However, these values were substantially higher with the feed costs experienced in the summer and fall of 2008. When feed prices were at unprecedented levels during the summer, the live weight market price required for a replacement gilt to attain a positive NPV by Parity 3 was $63/cwt., live weight (Table 6C). Similarly, the market value needed for a replacement gilt to attain a positive NPV by Parity 3 during the fall was $54/cwt., live weight basis (Table 6B).

There is great economic benefit for establishing a sow herd that can remain productive for more parities. As Tables 6A-C show, the longer a sow remains in the breeding herd, the greater the NPV. Higher market hog prices combined with more parities per sow increases the economic reward to producers. And, the more productive the sows are — more pigs born alive, hence more pigs or market hogs sold per parity — the greater the NPV available.

Offsetting High Feed Costs

There are really only two ways to help offset higher costs. One is to focus on improving marketing skills — either by lowering the cost of feed or increasing the price received for market hogs.

Contracting or purchasing feed ingredients can help. Similarly, the use of contracts to establish a market price that is tied to feed costs is a powerful tool, particularly when feed costs rise to the levels seen last summer. The various marketing tools — hedging, use of calls and puts, etc. — are ways to reduce risk and attain an acceptable market price for a unit's level of production.

The second option is to improve sow productivity. In other words, produce more pigs with the same amount of inputs. The production levels in Table 1 can serve as an example.

If producers in the top 25% can improve their average number born alive from 11.92 to 12.23 and their number weaned from 10.56 to 10.82 — moving them to the top 10% — the number of pigs marketed would increase from 9.2 to 10.02. Note how this small change in productivity reduces the price required to reach a positive net present value by the 3rd parity by $2/cwt., live weight.

Similar goals can be set for a breed-to-wean operation. While feed costs represent a substantial cost to raise gilts in this setting, there is less opportunity for managing ingredient costs, although contracting and other marketing measures can be beneficial. These producers need to tie the price they receive for the weaned pigs to a cost of production or some formula based on feed costs to improve their opportunities to be profitable.

Higher Feed Costs Likely

Since production of biofuels will likely be mandated by the government in the future, the relatively low corn price we are now experiencing is likely to be short-lived. As the economy improves — and it will over time — the price of oil will again climb and higher gasoline prices will follow.

Since corn is now seen as an energy source, we can expect higher corn prices in the future. The pork industry will have to wrestle with the fact that higher market prices — whether market hogs or weaned pig prices — will require that sows achieve a profitable net present value by Parity 3. This is a goal that must be reached if U.S. pork production is going to be profitable under the current energy policy.