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

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. 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. $-­‐
$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. “PAST
PERFORMANCE
IS
NO
GUARANTEE
OF
FUTURE
RESULTS”
Future
Price
Distributions
of
Feed
Ingredients?

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. $-­‐
$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. $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. $-­‐
$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. BIMODAL
DISTRIBUTIONS
ABOUND

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. FEED
INGREDIENT
PRICE
DISTRIBUTIONS
NOW
POSITIVELY
SKEWED

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. 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. 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. 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. $-­‐
$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. 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. 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. 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. -­‐
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. THE
TRADEOFF
Escalating
IV
as
Price
Rationed
Corn
(and
SBM)
is
Substituted
Out
for
DDGS

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. Corn
Soy
10
%
DDGS
20%
DDGS
30%
DDGS
THE
DIETS

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. Corn
Price
DistribuBon
DDGS
Price
DistribuBon
46.5-­‐48%SBM
Price
DistribuBon
THE
PRICES
(CORRELATED
PRICE
DISTRIBUTIONS)
USED

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. 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. 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. 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. 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. 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