Dr. Dennis DiPietre - Bacon Quality Dilemma - Production for Pigs and the DDGS
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Transcript of Dr. Dennis DiPietre - Bacon Quality Dilemma - Production for Pigs and the DDGS
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
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.
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Overview of Corn Price Pass-‐through to Hog PricesAnnual Average Prices (Removes Seasonal Noise etc.)
WCB-‐PM 95%LS500 CMELHI-‐$2.40 Corn
Large LossesCorn Prices Rising/HogPrices Steady then Falling (Decreasing Exports Post Olympics)
Mostly Normal
Large ProfitsCorn Flat/HogPrices Rising(Increasing Exports)
Counter MoveUp by Corn (Drought)Hog Prices DriftingDown(Global Slowdownin Demand Since 11/2011+ IncreasedProduction)
ModerateLosses
“PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS”
Future Price Distributions of Feed Ingredients?
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CORN PRICES: AUG 2003-‐AUG 2013
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DECATUR HI-‐PRO SBM AUG 2003-‐ AUG 2013
$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 $575.00
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Corn, 46.5-‐48% Decatur SBM, DDGS (Prices/Ton)*
46.5-‐48 SBM Dec IL Corn AVG DDGS AVG
*Source: USDA, ISU Agricultural Marketing Resource Center
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Multi State Corn ($/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?
BIMODAL DISTRIBUTIONS ABOUND
2003-‐2013 (THE TEN YEAR STORY)
$1.73 $7.24
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Distribution of Southern MN Corn PricesLast 10 Years
FEED INGREDIENT PRICE DISTRIBUTIONS NOW POSITIVELY SKEWED
2003-‐2013 SOYBEAN MEAL PRICES
$166.90 $482.00
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BEAN MEAL CORRELATION WITH HOG PRICES IS SHIFTING
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Hog Price Correlation Coefficient with Corn and SBM Prices in Three Periods
MONTE CARLO SIMULATION OF CORN AND SBM PRICE PAIRINGS FROM LAST 5 YEARS DISTRIBUTIONS
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All “Blow outs” are On the upside
ETHANOL • Subsidized production and mandated use of ethanol as a public policy choice to reduce US dependence on foreign sources of fuels has led to dramatic increases in demand for corn for fuel production
• Corn use for ethanol production now (as of 2011) exceeds all livestock uses and takes 40% of an average US corn crop.
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Multi State Corn ($/Ton) and DDGS ($/Ton) Pricesand West Texas Intermediate Crude Spot Price/Barrel
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
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 Cuts 254.01 Lds Trim/Process Pork 17.68 Lds
YESTERDAY’S PRIMAL PRICES
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
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Corn Price Per Ton/DDGS Price Per TonINDEX
USE OF DDGS LIMITED FOR CARCASS FAT QUALITY AND DDGS PRICE AS SUBSTITUTE FOR CORN IS GETTING LESS ATTRACTIVE
“THE SQUEEZE”
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Corn Price Per Ton/DDGS Price Per Ton and Corn Price Per Ton/46.5-‐48% SBMINDEXES
THE TRADEOFF Escalating IV as Price Rationed Corn (and SBM) is Substituted Out for DDGS
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
Corn Soy 10 % DDGS
20% DDGS 30% DDGS
THE DIETS
THE PRICES (TABLE), 2008-‐2012 SENSITIVITY ANALYSIS Baseline ingredient prices with DDGS steps 0, 10%, 20%, 30%
Feed Ingredient Average Price STDEV Min MaxCorn (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
Corn Price DistribuBon DDGS Price DistribuBon
46.5-‐48%SBM Price DistribuBon
THE PRICES (CORRELATED PRICE DISTRIBUTIONS) USED
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 0.0010% DDGS 69.28 68.79$ 333.80 73.60 46.8420% DDGS 72.25 67.68$ 292.54 65.54 93.5830% 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 0.0010% DDGS 2.97 1.13$ 41.35 8.08 46.8420% DDGS 5.94 2.25$ 82.61 16.14 93.5830% DDGS 8.91 3.36$ 123.78 24.19 140.23
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.
y = 0.424782x + 0.004136R² = 0.999993
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Predicted IV Δ
IV Δ $/pig impact (NE Basis)
y = 13.892798x + 0.042450R² = 0.999999
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Predicted IV Δ
IV Δ Corn Usage impact lbs/pig (NE Basis)
y = 2.714450x + 0.008294R² = 0.999999
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Predicted IV Δ
IV Δ SBM Usage impact lbs/pig (NE Basis)
y = 15.738859x + 0.048091R² = 0.999999
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Predicted IV Δ
IV Δ DDGS Usage impact lbs/pig (NE Basis)
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 0.0010% DDGS 2.97 1.13$ 41.35 8.08 46.8420% DDGS 5.94 2.25$ 82.61 16.14 93.5830% DDGS 8.91 3.36$ 123.78 24.19 140.23
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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
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