Profit Sensitivities to Feed Price and Pig Price with Varying Production Levels

Don Lidster, Rocky Morrill and Miles Beaudin

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Summary
Levels of production in a farrow to finish operation have significant impact on the bottom line under two of the four scenarios analyzed. From the observations, it is demonstrated that when the revenue per hog is below that of a variable cost structure, the advantages of chasing reduced fixed cost are eliminated. When revenue does not cover variable costs, the advantages of gained in fixed cost savings through high output are quickly eroded, and this situation promotes financial losses.

This would suggest that maintaining high pig production levels during any combination of feed cost level or any type of pig price level is not always the best option for the bottom line. The model has shown that there are significant disadvantages to maintaining constant high production during periods of low pig prices/high feed costs and low pig prices/low feed costs in a farrow to finish operation. It is impossible to show all scenarios and the reality is that each farm has its own. We have tried to keep a simple approach by showing the relationships among fixed and variable costs, and productivity and income, in a few scenarios.