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K-State Research & Extension Optimal Hog Marketing Weights James Mintert, Ph.D. Professor Department of Agricultural Economics Kansas State University

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K-State Research & Extension Hogs Have Been Getting Heavier for A Long Time

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K-State Research & Extension Why Have Weights Gotten Heavier? 1.Technology –Genetics –Feeding regimens 2.BECAUSE ITS PROFITABLE

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K-State Research & Extension How Does Weight Impact Returns? Three keys to examining impact of weightThree keys to examining impact of weight –More pounds –Sort Loss –Lean Premiums

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K-State Research & Extension Sort Loss Is Highly Correlated With Weight

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K-State Research & Extension Lean Premiums Are Also Correlated With Weight

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K-State Research & Extension Adding Model Results for Lean & Sort

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K-State Research & Extension Expected Net Prices At Various Weights

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K-State Research & Extension Premium/Discount Schedules Vary By Firm

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K-State Research & Extension Which Changes Weight-Net Price Relationship

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K-State Research & Extension Expected Net Prices Vary Across Firms

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K-State Research & Extension Economic Principles Goal is to maximize profits Determine marginal revenue for a weight changeDetermine marginal revenue for a weight change Determine marginal costs for a weight changeDetermine marginal costs for a weight change Maximize profit whenMaximize profit when Marginal revenue = marginal cost

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K-State Research & Extension Compute Marginal Revenue At each weight Estimate base carcass valueEstimate base carcass value Estimate expected sort lossEstimate expected sort loss Estimate expected lean premiumEstimate expected lean premium Base + sort + premium =Base + sort + premium = Exp. Net Carcass Value Calculate revenue gain for additional pound of gain

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K-State Research & Extension Compute Marginal Cost Pounds of feed per lb. of gainPounds of feed per lb. of gain –Increases as weight rises Feed cost per lb.Feed cost per lb. # of feed X cost/lb = marginal cost# of feed X cost/lb = marginal cost

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K-State Research & Extension Profit Is Maximized When Marginal Revenue Equals Marginal Cost

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K-State Research & Extension Optimal Weight Declines When Base Price Falls

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K-State Research & Extension Higher Feed Prices Reduce Optimal Weight

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K-State Research & Extension Estimating Your Optimal Weight Use your kill sheet data to estimate relationship between weight andUse your kill sheet data to estimate relationship between weight and –Sort loss –Lean premium Use models to predict sort loss and lean premium at each weightUse models to predict sort loss and lean premium at each weight Calculate expected marginal revenue for a one lb. weight gainCalculate expected marginal revenue for a one lb. weight gain

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K-State Research & Extension Estimating Your Optimal Weight Estimate your marginal costsEstimate your marginal costs Know your costsKnow your costs Key is feed costsKey is feed costs –Pounds of feed per lb. of gain –Cost per lb. of feed Other variable costs per lb. of gainOther variable costs per lb. of gain Compare your expected marginal costs to your expected marginal returnsCompare your expected marginal costs to your expected marginal returns Profit Max occurs when MR = MCProfit Max occurs when MR = MC

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K-State Research & Extension Next Step Development of a downloadable spread sheet toolDevelopment of a downloadable spread sheet tool

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Thank You

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7 Prepared by: Fernando Quijano and Yvonn Quijano © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair Short-Run Costs.

7 Prepared by: Fernando Quijano and Yvonn Quijano © 2004 Prentice Hall Business PublishingPrinciples of Economics, 7/eKarl Case, Ray Fair Short-Run Costs.

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