The most efficient economic space allocation is about 6 square feet of floor space per pig. In a collaborative research project, Harold Gonyou reported that the optimal space based on growth performance is approximately 8.7 square feet per pig (when using the formula A=0.215 x BW0.67, where area is in square feet, BW is in pounds and 0.215 is a constant "k"). This illustrates the conflict between economic- and productivity-based space allocations for grow/finish pigs.
Here, I will look at the financial impacts of increased space allocation and attempt to mitigate the effect with changes in hog market weights and system-wide pig flow.
Survey of pig space
To establish existing practices, we conducted a survey of finishing-pig stocking density
and marketing practices in the U.S. pork industry. The results show that the average confinement-pig-space allotment is 7.2 square feet per pig. That's about midway between the optimal economic allocation of 6 square feet per pig and the optimal productivity allocation of 8.7 square feet per pig. The survey also shows that in about 10 percent of confinement barns, all pigs are marketed at the same time (dumped). For the other 90 percent, the heaviest hogs are marketed, while the lighter pigs remain behind to gain additional weight (topped).
Financial model of pig space
The model is based on a production module representative of a 2,600-sow farrowing unit. Nursery and finishing systems are modeled to accommodate pig flows from farrowing, and include feed performance, mortality and growth, as well as facility specifications. Pigs flow through the system and are marketed at weights dictated by stocking densities or optimal marketing weights, depending on if space allocation is constrained.
A marketing module accounts for the differences in marketing finished pigs as a result of changing pig-space requirements. The module incorporates representative packer-payment grids, which affect prices received for pigs under alternative finishing close-out scenarios.
The financial accounting module (assets, liabilities, costs and returns) assigns economic values to the production process. These combined modules provide a wide range of potential production, marketing and financial impacts of alternative pig-space requirements.
The basis for all of the scenarios is an increase in space allocation per pig beyond industry practices from 7.2 to 8.7 square feet. We examined two alternatives to meet the added space allocations as indicated by the headings in the table.
1) Maintain the same number of pigs in the entire system, but market some or all pigs at lighter weights once they've gained enough weight to meet the space restriction.
2) Reduce the finishing facility's initial stocking rates to meet target marketing weights by reducing sows in the herd, marketing weaned or feeder pigs before they enter the finishing stage, or build additional finishing barns to give the pigs more space.
Both scenarios are simulated for large-pen and small-pen barns, and all simulations are completed for two packer grids. The grid defined as "Wider" allows for slightly more variation in market weights. The grid defined as "Narrower" allows for less variation and prefers a bit lighter hog.
Simulations and results
Simulating the scenarios using Microsoft Excel provides the following key results (presented in the table):
Increasing finishing-pig-space allocation beyond industry practices results in a reduced return on equity (ROE) and profits for all scenarios, except when adding finishing barns using the narrower packer grid with large pens.
Marketing the fewest pigs at lighter market weights (one instead of two or four) results in the least reduction of ROE and profits. This is because fewer pigs are marketed at the lightest weights, which have the greatest discounts in the packer grids.
Selling weaned pigs before placing them into finishers is preferred to all scenarios that involve marketing light-weight pigs.
Reducing the breeding herd is the worst alternative in all cases. This is because the fixed cost per pig increases dramatically throughout the system and results in recurring losses through time.
The best alternative is to build finishing barns to better accommodate existing pig flows and requirements for more pig space. This is due to a combination of improved growth performance, avoiding packer discounts for lightweight pigs and the ability to amortize building costs over time, avoiding recurring costs of marketing pigs at light weights or reducing pig numbers through the system.
Space allocation has production performance, pig flow, capital utilization and market price impacts. Increasing finishing-pig-space allocation beyond current industry practices does result in reduced financial performance. However, the best possible mitigation strategy for multi-site, confinement production systems is to build finishing space to provide more space per pig, although this does still have some negative financial impacts.
In terms of policy, these results show that adopting any form of space restrictions or requirements should be carefully considered in concert with potential economic benefits, namely consumers' willingness to pay for pigs raised in facilities with more space.
What's more, the best financial mitigation strategy (building more finishing barns) may be difficult to implement given the current siting and permitting restrictions facing the industry. Therefore, increasing pork production's space-allocation requirements will negatively impact the U.S. pork industry's economic competitiveness, unless competitors must do the same.
Editor's note: Derald Hotkamp, Iowa State University; Michael Brumm, professor emeritus animal science, University of Nebraska; and James Kliebenstein, agriculture economist, Iowa State University, were involved in this research, funded by the National Pork Board.
Please address all correspondence to Brian Buhr, Department of Applied Economics, University of Minnesota, St. Paul, MN 55108-6040, (612)625-1273, e-mail [email protected].