Dr. Dennis DiPietre - Bacon Quality Dilemma - Production for Pigs and the DDGS

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Variability in the Principal Determinants of Cost of Production for Pigs and the DDGS - Bacon Quality Dilemma - Dr. Dennis DiPietre, KnowledgeVentures, LLC, from the 2013 Boehringer Ingelheim Swine Health Seminar, August 16-18, 2013, Wrightsville Beach, NC, USA.

More presentations at http://www.swinecast.com/2013-boehringer-ingelheim-carolina-swine-health-seminar

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Dr. Dennis DiPietre - Bacon Quality Dilemma - Production for Pigs and the DDGS

  1. 1. VARIABILITY  IN  THE  PRINCIPAL   DETERMINANTS  OF  COST  OF   PRODUCTION  FOR  PIGS  AND   THE  DDGS,  BACON  QUALITY   DILEMMA     Dennis  DiPietre,  Ph.D.,  KnowledgeVentures,  LLC,  Columbia,  MO   Aaron  Gaines,  Ph.D.,  The  Maschhoffs,  Carlyle  IL    
  2. 2. FEED  INGREDIENT  PRICE  VOLATILITY     AND  ITS  EFFECTS   •  Feed  Ingredient  prices  are  in  a  period  of  high  volatility   •  Worldwide  production  and  supply  of  corn  and  soybeans   (SBM)  no  longer  can  be  depended  upon  to  exceed   demand  on  a  consistent  basis,  forcing  price  rationing.    
  3. 3.  $-­‐  $1.00  $2.00  $3.00  $4.00  $5.00  $6.00  $7.00  $8.00  $-­‐  $10.00  $20.00  $30.00  $40.00  $50.00  $60.00  $70.00  $80.00  $90.00  $100.00 200 2 200 3 200 4 200 5 200 6 200 7 200 8 200 9 201 0 201 1 201 2 Overview  of  Corn  Price  Pass-­‐through  to  Hog  Prices Annual  Average  Prices  (Removes  Seasonal  Noise  etc.) WCB-­‐PM 95%LS500 CMELHI-­‐$2.40 Corn Large  Losses Corn  Prices  Rising/Hog PricesSteady  then  Falling   (Decreasing  Exports   Post  Olympics) Mostly  Normal Large  Profits Corn  Flat/HogPrices  Rising (Increasing  Exports) Counter  Move Up  by  Corn  (Drought) Hog  Prices   DriftingDown (Global  Slowdown in  Demand  Since  11/2011 +  Increased Production) Moderate Losses
  4. 4. “PAST  PERFORMANCE  IS  NO   GUARANTEE  OF  FUTURE  RESULTS”   Future  Price  Distributions  of  Feed   Ingredients?  
  5. 5.  $-­‐  $1.00  $2.00  $3.00  $4.00  $5.00  $6.00  $7.00  $8.00  $9.00 8/15/2003 12/15/2003 4/15/2004 8/15/2004 12/15/2004 4/15/2005 8/15/2005 12/15/2005 4/15/2006 8/15/2006 12/15/2006 4/15/2007 8/15/2007 12/15/2007 4/15/2008 8/15/2008 12/15/2008 4/15/2009 8/15/2009 12/15/2009 4/15/2010 8/15/2010 12/15/2010 4/15/2011 8/15/2011 12/15/2011 4/15/2012 8/15/2012 12/15/2012 4/15/2013 CORN  PRICES:  AUG  2003-­‐AUG  2013  
