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Optimal Hog Marketing Weights

Optimal Hog Marketing Weights. James Mintert, Ph.D. Professor Department of Agricultural Economics Kansas State University. Hogs Have Been Getting Heavier for A Long Time. Why Have Weights Gotten Heavier?. Technology Genetics Feeding regimens BECAUSE IT’S PROFITABLE.

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Optimal Hog Marketing Weights

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  1. Optimal Hog Marketing Weights James Mintert, Ph.D. Professor Department of Agricultural Economics Kansas State University

  2. Hogs Have Been Getting Heavier for A Long Time

  3. Why Have Weights Gotten Heavier? • Technology • Genetics • Feeding regimens • BECAUSE IT’S PROFITABLE

  4. How Does Weight Impact Returns? • Three keys to examining impact of weight • More pounds • Sort Loss • Lean Premiums

  5. Sort Loss Is Highly Correlated With Weight

  6. Lean Premiums Are Also Correlated With Weight

  7. Adding Model Results for Lean & Sort

  8. Expected Net Prices At Various Weights

  9. Premium/Discount Schedules Vary By Firm

  10. Which Changes Weight-Net Price Relationship

  11. Expected Net Prices Vary Across Firms

  12. 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

  13. 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

  14. 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

  15. Profit Is MaximizedWhen Marginal Revenue Equals Marginal Cost

  16. Optimal Weight Declines When Base Price Falls

  17. Higher Feed Prices Reduce Optimal Weight

  18. 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

  19. 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

  20. Next Step • Development of a downloadable spread sheet tool

  21. Thank You

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