Economics

Influencing Global Brands as a Strategy to Change Production Systems

Most people think about Rachel Carson's book, Silent Spring, written in the 1960s as a key turning point or perhaps even the birth of the modern environmental movement in the United States. Rachel Carson was a biologist and author (http://www.rachelcarson.org/) who brought forward the belief that the pesticide DDT (especially), widely used in agricultural applications post WWII, was having a serious negative impact on wildlife, especially birds--hence, the ultimate culmination of such practices being a spring season without the music of songbirds.

Rachel Carson seemed to believe that booming agricultural production systems which were coming into a euphoric period of efficiency gain after the second world war needed to be awakened to the impact of some of their practices. In other words, she could be considered an optimist with respect to systems potentially seeing their error and reforming. Her book was essentially an awakening call. Indeed a tremendous amount of progress has been made in "detoxifying" agricultural chemicals, especially in terms of their more generalized impact and sharpening their focus to the unique set of problems they are meant to target.

The use of GPS guided spraying technologies which precisely target the application of herbicides, pesticides and even commercial fertilizers are another promising technological advance that is minimizing wasteful overapplicaition of agricultural chemicals.

SwineCast 0256 for November 27 2007

SwineCast 0256 Show Notes:

  • Mo Agastino, Senior Risk Management Consultant at Farms.com Risk Management, shares some advice on how to prepare for the unexpected
  • Let's proactively manage odor before our neighbors and our government teach us how to
  • Tom Elam, FarmEcon.com, explains the economics of biofuels 

Selling Weight Considerations

     Let's take another crack at this optimal selling weight idea.  In general, for a single pig (to get the theory down), you want to add weight as long as the next lb added returns a profit.  That is, the cost of adding that pound is less than the return it receives.  Somewhere in late finishing, a pig will start receiving less and less for each pound added.  This is because feed efficiency is deteriorating and the packer matrix will at some point discount the lb because the pig is too heavy.  Even though all lbs are discounted when the sort matrix indicates a penalty, as long as the last pound was at a profit, it should be added.

How Chasing Return on Equity May Lower Return on Equity

    Reducing variation requires first an understanding of the source(s) of variation, the likelihood of mitigation strategies to successfully reduce the variation and the cost/benefit trade-off in source mitigation. As we have discussed, the typical farm record systems and the procedures which are considered practical to perform, work against developing the necessary data and anaylysis to gain a clear understanding of the return for variance reduction.

    However, one of the most powerful aspects of variance reduction strategies is that if they are successful, they favorably affect both revenue and cost simultaneously. This results in a double bang for the buck when considering the potential financial outcomes of variance reduction investments.

    Since little was understood about the role of production variance on net income; building systems, equipment systems, management systems, contract production systems and pig flow rules of thumb etc. have been put in place over the years causing inflexibility and making it difficult to deploy certain new strategies.

    For instance, contract production systems save equity and allow for greater expansion of the sow base since the capital of the grower forms a significant portion of the total investment required. Many growers elect to make this investment because the returns are generally very high to equity and the value of the manure has been increasing dramatically where it can be used as a commercial fertilizer substitute.

Opportunity Revenue and the Cost of Intervention

Causes of variation in pig production are many and not well understood. One of the key issues arises from the spread in pig weights which begins through a kind of competitive process among the pigs beginning well before birth. Competition in the uterus and during lactation results in a sometimes widely spread distribution of potential in pigs by the time they reach weaning. Some common management procedures are implemented beginning at birth to attempt to reduce variation but their outcome is often marginal, while others, such as processing and castration introduce new challenges to subsets of pigs. Pigs of different weights require different environmental temperatures, feed types and other conditions, yet as variation increases, "average" conditions are provided which probably miss the ideal environment for all but a very small number of pigs.

Some producers are experimenting with simply euthanizing the smallest pigs either at weaning or prior to weaning. An arbitrary percentage is chosen, such as the smallest 3-5% as candidates for euthanizing. Recently published trials (Wolff, Lehe, Keffaber and Deen, "A Producer's Tool for Measuring Attrition", IPVS, 2006) suggest that the weight of the pig, relative to its cohort at both weaning and the end of nursery phase are sentinel indicators of eventual final quality with the weight at the end of the nursery phase a stronger predictor. The result was obtained with all other things held constant so it isn’t clear if targeted or more intensive individual interventions aimed at the smallest pigs at weaning and feeder pig stages would affect the outcome.

SwineCast 0214 for July 3 2007

SwineCast 0214 Show Notes:

Too Much of a Good Thing...Is Rarely a Good Thing (with apologies to Martha Stewart)

Variation is a natural part of biological systems and a characteristic that cannot be eliminated. However, the wise producer will institute procedures from the boar stud to the final loading of the finished animals which at a minimum, does not increase the natural variation in growth. Variation costs money, lots of it. Since we adopted systems which produce weekly lots of pigs, the pigs flow through the farm in age-segregated groups, often moving two or three times to different locations. When their growth performance begins to spread, the time and the cost associated with their completion and marketing begins to rise.

Two Peas in a Pod---They Ain't"

So we are talking about not adding to the fundamental problems which biological production systems deal out just because of their nature. Some of those problems include seasonality, the complexity of growth mechanisms as a key variance enhancer (compared to non-biological production—like automobile manufacture etc.) and the fixed periods of production which cannot be speeded up with an extra shift (like gestation). I’m contending that the next major movement forward in competitiveness is the producer’s ability to manage (certainly never eliminate!) variation more effectively. There is lots of money on that table.

WPX2007: Dr. Dennis DiPietre outlook on production costs and prioritization of various input costs for profit maintenance.

Dr. Dennis DiPietre, economist, provides an outlook on production costs and how producers can prioritize various input costs in order to maintain profit levels.


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If You Know Your New COP Using the Leftover Corn Out There, No Need to Read This.

If you want to know the impact of increased corn prices on your cost of production, chose a forecasted corn price (take your pick of forecaster between $3.40 and $3.85 with some as high as $5.00+ if drought develops) and crank through your feed cost calculation. If you do this and it actually turns out to be your new cost of production, you will be one of the last few producers in the pork industry with absolutely no imagination whatsoever.

One thing we know for certain is that people do not face adversity sitting still. All kinds of secondary strategies, impacts, cost cutting, substitutions, new research and experiments, adjustments in weights and plain ingenuity immediately move to the forefront. In addition, poultry producers and other meat animal species that consume corn are making similar adjustments as are tortilla makers, users of high fructose corn sweeteners and even elevator/feed mills that used to get the corn. As they do, the prices of their products change relative to the price of pork and demand shifts begin to take place at the grocery store and throughout the chain.

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