  6. 6.  $-­‐  $100.00  $200.00  $300.00  $400.00  $500.00  $600.00  $700.00 8/15/2003 12/15/2003 4/15/2004 8/15/2004 12/15/2004 4/15/2005 8/15/2005 12/15/2005 4/15/2006 8/15/2006 12/15/2006 4/15/2007 8/15/2007 12/15/2007 4/15/2008 8/15/2008 12/15/2008 4/15/2009 8/15/2009 12/15/2009 4/15/2010 8/15/2010 12/15/2010 4/15/2011 8/15/2011 12/15/2011 4/15/2012 8/15/2012 12/15/2012 4/15/2013 DECATUR  HI-­‐PRO  SBM     AUG  2003-­‐  AUG  2013  
  7. 7.  $50.00  $75.00  $100.00  $125.00  $150.00  $175.00  $200.00  $225.00  $250.00  $275.00  $300.00  $325.00  $350.00  $375.00  $400.00  $425.00  $450.00  $475.00  $500.00  $525.00  $550.00  $575.00 Jan-­‐08 Mar-­‐08 May-­‐08 Jul-­‐08 Sep-­‐08 Nov-­‐08 Jan-­‐09 Mar-­‐09 May-­‐09 Jul-­‐09 Sep-­‐09 Nov-­‐09 Jan-­‐10 Mar-­‐10 May-­‐10 Jul-­‐10 Sep-­‐10 Nov-­‐10 Jan-­‐11 Mar-­‐11 May-­‐11 Jul-­‐11 Sep-­‐11 Nov-­‐11 Jan-­‐12 Mar-­‐12 May-­‐12 Jul-­‐12 Sep-­‐12 Nov-­‐12 Jan-­‐13 Corn,  46.5-­‐48%  Decatur  SBM,  DDGS   (Prices/Ton)* 46.5-­‐48  SBM  Dec  IL Corn  AVG DDGS  AVG *Source:  USDA,  ISU  Agricultural Marketing  Resource  Center
  8. 8.  $-­‐  $25.00  $50.00  $75.00  $100.00  $125.00  $150.00  $175.00  $200.00  $225.00  $250.00  $275.00  $300.00  $325.00  $350.00 Multi  State  Corn  ($/Ton)  and  DDGS  ($/Ton)  Prices 2008-­‐2012   Avg.  Corn  Price:  $5.24/bu   Avg.  DDGS  Price:  $169.12/Ton   CorrelaBon  Coefficient  0.942   WHICH  PRICE  RANGE  REPRESENTS  THE     CURRENT  (likely  future)DISTRIBUTION  OF  PRICES?  
  9. 9. BIMODAL  DISTRIBUTIONS  ABOUND  
  10. 10. 2003-­‐2013  (THE  TEN  YEAR  STORY)   $1.73 $7.24 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 $1 $2 $3 $4 $5 $6 $7 $8 $9 Distribution of Southern MN Corn Prices Last 10 Years
  11. 11. FEED  INGREDIENT  PRICE  DISTRIBUTIONS   NOW  POSITIVELY  SKEWED  
  12. 12. 2003-­‐2013  SOYBEAN  MEAL  PRICES   $166.90 $482.00 0.000 0.001 0.002 0.003 0.004 0.005 0.006 $100 $150 $200 $250 $300 $350 $400 $450 $500 $550 $600
  13. 13. BEAN  MEAL  CORRELATION  WITH  HOG   PRICES  IS  SHIFTING   0.682 0.595 0.725 0.689 0.404 0.329 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 Corn  20 Corn  10 Corn  5 Hog  Price  Correlation  Coefficient   with  Corn  and  SBM  Prices  in  Three  Periods
  14. 14. MONTE  CARLO  SIMULATION  OF  CORN  AND  SBM  PRICE   PAIRINGS  FROM  LAST  5  YEARS  DISTRIBUTIONS   $0.00 $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 $14.00 $16.00 $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 All  “Blow  outs”  are   On  the  upside  
  15. 15. ETHANOL   •  Subsidized  production  and  mandated  use  of   ethanol  as  a  public  policy  choice  to  reduce  US   dependence  on  foreign  sources  of  fuels  has  led  to   dramatic  increases  in  demand  for  corn  for  fuel   production   •  Corn  use  for  ethanol  production  now  (as  of  2011)   exceeds  all  livestock  uses  and  takes  40%  of  an   average  US  corn  crop.  
