So reducing variation by approximately half results in an increase in profitability of about $12.40/head. The full-valued pig is still at 292 lb., but now its value is reduced to $82.52/head.

Why is the value reduced?

Because the full-value pig reaches market weight earlier with high variability, so it is reflected as having lower feed costs due to fewer days on feed. We would find a full-valued pig at Day 157 of marketing the medium-variance pigs, too, and it would have a value similar to the 157-day, full-valued pig for high-variation pigs.

The full-valued pig is showing that the heavier pigs pass through that point, and once they reach that point, the ideal would be to market them rather than reaching the point of decreasing returns as shown in these charts.

Figure 12 shows all three levels of variation, including the lowest variation sampled (CV = 8%). It is graphed on the day of the optimal marketing of the lowest-variation group, which is Day 167. The optimal marketing day is 10 days later than the high-variation pigs at 157 days, and the profit is much higher — $72.96/head vs. $55.97/head — a difference of nearly $17/head!

The full-value pig still exists. Its weight is remarkably similar to the other full-valued pigs, not surprisingly, and its value is close to the medium-variation pigs marketed at 164 days.

Although it is difficult to see, if you took the high-variation pigs to this marketing date from 157 days, then the average value of the high-variance pigs would be $54.73, a loss of another $1.20/head.

Finally, Figure 13 shows the “video” of pigs' values over time and growth. I included only the value of the low, average and high-weight pig for the low-variance case. Heavy pigs should be marketed as soon as possible because they are losing value both from a cost and revenue perspective. Similarly, light pigs represent a tradeoff between costs and the price/premium steps.

Notice that the “treads” on the steps are always sloping downward. Once you hit a premium level, the pig loses value every day beyond that point until it gets to the next step. This occurs because of the lightest pigs' higher cost of feed. If there were no costs to monitoring and sorting these pigs, you would get rid of them exactly when they hit the grid premium and not a day longer. You can also infer what happens with higher feed prices — the treads between the steps get steeper, suggesting even greater cost to holding low-weight pigs longer. In the extreme price event, the step up may not even compensate for the feed costs between steps — increasing the cost of these pigs that are hidden in the averages.

Conclusions

This analysis shows that the potential economic merits of reducing variation in pigs are significant. These benefits accrue for three fundamental reasons:

• Marketing more pigs near the full-valued pig.

• Increasing average weights possible at marketing, thus increasing total revenue by pushing more pounds through the system.

• Reducing marginal feed costs for reaching higher-valued pigs.

The obvious, unanswered question is, what's the most cost-effective method to reduce variation to capture these profit opportunities?

A paper by J.F. Patience and A.D. Beaulieu at the 2006 Manitoba Swine Seminar reviewed research suggesting several possibilities to reduce or manage variation. They concluded, as most others have, that it is difficult to identify any single production practice — other than sorting — that consistently and significantly reduces variation because of the interplay of genetics and environment in production.

However, we may be asking the wrong question. Rather than asking which production methods could reduce variation, perhaps we should be asking what incentives can be put in place to reward practices that meet a target level of variation.

This is essentially what the packer grid in this analysis does. Packers don't say, “sort pigs to reduce the variation in the plant.” They provide a grid that gives rewards and penalties to reduce variation to meet their grid. It allows for flexibility and creativity in meeting that goal.

The same idea can be applied to swine production by rewarding reductions in variation. What would happen if, instead of making payments on a “per-pig-space basis” or a “pigs-out-the-door” basis,” the payments were allocated based on the number of “full-valued” pigs out the door? How much creativity would occur in finding ways to reduce variation in production, besides just sorting?

This paper suggests the value of reduced variation is there. Perhaps we should consider a new avenue to incentivize a reduction in production-based variation rather than prescribing methods. In the long run, the correct incentives may provide the most potential to truly reduce variation and capture that value.