Precision Agriculture: The Strategic Future of Animal Production - Dr. Dennis DiPietre KnowledgeVentures LLC, at the Boehringer Ingelheim Vetmedica, Inc. Swine Health Seminar, August 15, 2009, Carolina Beach, North Carolina, USA.

1. “The Opportunity is in the Variance”
Precision Agriculture: The Strategic
Future of Animal Production

2. Global Resources,
Changing Government
Policy and the Basic
Conditions Affecting
Food Production Costs
and Demand for Food
Cost Megatrend

3. Are We Running Out of
World Resources or
Can We Solve Problems
Through Ingenuity and
Market Mechanisms?
The big question seems to have
already been decided

4. The Big FOUR
Population Growth
Available Water
Available Energy
Global Warming

5. REPOSITIONING THE
MEANING AND IMPACT
OF U.S. AGRICULTURE
Abundance as a negative

6. Limiting Future Production Through
Cost Increases
• Taxing Exports (Cap and Trade)
• Thwarting Export Growth (MCOOL/Trade Barriers)
• Regulating and Taxing Odor, Manure, Dust, Worker
Benefits (National Health Care)
• Reducing Antibiotic Use
• Policies to Reallocate Feed Grains to Fuel and Raise
the COP for Meat
• Limiting Technology and Regulating Animal Care
• Policies Raising the Cost of Water Use
• Policies Raising the Cost of Energy Use
• Policies Restricting Business Arrangements (Packer
Ownership, Contracting)
• Policies Easing the Barriers to Citizen Suits (EPA and
Others)
• Employee Benefit Mandates/Easing Union Formation

7. Limiting Future Demand Through
Cost Increases and Demographics
• MCOOL and Other Trade Regulations
• Educating Against and Taxing Meat Consumption
(Obesity-National Health Care, Global Warming, Water
and Energy Use, Animal Welfare), Forcing Calorie
Counts to Menu Items, Limiting Salt Usage
• Positioning Religious Leaders Against Meat
Consumption (HSUS and others)
• Natural Baby Boomer Demographics
• Policies Requiring Locally Produced Purchasing for
Government Entities (Food Miles)
• Reducing Meat in School Lunch Programs
• CAFOs: Positioned as Unfixable by Technology
• Goldschmidt Hypothesis: CAFOs Destroy Local Fabric
of Communities
• Raising the Cost of Meat Through Supply Reduction

8. With Challenge Comes
Opportunity
Achieving Substantially
More with Fewer
Resources:
Precision Agriculture

9. What is Precision Ag?
Precision farming or precision agriculture
is an agricultural concept relying on the
existence of in-field variability. It requires the
use of new technologies, such as global
positioning (GPS), sensors, satellites or
aerial images, and information management
tools (GIS) to assess and understand
variations. Collected information may be
used to more precisely evaluate optimum
sowing density, estimate fertilizers and other
inputs needs, and to more accurately predict
crop yields. It seeks to avoid applying
inflexible practices to a crop, regardless of
local soil/climate conditions, and may help to
better assess local situations of disease or
lodging. Source: Wikipedia

10. Which Method is Precision
Irrigation?

11. Precision Agriculture
What Was Your Yield/Acre?
An Obsolete Question

12. Understanding Input Need
Variations During the Production
Process

13. Responding “on the fly” with
Precision Input Applications

14. First Step: Coming to See the
World as Distributions Instead of
Only Averages
Point

15. FUTURE OPPORTUNITY IS IN
REDUCING VARIANCE
Same Average
Different Variance!
High Variance Low Variance

16. An Illustration Using COP

17. Forecasting Hog COP for 2009
 2005-2008 Corn Price Range:$1.56 - $7.38/bu
Corn Price Range: $5.82
 2005-2008 SBM Price Range: $148.70 - $459.50
Meal Price Range: $229.34
 Using USDA 2009 Average Price Estimates for Corn
and Soybean Meal:
$3.55-$4.25/bu and $250-$310/short ton

18. Figure 1. 2009 Forecasted Average Cost of Production for Hogs in the U.S.
0.045
0.04
!"#$%&%'()*)+,-./%0#1-#22
0.035
0.03
0.025 2009
0.02
0.015
0.01
0.005
0

19. Figure 1. 2009 Forecasted Average Cost of Production for Hogs in the U.S.
0.045
0.04
!"#$%&%'()*)+,-./%0#1-#22
0.035
0.03
Reducing Variance
Of Expected Cost of Production
0.025 Through Locking “Margins” Rather
Than Only Costs or Prices
0.02
0.015
0.01
0.005
0

20. The Most Important Metric:
Profit
The Path to Increased Profits For Modern
Producers is Through the Variance

21. The Single Pig Calculation
Typical Choice for Optimum:
As Close to First Discount
Slaughter House Pricing as Possible
Cost of Gain
What Happens if You
C
Set theOGroup Average Very Large
At the Single Pig Optimum
S Discounts from
Weight?T Pigs That are
/ Too Heavy
R
E
T
U
R
N
180 200 220 240 260 280 300 320 340 360
Weight of Pig

22. A Very Important Take Home Message
Comparing Group Average Weight to the
Individual Pig Optimal Weight
Optimal Avg Weight for a Distribution
Of Pigs Will be LOWER Than For
a Single Pig
Value Change is Not The WIDER the Variance in Weights
The LOWER will be the Profit Optimal
Symmetric on Each
Weight
Side of the Mean as You
Lower the Weight of the
Distribution 180 200 220 240 260 280 300 320 340 360
The Distribution Average Weight
Is Lowered Until the Gain in Net
Income from Lowering is Maximized

23. Selling Pigs as a Distribution of Weights
Pigs Above Profit Optimal
(Lost Opportunity)
Pigs Below Profit Optimal
(Lost Opportunity)
Producer Lowers
Average Weight to
Avoid Heavy Weight
Discounts
Packer Sends
Who Sends Report Report of
For INCREASED Lost Opportunity “Discounts for Weight”
Here to Offset Against Gains From
Reducing Heavy Weight Penalties? Single Pig Profit Optimal Weight
Answer: No One!

24. TOO MANY BALLS IN THE AIR to
FOCUS ON ONE! (except PROFIT)
 FOCUS FIRST on Profit Maximizing Weight
(NOT PACKER DISCOUNTS)
 FOCUS SECOND on Reducing Variance in
Market Weights
 Profit Optimal Weight Will Increase as
Variance is Reduced
 Master Slow Changes in Market Weight
Direction Following Seasonal Price Patterns
(Assuming Feed Cost Constant)
 FE and ADG that RESULT at Profit
Maximization are the IDEAL FE and ADG for
your current system

25. Illustration of Precision AG
Reducing Variation and Optimizing

26. Initial Situation

28. Maintaining Original Weight and Reducing Variation in Sales

29. Initial Situation

31. These Distributions Have
Different Costs, Different
Revenue and Very Different
Profits

32. Visualizing Variation

34. Measuring and Controlling
Variance is the Key to Future
Profitability
 Disease is the Number One Cause of
Variation During Production Phase
 Incorrect and Incorrectly Executed SOPs
Increase Variation (How Many Cooks are in
the Kitchen?)
 Systems Built 5-20 Years Ago Are Often
Stressed with Over Capacity Due to
Steadily Increasing Productivity
 Market Selection Mechanisms are Crude at
Best Yielding High Variance Outcomes