  16. 16.  $-­‐  $20.00  $40.00  $60.00  $80.00  $100.00  $120.00  $140.00  $160.00  $-­‐  $25.00  $50.00  $75.00  $100.00  $125.00  $150.00  $175.00  $200.00  $225.00  $250.00  $275.00  $300.00  $325.00  $350.00 1/4/2008 3/4/2008 5/4/2008 7/4/2008 9/4/2008 11/4/2008 1/4/2009 3/4/2009 5/4/2009 7/4/2009 9/4/2009 11/4/2009 1/4/2010 3/4/2010 5/4/2010 7/4/2010 9/4/2010 11/4/2010 1/4/2011 3/4/2011 5/4/2011 7/4/2011 9/4/2011 11/4/2011 1/4/2012 3/4/2012 5/4/2012 7/4/2012 9/4/2012 11/4/2012 1/4/2013 Multi  State  Corn  ($/Ton)  and  DDGS  ($/Ton)  Prices and  West  Texas  Intermediate  Crude  Spot  Price/Barrel
  17. 17. COMMON  STRATEGY   DDGS  AS  A  CORN  SUBSTITUTE   •  Distillers  Dried  Grains  with  Solubles  (DDGS),  a  byproduct   of  ethanol  production  can  be  used  as  a  substitute  for  corn,   soybean  meal  and  inorganic  phosphate  in  swine  diets1   •  DDGS  inclusion  rates  in  swine  diets  depends  on  its  relative   price  to  the  prices  of  corn,  fats,  soybean  meal,  its  nutrient   content  (which  can  be  variable)  and  its  effect  on  threshold   levels  of  unsaturated  fat  it  can  produce  in  the  pork  carcass   depending  on  timing  and  inclusion  level  in  the  diet.   •  Unsatisfactory  threshold  levels  of  unsaturated  fat  are   beginning  to  be  estimated  by  processors  by  measuring   Iodine  Value  (IV)  in  carcass  fat  (most  often  backfat  or  jowl   fat).     1Jerry  Shurson,  Benefits  and  LimitaFons  of  Feeding  Corn  DDGS  to  Grower-­‐Finisher  Pigs,  Dept.  of  AnSci.,  University  of  Minnesota    
  18. 18. Change from Prior Day: Receipts: NATIONAL DAILY PORK REPORT FOB PLANT- LM_PK602: Carcass Cutout Values 102.71 (-0.43) Primal Loin 103.36 (-2.69) Primal Butt 97.12 1.45 Primal Picnic 66.83 2.75 Primal Rib 145.32 2.99 Primal Ham 84.00 1.19 Primal Belly 174.50 (-2.37) Total Loads 271.7 Pork Cuts254.01 Lds Trim/Process Pork 17.68 Lds YESTERDAY’S  PRIMAL  PRICES  
  19. 19.  0.80  0.83  0.85  0.88  0.90  0.93  0.95  0.98  1.00  1.03  1.05  1.08  1.10  1.13  1.15  1.18  1.20  1.23  1.25  1.28  1.30  1.33  1.35  1.38  1.40 1/4/2008 3/4/2008 5/4/2008 7/4/2008 9/4/2008 11/4/2008 1/4/2009 3/4/2009 5/4/2009 7/4/2009 9/4/2009 11/4/2009 1/4/2010 3/4/2010 5/4/2010 7/4/2010 9/4/2010 11/4/2010 1/4/2011 3/4/2011 5/4/2011 7/4/2011 9/4/2011 11/4/2011 1/4/2012 3/4/2012 5/4/2012 7/4/2012 9/4/2012 11/4/2012 1/4/2013 Corn  Price  Per  Ton/DDGS  Price  Per  Ton INDEX   USE  OF  DDGS  LIMITED  FOR   CARCASS  FAT  QUALITY  AND   DDGS  PRICE  AS  SUBSTITUTE     FOR  CORN  IS  GETTING  LESS     ATTRACTIVE   “THE  SQUEEZE”  
  20. 20.  -­‐  0.10  0.20  0.30  0.40  0.50  0.60  0.70  0.80  0.90  1.00  1.10  1.20  1.30  1.40  1.50 1/4/2008 3/4/2008 5/4/2008 7/4/2008 9/4/2008 11/4/2008 1/4/2009 3/4/2009 5/4/2009 7/4/2009 9/4/2009 11/4/2009 1/4/2010 3/4/2010 5/4/2010 7/4/2010 9/4/2010 11/4/2010 1/4/2011 3/4/2011 5/4/2011 7/4/2011 9/4/2011 11/4/2011 1/4/2012 3/4/2012 5/4/2012 7/4/2012 9/4/2012 11/4/2012 1/4/2013 Corn  Price  Per  Ton/DDGS  Price  Per  Ton  and  Corn  Price  Per  Ton/46.5-­‐48%  SBM INDEXES  
  21. 21. THE  TRADEOFF   Escalating  IV  as  Price  Rationed  Corn  (and   SBM)  is  Substituted  Out  for  DDGS  
