carcass gain/pig/week, and 4.4 Kg feed : Kg carcass gain.

Referencing the appropriate spot in Table 9 shows that each pig must generate $6.01. Therefore, it is worth feeding the remaining pigs for another week. However, after shipping some of the remaining pigs that have reached target weight during the additional week, another assessment must be made. For example, if after the additional week, 70% of the barn will be empty, then each remaining pig will need to produce $7.54 of extra revenue. If current price has remained the same, it is unlikely that this additional revenue will be produced. Therefore, the decision is taken to liquidate all of the remaining pigs that week.

Some Sample Applications Of Table 9:

STEP	Case A	Case B	Case C
1. Projected Gross Margin/Pig (next batch)	10	30	40
2. Market Price Received (current batch, c kg)	1.70	1.50	1.20
3. Ave. Gain/Wk of Remaining Pigs (kg, dressed)	4	4	4
4. Revenue/Remaining Pig/Wk. ($)	6.80	6.00	4.80
5. Expected Carcass Premiums (% of base prices)	110	110	110
6. Total Revenue/Remaining Pig/Wk. ($)	7.48	6.60	5.28
7. % of Barn Currently Empty	50	50	50
8. Decision (from Table 9)	Continue Feeding	Continue Feeding	Market Remainder