6Ideal Pork Quality Color Drip Loss Ultimate pH Marbling Reddish-pink < 0.5%Ultimate pHMarblingEquivalent to % intramuscular fatBy having an understanding of how pork quality traits develop and what processes and inputs affect the final product, the industry will be able to make strides to consistently produce high quality products that meet the demands of the wide variety of pork consumers.
7Lean Quality May Be Influenced By: GeneticsNutritionOn-Farm HandlingTransportationCarcass HandlingStunningMany facets of the pork chain have vital roles to play in improving and maintaining the quality of pork. As described in this presentation, all inputs from the genetics of the pigs through carcass handling have impacts on the final quality of the product.Pre-Slaughter Handling
9Pork Carcass Measurements Backfat Measurements:Last Lumbar Vert.Last Rib1st RibCarcass Length:Anterior Edge of First Rib toAnterior Edge of Aitch Bone
10USDA Pork Carcass Grades Expected Yield of the Four Lean Cuts By Grade, Based on Percentages of Chilled Carcass WeightU.S. No % and OverU.S. No to 60.3%U.S. No to 57.3%U.S. No. 4 Less than 54.4%U.S. UtilityUSDA Yield Grade Equation:(4 x Last Rib Fat Measurement) – Muscling ScoreNOT commonly applied in commercial operations
11Percent Lean (Ribbed Carcasses) Hot carcass weightFat depth at the tenth ribLoin eye area at the tenth ribMost accurate, but NOT commonly applied in commercial operations because most carcasses are not ribbed
12Fat Free Lean Equation Pounds of Percentage Fat Free Lean = 8.5876–( x 10th rib fat, in)+( X LEA, in.2)+(.4650 x HCWT, lbs.)PercentageFat Free lean =(Pounds of Fat Free Lean/Hot Carc. Wt.)x100
13Percentage Fat Free lean Typical values: %Extremely lean pigs >60%As live or carcass weight increases, what happens to fat?With heavy-weight hogs, FRAME is very important
14Hog Procurement Live Cash (Spot) Market AuctionDelivery to Packing PlantHog Buying StationFew Hogs Traded on Live Cash Market62% in 199417% in 20019% in 2007
15Hogs Sold on Carcass Basis Versus Live Cash Market hogs sold on a carcass basis (%)Operation size/1,000 hd. mktd.200020061-363803-5915-109010-50779250-5009798500+99100Source: Lawrence, John and Glenn Grimes. Production and Marketing Characteristics of U.S. Pork Producers, 2006,
16Hog Procurement Marketing and Production Contracts Specifies time and quantity of hogs to be deliveredProduction Contract - Contractor supplies hogsMarketing Contract - Types, numbers, pricing formula are normally specified
17Carcass Weight Pricing Producer Paid on a Carcass Weight BasisDressing Percentage Is The Most Important Factor!74%26%250 lbs.“Dress-Off Items”Head, Viscera, Pluck, Hair, Blood, etc.65 lbs.185 lbs.
18Carcass PricingCarcass pricing is heavily affected by dressing percentageDressing percentage is affected by:Amount of fillAmount of fatAmount of muscleAmount of carcass trimmingProducer is not paid if carcass is condemned
19Lean Value or Carcass Merit Pricing Lean Value PricingLean Value or Carcass Merit PricingDifferential pricing by carcass, based on the estimated lean merit of each individual carcassLean Merit estimation is completed by a variety of methods, but usually takes the form of a prediction equation using on-line measurements to estimate total lean.A base carcass price is established and adjusted according to the results obtained by the prediction equationThe majority of lean value pricing formulas do not currently include estimates of quality.
20Lean Value Pricing On-Line Methods and Measurements Ruler Invasive Optical ProbeUltrasound – Hanging CarcassUltrasound – Entire CarcassMRI – Entire Carcass or Primals
21On-Line Methods and Measurements Lean Value PricingOn-Line Methods and MeasurementsRuler
22Lean Value Pricing On-Line Methods and Measurements Invasive Optical Probe (Fat-O-Meater, Hennessy Grading Probe)
23Lean Value Pricing On-Line Methods and Measurements Ultrasound – Hanging Carcass (Animal Ultrasound Systems CVT, UltraFom)
24Lean Value Pricing On-Line Methods and Measurements Ultrasound – Entire Carcass (AutoFom)
25Lean Value Pricing On-Line Methods and Measurements MRI – Entire Carcass or Primals (TOBEC)
26Lean Value Pricing Merit Estimations Typically Percent Lean or Percent Wholesale Cuts derived from a formula (regression equation)Merit = (.4 x Fat Depth) + (6.2 x Muscle Depth)Calculated for each individual carcass (not an average)
27Lean Value Pricing Caution!! Equations are only as good as the data used in deriving the equationThey are an estimate (based on data), not absoluteTypically varies due to differences in weight, genetic type, etc.
28Lean Value PricingCarcass merit estimates do differ from plant to plantDifferent equipment, different data collected, human to human differences, etc.Each processor develops their buying program (grid) to meet their product needs.It is the producer/seller’s challenge to match the right hogs with the right carcass merit program to maximize value.