  22. 22. FORMULATION  BACKGROUND   •  Increasing  levels  of  DDGS  (0,  10,  20,  and  30%)   •  Diets  formulated  to  be  isocaloric  on  a  NE  basis     –  Rationale:    Equal  growth  and  feed  efaiciency   –  Required  supplementation  of  CWG   •  NRC  2012  loading  values  were  utilized   –  DDGS  Source  (>  6  and  <  9%  oil)   –  Energy  value  of  DDGS  =  88%  of  corn  
  23. 23. Corn  Soy   10  %  DDGS   20%  DDGS   30%  DDGS   THE  DIETS  
  24. 24. THE  PRICES  (TABLE),  2008-­‐2012   SENSITIVITY  ANALYSIS   Baseline  ingredient  prices   with   DDGS  steps  0,  10%,  20%,  30%   Feed Ingredient Average Price STDEV Min Max Corn (ton) 188.03$ 55.77$ 107.73$ 295.33$ Corn (bu) 5.26$ 1.56$ 3.02$ 8.27$ SBM 46.5-48 Decatur 354.65$ 66.05$ 242.28$ 574.42$ DDGS 169.30$ 55.66$ $81.05 $305.96
  25. 25. Corn  Price  DistribuBon   DDGS  Price  DistribuBon   46.5-­‐48%SBM  Price  DistribuBon   THE  PRICES   (CORRELATED  PRICE  DISTRIBUTIONS)  USED  
  26. 26. Amount OF EACH VARIABLE AS DDGS INCREASED Predicted BF IV COP $/Pig Reduction in Corn lbs/pig Reduction in SBM lbs/pig Increase in DDGS lbs/pig 0% DDGS 66.31 69.92$ 375.14 81.68 0.00 10% DDGS 69.28 68.79$ 333.80 73.60 46.84 20% DDGS 72.25 67.68$ 292.54 65.54 93.58 30% DDGS 75.22 66.56$ 251.36 57.49 140.23 CHANGE IN VARIABLE AS DDGS INCREASED Predicted BF IV COP $/Pig Reduction in Corn lbs/pig Reduction in SBM lbs/pig Increase in DDGS lbs/pig 0% DDGS 0.00 -$ 0.00 0.00 0.00 10% DDGS 2.97 1.13$ 41.35 8.08 46.84 20% DDGS 5.94 2.25$ 82.61 16.14 93.58 30% DDGS 8.91 3.36$ 123.78 24.19 140.23
  27. 27. INGREDIENT  USAGES  ARE  ABSOLUTE   VALUES.       FOR  EXAMPLE  CORN  AND  SBM  USAGE  WILL   INCREASE  WITH  REDUCTIONS  IN  DDGS  LEVELS   IN  AN  EFFORT  TO  OBTAIN  A  LOWER  IV.  
  28. 28. y  =  0.424782x  +  0.004136 R²  =  0.999993  $-­‐  $0.50  $1.00  $1.50  $2.00  $2.50  $3.00  $3.50  $4.00 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 $/pig Predicted  IV  Δ IV  Δ  $/pig  impact  (NE  Basis) y  =  13.892798x  +  0.042450 R²  =  0.999999 0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 lbs/pig Predicted  IV  Δ IV  Δ  Corn  Usage  impact  lbs/pig  (NE  Basis) y  =  2.714450x  +  0.008294 R²  =  0.999999 0.00 5.00 10.00 15.00 20.00 25.00 30.00 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 lbs/pig Predicted  IV  Δ IV  Δ  SBM  Usage  impact  lbs/pig  (NE  Basis) y  =  15.738859x  +  0.048091 R²  =  0.999999 0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00 160.00 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 lbs/pig Predicted  IV  Δ IV  Δ  DDGS  Usage  impact  lbs/pig  (NE  Basis)
  29. 29. CHANGE IN VARIABLE AS DDGS INCREASED Predicted BF IV $/Pig Reduction in Corn lbs/pig SBM lbs/pig DDGS lbs/pig 0% DDGS 0.00 -$ 0.00 0.00 0.00 10% DDGS 2.97 1.13$ 41.35 8.08 46.84 20% DDGS 5.94 2.25$ 82.61 16.14 93.58 30% DDGS 8.91 3.36$ 123.78 24.19 140.23
  30. 30. 0.00 0.05 0.10 0.15 0.20 0.25 0.30 -$8 -$6 -$4 -$2 $0 $2 $4 $6 $8 $10 $12 90%  Between   $0.16  and  $2.12   90%  Between   -­‐$0.12  and  $4.07   90%  Between   $0.00  and  $6.12   $1.13   $2.25   $3.36  
  31. 31. SUMMARY   •  Demand  for  Corn  Now  Requires  Record  or  Near-­‐ Record  Crop  to  Avoid  Very  Low  Stocks-­‐to-­‐Use   Ratios  and  Price  Rationing   •  Favorable  Price  Relationships  Have  Allowed   Substitution  of  DDGS  for  Corn  and  SBM  in  Swine   Diets  But  Increasing  DDGS  Inclusions  Increase  IV   Values  Toward  Meat  Quality  Threshold  and  Raise   COP  

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