I don’t think that many of us involved in the swine industry as advisors, contract growers, etc. really appreciate the new financing needs of the swine industry as we use $7 corn and $360 soybean meal, etc. This really came home to me today as I was working on a project regarding management changes to address high feed prices.
For a 2400 grow-finish barn, when corn was $3 and soybean meal was $225/ton, it took an investment in feed of about $130,000 to grow the pigs from placement at 55 pounds to slaughter weight. With a 6% interest rate for operating capital, add to this about $1300 to finance feed purchases. Interest for the feed becomes about $0.54 per pig.
With today’s higher feed ingredient prices, along with fuel surcharges from feed mills, etc, the total feed bill is closer to $230,000 for the same weight gain and interest charges increase to around $2300 or just under $1 per pig if the operating capital interest rate remains at 6%.
Another way to look at it is the capital required to produce a market weight pig from birth to slaughter versus 3-4 years ago. Three to four years ago most producers had less than $100 in total costs in each market weight pig. The best estimates I’ve seen lately are close to $160 per pig.
Again, let’s look at a 2400 head barn. Four years ago, the total accumulated expense in that barn when pigs were sold was $240,000. Today, that number is closer to $384,000. And in both instances producers are operating with these types of cash flows in the hope of $10-20/pig net profit.
Pork production isn’t for the faint of heart with these types of cash flow needs.