Still Drive Supply and Demand
The economics of a cost increase are not terribly
complicated. We all need to appreciate what higher costs are doing to
all livestock and meat sectors.
Costs are the basis of supply. More specifically, a firm’s marginal
cost (the additional cost of each additional unit of output) forms the
firm’s supply function. Any rational manager will increase output to
the point that the cost of adding one more unit of output is larger than
the price that will be received for that unit. This assumes that
marginal costs rise with output, a realistic assumption for most farms,
I think, where crowding or strapped labor or some factor would cause
efficiencies to fall and costs to rise at some point, and to keep rising
if the manager tries to push more and more output through a given
But time is a big factor as well. In the short-run, hog farms can’t
do much about output. We economists say the short run supply function
is inelastic, meaning that output cannot be changed much in response to
a different price. Dashed lines SSR and S’SR in
Figure 1 are short-run supply functions. They indicate, for instance,
that the industry’s total slaughter for next week (or even the next 26
weeks since the pigs are already on the ground or 40 weeks since the
sows are already bred) cannot be changed by much in response to a price
Given time, however, producers can increase or decrease output. A few
more sows can be bred to fill in for those that recycle. A few more can
be bred and pigs cross fostered to maximize litter size in each crate.
Additional labor can be added to raise pigs that otherwise might not
make it to market weight. These kinds of changes would move the firm
along one of the solid lines SLR and S’LR in
Figure 1. Since time allows for changes to be made, the output change
for a given price offer can be much larger. The long-run supply
function is more elastic.
Rule Applies to Raising Pigs
This week we are taking a closer look at some common
problems we have seen on hog farms. We have broken them down into four
areas – 80% of the issues are related to people and 20% to other
factors (nutrition, 10%; facilities, 5%, and genetics, 5%):
80% of the issues and challenges associated with raising pigs centers
on the “people factor:”
• January is a good time to calculate your employee turnover
rate. Take the number of W-2’s you’ve printed and divide it by the
number of full time employees. For example: 12 W-2’s printed divided
by 6 full-time employees = 50% employee turnover rate (ETR). It is not
uncommon to have an ETR over 50%. If the figure is uncommonly high, it
is a good time to evaluate your employee management practices.
• When you finalizing your year-end financial reports, calculate
how many dollars you spent on training the farm employees. Divide the
total dollars by the number of full-time employees. Most will find this
number is less than $500/employee. When you’re looking at a total
investment in the millions of dollars, certainly you can justify
spending $2,000+ per employee for the most important part of the
operation. It’s an expense that usually generates a good return on
• PQA Plus+ and TQA certification for all employees will soon be
required by most packers. These are very good training sessions to help
all employees understand that they are responsible for the pigs’
well-being and for the quality of pork leaving the farm.
Urge EPA to Slow Down on E15
Automakers, petroleum refiners, boat owners, gasoline
marketers and others expressed concern that the Environmental Protection
Agency (EPA) is ready to approve higher ethanol blends in gasoline
without appropriate vetting of the scientific record. The groups’
letter to EPA asked the agency to base its decision on a “complete and
sound scientific record and we urge the Department of Energy to help
provide this science by spending all of the $15 million targeted for
expanding and accelerating mid-level ethanol blends research in the 2010
appropriations bill. Moreover, EPA should reopen the E15 waiver comment
period to allow public review of new test data prior to making a final
decision on the waiver request.” The groups also urged EPA to base
their decision on a complete understanding of the potential impacts that
higher ethanol blends would have on all segments of the end-user market.
Those signing the letter were: Alliance of Automobile Manufacturers,
American Petroleum Institute, Association of International Automobile
Manufacturers, Boat Owners Association of the United States, Engine
Manufacturers Association, International Snowmobile Manufacturers,
Motorcycle Industry Council, National Association of Convenience Stores,
National Association of Truck Stop Operators, National Marine
Manufacturers Association, National Petrochemical and Refiners
Association, Outdoor Power Equipment Institute, Petroleum Marketers
Association of America, and Society of Independent Gasoline Marketers of
Exports’ Rise Best Results in 2009
U.S. pork exports continued their rebound in November,
reaching their highest levels of 2009, while beef exports also rose
above year ago levels, according to the U.S. Meat Export Federation
For the month, total pork (muscle cuts plus variety meat) exports
reached 373.8 million pounds, basically even with the volume for
November during the record-breaking pace of 2008. The results for
November marked the first time monthly pork exports have reached or
exceeded 2008 levels since March 2009.
During the first 11 months of 2009, the United States exported 3.7
billion pounds of pork worth nearly $4 billion, down 10% in volume and
13% in value from 2008 statistics.
Jan. 19-22, 2010: Banff Pork Seminar,
Banff, Alberta, Canada; contact: http://www.banffpork.ca/prog.
Jan. 20-21, 2010: Minnesota Pork Congress,
Minneapolis Convention Center, Minneapolis, MN; contact: (507)
345-8814, email@example.com or go
Jan. 22-23, 2010: Kentucky Pork Producers
Association Annual Meeting, Holiday Inn University Plaza and Sloan
Convention Center, Bowling Green, KY; contact: (270) 737-5665 or
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