June 1994 // Volume 32 // Number 1 // Feature Articles // 1FEA7
Assisting Swine Producers to Maximize Marketing Returns
The Kansas State University Lean Value Marketing Program was designed to investigate the value of pigs marketed on a wholesale-cut basis. This program allowed producers to directly compare the actual wholesale value of their pigs with the value of pigs from other producers. Key factors identified by a survey of the program were sort loss and grade premium. The survey demonstrated to producers where they were in comparison with other swine producers in the state, as well as the enormous impact these factors had on profitability.
Extension specialists and agents have an important role to play in helping producers understand and utilize information to increase the value of their products in consumer markets. In the swine industry, for example, producers have an abundance of knowledge at their fingertips to help them produce high quality market hogs. However, when it comes to marketing, a great deal of confusion exists about different packer buying programs. One goal of the Kansas State University (KSU) Lean Value Marketing Program was to make marketing terms better understood and show producers how to get the most money for their hogs.
Consumer demand for lean pork has increased during the last 10 years. Packers are realizing the extra value of lean hogs that reduce the need for trimming excess fat. At the same time, swine producers understand that producing hogs with excess fat is inefficient and unprofitable. These facts have led to changes in terminology of swine performance and profitability. New terminology includes lean gain per day, sort loss, grade premium, and percentage carcass muscle.
Producers typically market their pigs to several packers, and a lack of uniformity in measuring and reporting carcass data exists among companies. Because of this inconsistency, producers find it difficult, if not impossible, to compare their market hogs with pigs from other operations. Producers also have difficulty understanding and comparing carcass data from their own pigs sent to different plants. A uniform carcass lean value program would make comparisons between different producers meaningful and would provide technical information necessary to implement genetic, nutritional, or management changes.
The objectives of this program were to help Kansas producers understand the carcass merit of their pigs when marketed on a wholesale cut basis and to allow them to make comparisons with pigs from other producers.
Thirty-four Kansas producers, representing 15 counties, each supplied 25 market gilts for this program. Producers from four major swine producing areas in Kansas were represented. The gilts were slaughtered at Reeves Packing Company in Ada, Oklahoma. To enroll in the program, producers: (a) had to know the genetic background of the gilt, and (b) had to pay a prorated share of the freight from their farms to the plant in Oklahoma. Producers were asked to supply gilts weighing between 230 and 250 pounds.
For identification at the plant, each producer's group of gilts was tagged with a different color ear tag. After slaughter, carcasses were individually weighed and backfat was measured by KSU personnel as soon as the hot carcasses entered the cooler. Backfat measurements were taken at the first, tenth, and last ribs, and at the last lumbar vertebrae on the midline of each carcass. The measurements were slightly higher than if measured on chilled carcasses or off the midline. Thus, the values reported are higher than typically reported in the literature, because backfat shrinks or contracts during chilling.
The carcasses were spray-chilled overnight and fabricated into wholesale cuts on the following morning. All wholesale cuts of a producer's group were individually weighed. Loins were the only closely trimmed wholesale cut (fat cover of 1/8" or less).
Results and Discussion
Each producer in the survey received a complete printout of the value and percentages of each wholesale cut for all producers' pigs. However, the producers were given only the identity of their own group of pigs. From the results, sort loss was identified as a critical factor that producers should consider when marketing hogs. Sort loss is the amount deducted from the producer's marketing check for those carcasses that weigh outside the optimum carcass weight range. The average sort loss for the 34 producer groups was $1.08 per head, with a range of $0.00 to $4.95. The average producer in this study marketed 4,000 hogs per year. Thus, the average sort loss represents $4,320 in lost annual income. For the producer with a sort loss of $4.95 per head, the annualized loss would be $19,800. If this sort loss could be eliminated by one employee spending an average of 2 hours per week (104 per year) weighing market pigs, the potential return would be $190.38 per hour. For the average $1.08 sort loss, the hourly return would be $41.53.
The five producers who had no sort loss deduction routinely weigh individual market hogs before loading for slaughter. Thus, sort loss has an enormous impact on the profitability of carcass merit buying programs. All packing plants have a much greater sort loss penalty for light weight hogs than for heavy ones. Generally, hogs that are above the optimum weight are discounted 1 to 2% of base price. However, hogs falling below the optimum weight limit are discounted 20 to 40% of base price. Therefore, it is better to sell hogs that are too heavy rather than too light on a carcass merit system. The reason for the greater penalty on underweight hogs is the decline in plant processing efficiency. It takes almost the same amount of time to dress a light weight pig as it does a heavier hog.
