In today's production environment, financial and nutritional audits offer guidance in dealing with high nutrient costs and helping identify options.
As tax time approaches, we are all keenly aware of our earnings and expenditures of the previous year. Not only is this critical to determine how much we will share with Uncle Sam, but it also serves to benchmark our performance against previous years, as well as our expected gains or losses for the year.
The government mandate to increase ethanol production is driving the greatest change to befall our industry in many years.
The impact of the ethanol era was first felt in September 2006. Initially, most of the feed cost change was due to major increases in the price of corn. Price increases in soybean meal, feed-grade fat, several feed additives, trace minerals and phosphate sources followed a few months later.
As a result, the cost of delivering nutrients to our hogs increased by 50-65%. For most producers, this is the difference between making and losing money.
“Business as usual” may not allow you to survive until pork prices are sufficient to support the higher breakeven costs resulting from increased feed and fuel costs.
A nutritional audit may be critical to your survival in the months and years ahead.
A thorough nutritional audit requires examination of all of the nutritional factors that influence the profitability of a production system. The goal is to ensure you are delivering the correct nutrients to pigs at the least cost, without giving up efficiency or performance. Five areas of concern are:
Controlling input cost of ingredients;
Evaluating alternative ingredients;
Reviewing feed manufacturing practices;
Determining the appropriateness of diets and budgets; and
Monitoring feed utilization and feed wastage at the barn level.
This article will focus on the first two topics, although items 3-5 can be equally important.
The nutritional audit will include a review of the purchasing or pricing practices for corn and soybean meal, but let's focus on the non-grain portion of swine diets.
Many producers have formed buying groups to help control the cost of non-grain feed ingredients. They purchase vitamins and trace mineral premixes on a bid basis and develop annual contracts for the purchasing of amino acids, phosphates and other additives. Other non-grain feed ingredients, such as therapeutics, growth promotants, fishmeal and whey products are purchased in a similar manner.
These purchasing strategies allow our clients to benefit from their larger buying group by increasing their buying power, regardless of size.
Table 1 lists cost averages for some non-grain feed ingredients. These are strictly ingredient costs and do not reflect the cost of additional services, nor do they represent the lowest costs in the industry. They can, however, be used as a benchmark for your specific nutritional audit to determine if they represent an area of opportunity.
Traditional alternative feed ingredients include dried distiller's grain (DDG), wheat middlings, bakery by-products, corn gluten feed, hominy and cereal by-products. The problem with these alternatives is that most are “traditionally” priced relative to the price of corn and soybean meal.
Some of these alternative ingredients have greater value when fed to poultry or ruminants, so those species may set the price in the marketplace. Regardless, any alternative should be evaluated as a part of your nutritional audit as you strive to lower feed costs.
DDG is considered a traditional alternative ingredient for pork production. As ethanol production advances, the consumption of DDG by livestock and poultry will grow. One day, it may be considered a standard ingredient for all swine diets.
DDG, in its current form, presents several challenges for livestock feeders:
On the positive side, DDG from newer production plants is often more consistent and contributes higher levels of available phosphorus, sulfur amino acids and threonine to potentially improve the cost of the ration.
A nutritional audit should help determine the appropriate level of DDG to feed in accordance with the sources available. The cost savings per ton must reflect the defined risk when feeding DDG.
Not only do many of our clients evaluate traditional alternative ingredients — some on a weekly basis — they also are finding ways to use “non-traditional” alternative ingredients. Currently, we have clients feeding trail mix, citrus drink tailings and rice bran. These non-traditional alternative ingredients often result in greater savings per ton of feed, but generally on fewer tons.
Several of our clients are also feeding a portion of the pigs' daily nutrients through the water supply — liquid whey, for example. These water-soluble, non-traditional alternative ingredients are often priced independently of corn and soybean meal, resulting in greater savings per pig than traditional alternative ingredients.
Your nutritional audit should include the evaluation of traditional, non-traditional and liquid alternative ingredients to determine their value in your feeding programs. Alternative ingredients that were once “too much trouble” to handle may be the ticket for survival.
In this ethanol era, many producers, purchasing agents and nutritionists agree we are moving into uncharted waters. If grain price trends continue on their current course, I believe a new, higher “base price” will be established for pork prices. Naturally, this paradigm shift will also occur in all other meat sectors, and that means consumers will be paying higher prices for meat protein.
During this transition period, it is critical for producers to continue to protect the image and quality of pork delivered to our customers while finding ways to improve cost efficiencies.
It may be the time to ask, “What do I need to do different to remain a profitable business in the face of the new challenges?” A nutritional audit, conducted by you and your nutritional advisor, should be one of the management tools used to find the answers you need.
| Item | Finishing Feed - $/Ton | Sow Feed - $/Ton |
|---|---|---|
| Phosphorus + phytase (using mono-calcium and Dicalcium phosphates | $2.20 | $5.20 |
| Salt (bulk) | $0.34 | $0.38 |
| Limestone (bulk) | $0.34 | $0.30 |
| Vitamins | $0.85 | $1.85 |
| Choline chloride | — | $1.00 |
| Trace minerals (including selenium) | $0.67 | $0.77 |
| Total | $4.40 | $9.50 |
A few examples of how Cape Fear Consulting clients are taking advantage of non-traditional ingredients include:
Trail mix — A producer agreed to receive salvage trail mix from a human food-grade plant. The product results from spillage, packaging problems and the beginning and end of a manufacturing run.
The producer is able to handle the product in a traditional ingredient weigh-buggy, and primarily uses it in sow and nursery feeds. Occasionally, there are small quantities of paper and other manufacturing debris in the product, which is fed in the form in which it is received, not ground. The producer says sows and pigs actually like the mix, but an occasional sow will sort out the Brazil nuts.
This non-traditional alternative ingredient has saved this producer $2 to $12/ton, depending on the diet, use rate and other alternative ingredients used.
Liquid whey — This producer has a finishing site near a cheese plant, which does not dry the whey, so it must either pay for disposal or sell it as livestock feed. The producer purchases the liquid whey through a broker, who shared in the expense of installing a tank and metering system at the farm. The whey is fed through the watering system.
The liquid whey costs $0.02/lb. of dry matter and replaces approximately 15-20% of the diet's dry matter. As a result, the energy and amino acids in the pigs' dry feed are adjusted, and most of the phosphorus and salt is removed. This dry feed formulation adjustment is necessary to reach a better balance with the nutrients in the liquid whey. The low cost per ton of dry matter for the liquid whey results in a major savings at this production site.