k-state research & extension optimal hog marketing weights james mintert, ph.d. professor...

K-State Research & ExtensionK-State Research & Extension

Optimal Hog Marketing WeightsOptimal Hog Marketing Weights

James Mintert, Ph.D.James Mintert, Ph.D.ProfessorProfessor

Department of Agricultural EconomicsDepartment of Agricultural EconomicsKansas State UniversityKansas State University


Hogs Have Been Getting HeavierHogs Have Been Getting Heavier for A Long Time for A Long Time

Commercial Hog Live Weights .

230

240

250

260

270

280

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04Year

Po

un

ds

Carcass Weights

Trend

Source: USDA


Why Have Weights Gotten Heavier?Why Have Weights Gotten Heavier?

1.1. TechnologyTechnology

– GeneticsGenetics

– Feeding regimensFeeding regimens

2.2. BECAUSE IT’S PROFITABLEBECAUSE IT’S PROFITABLE


How Does Weight Impact Returns? How Does Weight Impact Returns?

• Three keys to examining impact of weightThree keys to examining impact of weight

– More poundsMore pounds

– Sort LossSort Loss

– Lean PremiumsLean Premiums


Sort Loss Is Highly Correlated With WeightSort Loss Is Highly Correlated With WeightHog Sort Loss By Weight ($/pig)

Sort Loss = -0.0053weight sq'd + 2.6393weight - 332.1

R2 = 0.6576(15)

(14)

(13)

(12)

(11)

(10)

(9)

(8)

(7)

(6)

(5)

(4)

(3)

(2)

(1)

-

1

200 210 220 230 240 250 260 270 280 290 300

Live Weight (Lbs.)

$/p

ig


Lean Premiums Are Also Correlated With WeightLean Premiums Are Also Correlated With Weight

Hog Lean Premiums By Weight ($/pig)

Lean Prem. = -0.0046weight sq'd. + 2.344weight - 289.52R2 = 0.3163

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101112

200 210 220 230 240 250 260 270 280 290 300

Live Weight (Lbs.)

Lean P

rem

ium

($/p

ig)


Adding Model Results for Lean & SortAdding Model Results for Lean & SortHog Lean Premiums Plus Sort Discounts

By Weight ($/pig)

-20

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

210 220 230 240 250 260 270 280 290 300

Live Weight (Lbs.)

$/p

ig


Expected Net Prices At Various WeightsExpected Net Prices At Various Weights

Net Hog Price, Carcass Base Price = $65/cwt. By Weight

$50

$55

$60

$65

$70

$75

210 220 230 240 250 260 270 280 290 300

Live Weight (Lbs.)

$/c

wt.


Premium/Discount Schedules Vary By FirmPremium/Discount Schedules Vary By Firm

Hog Lean Premiums Plus Sort Discounts By Weight ($/pig)

-12

-11-10

-9

-8-7

-6

-5-4

-3

-2-1

0

12

3

45

6

210 220 230 240 250 260 270 280 290

Live Weight (Lbs.)

$/p

ig


Which Changes Weight-Net Price RelationshipWhich Changes Weight-Net Price Relationship


$50

$55

$60

$65

$70

$75

210 215 220 225 230 235 240 245 250 255 260 265 270 275 280 285 290 295 300

Live Weight (Lbs.)

$/c

wt.

, carc

ass w

eig

ht


Expected Net Prices Vary Across FirmsExpected Net Prices Vary Across Firms


$55$56

$57$58$59

$60$61$62$63

$64$65$66

$67$68$69

$70$71

210 215 220 225 230 235 240 245 250 255 260 265 270 275 280 285 290 295 300

Live Weight (Lbs.)

$/c

wt.

, carc

ass w

eig

ht

Processor A Processor B Processor C


Economic PrinciplesEconomic Principles

Goal is to maximize profitsGoal is to maximize profits

• Determine marginal revenue for a weight changeDetermine marginal revenue for a weight change

• Determine marginal costs for a weight changeDetermine marginal costs for a weight change

• Maximize profit whenMaximize profit when

Marginal revenue = marginal costMarginal revenue = marginal cost


Compute Marginal RevenueCompute Marginal Revenue

At each weightAt each weight

• Estimate base carcass valueEstimate base carcass value

• Estimate expected sort lossEstimate expected sort loss

• Estimate expected lean premiumEstimate expected lean premium

• Base + sort + premium = Base + sort + premium =

Exp. Net Carcass Exp. Net Carcass ValueValue

Calculate revenue gain for additional pound Calculate revenue gain for additional pound of gainof gain


Compute Marginal CostCompute Marginal Cost

• Pounds of feed per lb. of gainPounds of feed per lb. of gain

– Increases as weight risesIncreases as weight rises

• Feed cost per lb.Feed cost per lb.

• # of feed X cost/lb = marginal cost# of feed X cost/lb = marginal cost


Profit Is MaximizedProfit Is MaximizedWhen Marginal Revenue Equals Marginal CostWhen Marginal Revenue Equals Marginal Cost

Marginal Revenue vs. Marginal Cost Carcass Base Price = $65/cwt., Feed Cost = $100/ton

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.70

$0.80

241 246 251 256 261 266 271 276 281 286 291 296

Live Weight (Lbs.)

$/c

wt.

, carc

ass w

eig

ht


Optimal Weight Declines When Base Price FallsOptimal Weight Declines When Base Price Falls


$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.70

241 246 251 256 261 266 271 276 281 286 291 296

Live Weight (Lbs.)

$/c

wt.

, carc

ass w

eig

ht


Higher Feed Prices Reduce Optimal WeightHigher Feed Prices Reduce Optimal Weight


$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.70

$0.80

241 246 251 256 261 266 271 276 281 286 291 296

Live Weight (Lbs.)

$/c

wt.

, carc

ass w

eig

ht


Estimating Your Optimal WeightEstimating Your Optimal Weight• Use your kill sheet data to estimate Use your kill sheet data to estimate

relationship between weight and relationship between weight and

– Sort lossSort loss

– Lean premiumLean premium

• Use models to predict sort loss and lean Use models to predict sort loss and lean premium at each weight premium at each weight

• Calculate expected marginal revenue for a Calculate expected marginal revenue for a one lb. weight gainone lb. weight gain


Estimating Your Optimal WeightEstimating Your Optimal Weight• Estimate your marginal costsEstimate your marginal costs

• Know your costsKnow your costs

• Key is feed costsKey is feed costs– Pounds of feed per lb. of gainPounds of feed per lb. of gain

– Cost per lb. of feedCost per lb. of feed

• Other variable costs per lb. of gainOther variable costs per lb. of gain

• Compare your expected marginal costs to Compare your expected marginal costs to your expected marginal returnsyour expected marginal returns

• Profit Max occurs when MR = MCProfit Max occurs when MR = MC


Next StepNext Step

• Development of a downloadable spread Development of a downloadable spread sheet toolsheet tool

Thank You

k-state research & extension optimal hog marketing weights james mintert, ph.d. professor...

Documents

weight gain slide

state research extension

optimal weight slide

expected marginal costs

expected marginal revenue

lean sort slide

mc slide

profitable slide