Leveraging Equity

By Drew Ryder, Feedlogic Corp.

With $55 hogs and $5.50 corn, it’s still ugly out there. Although it looks better towards the end of the year and into 2009, profits will only come with careful purchasing and marketing and more efficient production. Today, most producers are living off equity and that well is only so deep. To reduce the withdrawals from your well, consider these strategies:

1. Understand your real cost of feeding hogs. Don’t just accept the invoices and statements from the feed company. How confident are you that feed budgets are being followed? Do you know how much feed “shrinkage” is occurring between the mill and the barn? Closer audits of feed manufacturing, delivery, and invoicing will probably allow you to “find” a lot of money.
2. Aggressively cull poor performing hogs. The tendency is to hold onto slow growers because of the possibility of recovery. But the higher the feed cost, the more you are putting into an asset which will always net worse returns than a normal growing, healthy hog. Establish a policy on culls and make sure this is communicated down to the person(s) walking the barn every day.
3. Pick marketing strategies which are best for your situation. We’ve already talked about shipping lighter hogs, but it bears repeating. How light will depend on your packer contracts and the grid you’re trying to hit. Figure out ideal shipping weight for each barn and communicate that to marketers so that they select the right pigs. Or if you are using scale barns, dial a lighter weight into the sorter.
4. Look at ways to reduce energy consumption. Propane and natural gas prices have risen and are headed up. Most of the colder weather is behind us for now, but you still may be burning unnecessary fuel. Check temperature set points and lower a few degrees if you can. When the weather warms up, make sure ventilation systems are properly set and maintained to eliminate unnecessary fan time. Your overall utility costs per hog produced can also be reduced if you lower the length of turns and minimize the time the barn is empty between batches of pigs.
5. Address transportation costs. The current national average retail price for diesel is $3.81/gallon, that’s up $1.13/gallon, or around 30% from a year ago. For a truck averaging 5 miles per gallon, that’s an extra 22 cents/mile. Assuming an average distance of 15 miles from the feed mill to the barn, that adds $6.60 to every load of feed. Look at reducing the number of wasted feed truck and hog truck trips. Even if you don’t own the equipment, you’re still paying for the higher fuel cost in the form of higher rates and fuel surcharges.
6. Check manure application rates. With fertilizer costs skyrocketing, the value of manure is also going up. More effective use of manure presents some opportunity to lower crop input costs for you or the third party crop grower. As well as saving on fertilizer costs, manure can boost crop yields – over 10 bu/acre according to university trials.

Drew Ryder is president and founder of Feedlogic Corporation. Feedback: dryder@feedlogic.com; 320-222-3000

Profitable Pork is published by Feedlogic Corporation. The information contained herein is not a substitution for professional services of any kind. The editor of this newsletter claims no responsibility for the use or misuse of the information.

Copyright 2008, Feedlogic Corporation. All rights reserved. Articles may not be reproduced, rewritten, distributed, re-disseminated, transmitted, displayed, published or broadcast, directly or indirectly, in any medium without the prior written permission of Feedlogic Corporation.