The grade premium or carcass value is the added price that a producer receives for producing an extra lean carcass. The grade premiums ranged from $.06 to $6.04 per head, with an average of $3.39. For the average producer in this study marketing 4,000 hogs yearly, a $.06 per head premium would translate into an annual $240 return, whereas a premium of $6.04 per head would generate an annual return of $24,160. Therefore, the value of purchasing lean boars and changing genetics can be justified easily by producers needing to improve the leanness of their market pigs.
Yield or dressing percentage is the carcass weight divided by live weight. There are only two reasons for determining yield: (a) to allow the producer to determine the optimum live weight to obtain a carcass that falls into a packing company's preferred weight range, and (b) to allow the company to convert to a live weight market price. Producers often misinterpret yield as an indicator of the quality of their pigs. The major factors explaining the differences in yield among hogs from different producers marketed at the same plant are gut fill and trim loss. The largest components of the differences in yield of hogs from the same producer marketed to different plants are variations in skinning, head removal, and distance to the packing plant.
The yields in this study ranged from a low of 73.86% to a high of 76.29%, with an average of 74.97%. The inverse relationship between yield and percent lean results in producers with fatter pigs receiving a yield premium. Yield can be influenced only by decreasing live weight in relation to carcass weight. Carcass merit programs that indicate a yield premium on the slaughter sheet only serve to confuse producers, because they are being paid only for actual carcass weight. As a hypothetical example, Table 1 shows the "yield premium" for two hogs that have identical 171.5 lb carcasses. One pig was marketed under normal procedures, whereas the second pig was held off feed for 12 hours to decrease gut fill and increase yield. Live weight of the two pigs were 235 and 230 lb, respectively. Thus, yields were 73.0% and 74.6% respectively. The plant standard for this weight of carcass is 73.0%. The total carcass value of the two pigs is the same, because they have the same carcass weight. For the second pig, the yield premium is needed to convert to a common live weight price. Yield is valuable information in determining the optimal market live weight needed to minimize sort loss; however, yield premium is actually only a back calculation to live price.
|Table 1. Fallacy of Hog Yield Premiums.|
|171.5 lbs||235 lbs||$99.47||$99.47||$0.00||$99.47|
|171.5 lbs||230 lbs||$99.47||$97.29||$2.18||$99.47|
|1 Carcass price = $58/cwt.|
2 Live price = $42.30/cwt.
The Kansas State University Lean Value Marketing Program was designed to provide producers with insight concerning the value of their pigs when marketed on a wholesale cut basis. This program allowed producers to directly compare the actual worth of their pigs with that of pigs from other producers. More importantly, this project demonstrated to producers the economic incentive of producing hogs that are lean and uniform.
Producer awareness was an important part of this program. Results from this study have been shared with a majority of Kansas swine producers as well as producers from surrounding states. The KSU Swine Day program included comments on this project and a poster display. The procedures and results were shared with county Extension agents at their annual livestock update training session. After this session, several area pork producer groups asked to have the information presented to their organizations during the winter. Sort loss was the most asked-about topic during the presentations. Three issues of the KSU Swine Update Newsletter discussed the topics of sort loss, grade premium, and yield.
The program has been featured in the Kansas Farmer publication and the KSU Ag Report, which is circulated to 18,000 people, including KSU College of Agriculture graduates, legislators, college deans, and county Extension councils.
In April of 1993, results from this study were presented at the National Meeting of the American Association of Swine Practitioners in Kansas City, Missouri. Two poster presentations of the KSU Lean Value Marketing Program were made at the Midwestern Section of the American Society of Animal Science in Des Moines, Iowa in March, 1993. The poster display also was exhibited at the Kansas Cooperative Extension Service/Agricultural Experiment Station Annual Meeting in April, 1993 for county agents from across Kansas and KSU Extension and research staff.
This project demonstrated the economic impact that an Extension program can have with producers in changing their marketing and other management practices. It has enhanced the understanding of carcass merit marketing by producers, Extension agents, and Extension specialists. This program also will be pivotal to the adoption and analysis of lean value genetics in the years to come.