Production and financial records for 42 niche pork producers from 2006 are analyzed for the determinants of profitability. All of the producers were specialized in “natural” pork without the use of antibiotics and with bedded pens having outdoor access. Nine of the 42 producers were further specialized in either a dedicated breed (Berkshires) or certified organic pork. Complete financial and production records were available for each producer and a more limited set of management characteristics (e.g., age) were also available for analysis.
The analysis included two approaches. First, the producers were sorted into the top 10 and bottom 10 in regards to profitability. Profitability is measured as the net margin per hundred pounds of pork production (net of all costs and adjusted for inventory). Once sorted, statistical tests are conducted to determine which attributes differed between the most and least profitable groups. Second, a multiple regression model is estimated to determine the factors that explain variation in profitability across producers. The model considered production costs, production efficiency, operation size, and marketing methods.
The analysis included two approaches. First, the producers were sorted into the top 10 and bottom 10 in regards to profitability. Profitability is measured as the net margin per hundred pounds of pork production (net of all costs and adjusted for inventory). Once sorted, statistical tests are conducted to determine which attributes differed between the most and least profitable groups. Second, a multiple regression model is estimated to determine the factors that explain variation in profitability across producers. The model considered production costs, production efficiency, operation size, and marketing methods.
Collectively, the analysis points to following key determinants of profitability.
1. Feed Conversion—Feed conversion was consistently found to be an important determinant in profitability. In particular, the most profitable producers had a significantly lower feed conversion ratio. Lowering the pounds of feed per pound of pork by 0.50 raised margins by $2.79 per cwt. The importance of feed conversion may well have increased since the time of this survey when corn prices averaged just $2.22 per bushel.
2. Breeding and Farrowing Efficiency—The most profitable operations weaned more pigs per litter and had more litters weaned per sow per year. It is estimated that increasing pigs per litter by 1.0 results in profit margins increasing by $1.80 per cwt. An improvement in farrowing frequency by 0.10 per year increases profit margins by $0.65 per cwt.
3. Marketing Arrangements—Producers selling “certified organic” pork had net margins that were $13.47/cwt. higher than the other producers (all else equal). Most of the margin gain was through a $19.70/cwt. market premium. These producers incur added production and management costs, but a large portion of the price premium makes it to the bottom line.
Other factors were also important in determining profitability. These included herd death loss, feed prices, labor use, veterinary cost, and years of experience in producing niche pork. While these factors are important, they are generally beyond the control of the producer. The importance of veterinary cost and death loss do point toward a focus on herd health.
Niche pork producers should focus on controlling costs and improving efficiency, especially in breeding and farrowing programs. Then, they should focus on finding the optimum marketing arrangement for their production. If they can efficiently produce more specialized pork products—such as certified organic—they should consider entering that market.
Other factors were also important in determining profitability. These included herd death loss, feed prices, labor use, veterinary cost, and years of experience in producing niche pork. While these factors are important, they are generally beyond the control of the producer. The importance of veterinary cost and death loss do point toward a focus on herd health.
Niche pork producers should focus on controlling costs and improving efficiency, especially in breeding and farrowing programs. Then, they should focus on finding the optimum marketing arrangement for their production. If they can efficiently produce more specialized pork products—such as certified organic—they should consider entering that market.
The authors—Dwight R. Sanders, Ira J. Altman, and Gary A. Apgar—can be contacted at Southern Illinois University Carbondale, College of Agricultural Sciences, (618) 453-2469.
