profit maximization

:     The profit maximizing market weight for pigs is a function of the price received and the costs remaining at the time of the projection.  If you think of a single pig (the simplest case) near the end of finishing, the cost remaining is the last finishing diet.  The decision revolves around estimating the marginal cost of an additional pound and the marginal revenue of that additional pound from the packer.

     The marginal cost is the change in total cost divided by the change in output.  From that formula you can see that no fixed costs enter this calculation.  As the pig grows during the final finishing phase, its marginal feed efficiency is getting worse and in most cases, the lean percent is declining while the yield may be rising slightly.  Both typically impact price paid.  On the other hand, the marginal revenue is typically a step function (rather than continous) and is poised to jump down as the next level of sort loss is overtaken.

Everyone is hearing the call to reduce weights as an industry strategy to force the pass-through of higher costs up the chain. Every time the industry cycles through the oversupply phase, joint action is recommended to pull back supply.

This can be an effective strategy but the problem we face is that the industry has not consolidated to the point where joint action is likely to succeed. The reason is the benefit of cheating.

When there are hundreds or thousands of competitors in an industry, each seeks to optimize its output based on its own costs and price offerings without regard to the actions of others.

     Here is an interesting result which illustrates the impact of variation on the optimal selling weight of finisher pigs.  The optimal weight of a single pig can be readily calculated if you know the approximate feed efficiency and adg for the last couple of weeks of finishing as well as an expected market price.  In general you want to add the next lb as long as the value received for that lb is in excess of the cost.

     As you add lbs each day in late finishing, adg tends to stablize around 2 lbs per day but feed efficiency begins to deteriorate.  Therefore, each additional lb will cost a little more to put on.  As you add weight, at some point you will begin to incur a discount to the base price and lean percent will begin to deteriorate.  If you know how these things change, you can estimate the optimal selling weight of a single pig.