29Each carcass is priced individually Lean Value PricingEach carcass is priced individuallyDifferent Plant Examples:PRICE = Base Price + Value Premium - DeductionsPRICE = (Base Price x Relative Value) - Deductions
30Lean Value Pricing Base Price Does Differ From Plant to Plant Each packer/plant sets it own baseBase can differ from supplier to supplier, based on market forces and past historyBase Price Negotiated From:Publicly reported cash or “spot” market tradesFutures market pricePublicly reported feed pricePlant averages
31Lean Value PricingThis figure indicates the premiums and discounts paid by two different packers using their lean value pricing equations. Packer A does not pay high premiums for high percent lean hogs, but also does not heavily discount those that are below the average. Packer B pays greater rewards for those hogs with a high percentage lean, but obviously has no need for the below average percent lean hogs as seen by the greater discounts. A producer who has prior information on that his/her hogs will have a high percent lean might be more likely to contract with Packer B, while a producer with no previous history of carcass results might be safer to contract with packer A.
32Lean Value PricingIn this example, the packer will pay a premium for carcasses that weigh above 173 pounds until they have more than 1.1 inches of backfat at the last rib. To get a premium for carcasses between pounds, carcasses would need to have .6 to .9 inches at the last rib. Any carcasses with more than 1.1 inches of backfat receive a discount.
33Lean Value PricingGrid carcass weight and leanness adjustments may be applied:Fixed premiums (known dollar amount)Relative premiums (percent adjustment)Carcasses are not typically USDA (third party) gradedPacker employee measuresObjective measuresFat-O-Meater, ruler, ultra-sound, etc.
34Example Program 1Begin with a negotiated base price and adjust according to the grid below:
35Example Program 1Begin with a negotiated base price and adjust according to the grid below:Carcass Price = $85/cwt x 1.08 = $91.80/cwt lbs. X $91.80/cwt = $ Total ValueExample: Base Price = $50/cwt., Carcass Wt. = 200 lbs., LR Fat = .90 in.
36Example Program 2Begin with a negotiated base price and adjust according to the grid below:
37Example Program 2Begin with a negotiated base price and adjust according to the grid below:Carcass Price = ($85/cwt + $0.00) + $1.50 = $86.50/cwt lbs. X $86.50/cwt = $ Total ValueExample: Base Price = $85/cwt., Carcass Wt. = 200 lbs., 10thR Fat = .90 in., LEA = 7.00 in2, %Fat-Free Lean = 51.5%.
38Example Program 3Begin with a negotiated base price and adjust according to the grid below:Fat-O-Meater% LeanPremium/DiscountCarcassWt.≥59%$7.25<124($32.06)57-58%$5.75($19.84)55-56%$4.75($10.68)53-54%$3.75($4.58)51-53%$2.50($1.52)49-50%$1.25Base47-48%45-46%($1.25)43-44%($2.50)41-42%($3.75)39-40%($4.75)($0.76)37-38%($5.75)($2.29)35-36%($7.25)($3.81)($6.87)
39Example Program 3Begin with a negotiated base price and adjust according to the grid below:Fat-O-Meater% LeanPremium/DiscountCarcassWt.≥59%$7.25<124($32.06)57-58%$5.75($19.84)55-56%$4.75($10.68)53-54%$3.75($4.58)51-53%$2.50($1.52)49-50%$1.25Base47-48%45-46%($1.25)43-44%($2.50)41-42%($3.75)39-40%($4.75)($0.76)37-38%($5.75)($2.29)35-36%($7.25)($3.81)($6.87)Base Price =$85.00/cwtFOM Adj.+ $2.50/cwtCarc. Wt. Adj.– $3.81/cwtCarcass Price =$83.69/cwtTotal Value =X 200 lbs.$167.38Example: Base Price = $85/cwt., Carcass Wt. = 200 lbs., 10thR Fat = .90 in., LEA = 7.00 in2, %Fat-Free Lean = 51.5%.
40Lean Value Pricing Summary Selling On:Live weightOne average price for all live poundsNegotiated price before deliveryWeighing conditions importantMud, shrink (fill, time, stress)Was most common for hogs
41Lean Value Pricing Summary Selling On:Carcass weightOne average price for all carcass poundsNegotiated price before deliveryDressing percent (also called yield) is extremely important!Producer stands risk of trimming and condemnation losses
42Lean Value Pricing Summary Selling On:Lean Value Pricing (Grid Marketing)Each carcass evaluated and priced independently by the packer (not third party)Producer stands grading riskBase price may be negotiated or come from packer-generated formulaPremiums and discounts typically determined ahead of deliveryDifferent buyers have different systemsMost market hogs are sold by some variation of this method today
43Lean Value Pricing Summary Lean Value Pricing differentiates carcass merit and the producer is paid its worth to the packer.Producers must determine how best to capture relative value of the pigs produced by matching them with the most profitable pricing program (limitations due to transportation costs or other variables may also influence marketing decisions).