Ontario Swine Farms Profitability versus Productivity Presented to: Federal, Provincial, Territorial Working Group AAFC, Ottawa October 26, 2012 Randy Duffy, Ken McEwan, Ken Poon University of Guelph

Outline  Industry Background  Ontario Farm Income Database - Preliminary Results  Continuous Sample (370 farms)  Average vs. Top 20% / Bottom 20%  Ontario Data Analysis Project (ODAP – UGRC)  Average vs. Top 50%  Preliminary Key Learning Points (OFID)

Industry Background

Ontario Hog Price vs. Estimated Net Return Source: OMAFRA Swine Budgets

Ontario Producers vs. Hogs Marketed Since 2005: 20-25% reduction in sows / pigs 50% reduction in producers

Ontario Farm Income Database Swine Farms

OFID – Swine - Advantages  All Farms (1,000)  Continuous Sample (370)  Income Range / Gross Revenue (5 categories)  Swine Production Type (5 categories)  Link to Production / Inventory (swine, crops)  Captures large share of total Ontario industry

OFID – Swine - Limitations  Completeness of production / inventory schedules  Declining swine farm numbers  Estimated Debt proxy

Estimated Share of Ontario Industry CategoryAll FarmsContinuous Sample Avg Avg Number of Farms1, Sow Inventory79%85%37%44% Market Hogs Sold63%74%32%45% *Grow Corn for Feed58%66%69%75% Source: OFID; University of Guelph, Ridgetown Campus calculations.

Estimated Share of Total Ontario Swine, by Farm Size Category Number of Farms Total Operating Revenue Estimated Total Debt $0-$100,00013%6%1%<1%2%<1% $100,000-$300,00031%15%8%2%10%4% $300,000-$500,00020%18%10%6%13%8% $500,000-$1,000,00019%27%18%15%22%25% > $1,000,00016%34%63%77%53%62% All Farms1,330666$978 m$897 m$938 m$845 m Source: OFID; University of Guelph, Ridgetown Campus calculations.

Estimated Share of Total Ontario Swine, by Production Type Category Number of Farms Total Operating Revenue Estimated Total Debt Farrow to Finish44%49%37%49%40%53% Finish38%27%35%30%27%23% Farrow to Wean8%6%12%4%18%6% Farrow to Feeder7%14%8%13%10%13% Mixed3%4%8%4%6%4% All Farms1,330666$978 m$897 m$938 m$845 m Source: OFID; University of Guelph, Ridgetown Campus calculations.

OFID Preliminary Results – All Swine Farms Profitability Quintiles Operating Profit Margin = EBIT / TOR

Total Operating Revenue All Swine Farms Avg Diff: $14 million Range: -$12 to +$44 mill.

Total Operating Revenue – Per Farm by Profitability Quintile Based on: Operating Profit Margin = EBIT / TOR

Total EBITA All Swine Farms Avg Diff: $9 million Range: -$24 to +$35 mill.

EBITA – Per Farm by Profitability Quintile

Productivity vs. Profitability Continuous Sample (370 farms)

EBITA Per Pig Sold

Pigs Sold Per Sow

Health Expense / Swine Sales Ratio 1.5% difference x $150 market hog = $2.25 / head 1.5% difference x $150 market hog = $2.25 / head

Interest Expense / Swine Sales Ratio 1.5% difference x $150 market hog = $2.25 / head 2.5% difference x $150 market hog = $3.75 / head

Total Feed Expense / Swine Sales Ratio 1.5% difference x $150 market hog = $2.25 / head 21.5% difference x $150 market hog = $32.25 / head Ratio = (Feed Expense + Crop Expense + Crop Purchase) / Swine Sales

ODAP Production and Financial Data Average vs. Top 50%

Pigs Weaned Per Sow

Feed Cost Per Pig

NFI Per Pig

Preliminary Key Learning Points  Productivity vs. Cost Control  Distribution of profitability  Variability  Regardless of farm size, production type, debt level, year  Top 20% very profitable, Bottom 20% not profitable**  Ability to stay in the Top 20%**  Top 60% okay, Bottom 40% struggle (depends on year)  Size doesn’t matter  Debt not the deciding factor

The End Thank you. Any questions?