Agricultural Loss – Quantifying Economic Damage for a Hog Farm
24 October, 2014-
Canada
Damage quantification for livestock losses can be difficult as it often requires consideration of market price fluctuations, age and weight of livestock at the time of loss and the end purpose of the livestock – considering whether they are for breeding or market purposes.
Hog losses in particular have many special considerations that need to be thought through in order to accurately assess the economic impact of an incident.
Common Terms to Aid Understanding a Hog Farm Loss
The following are common terms that one needs to understand in order to quantify a hog farm loss:
- Sows – Female pigs used for breeding
- Piglet – Newborn Pigs
- Weaners – Pig 3 to 12 weeks old
- Gilt – Young female pig
- Barrow – Neutered male pig
- Boar – Full grown intact male pig
- Farrow – To give birth
- Finish – To grow a hog to market weight
Hog Farm Operations
Hog farm operations are generally segregated into three separate stages of production; farrowing, weaner and finishing. The first stage is the farrowing stage; this is where the sows give birth to the piglets. Sows typically have 8 to 12 piglets per litter and have between two and three litters per year as the time between farrowing is approximately 150 days.
At the age of 3 weeks and at approximately 7kg the piglets are weaned and moved into a weaner barn. Here the weaners are raised until they are 12 weeks old and approximately 37 kg.
At the age of 12 weeks the weaners are big enough to join the general population and are moved to a growing/finishing barn. At this point they are referred to as gilts and barrows. The gilts and barrows remain in the finishing barn until they reach market weight which is approximately 100 to 110kg. This occurs when the pigs are around six months of age.
Hog Farm Loss Types
Hog farm losses can occur at all stages of the growing cycle and each has its own considerations.
Farrowing:
In the case of a farrowing barn loss, the farmer has lost the ability to produce new hogs. If the farm operated solely as a farrowing barn, the production loss is noticeable immediately as the farmer would not have any income from the sale of the piglets. However, if the farm is a multi-stage farm and operated from farrow to weaner or farrow to finish, the farmer does not have an immediate drop in income as the weaner and finishing barns would continue to operate and sell the stock that was in the unaffected barns. It is not until all the stock in the weaner and finishing barns is sold that the farmer starts to incur an income loss.
Weaner:
Similar to a single stage farrowing barn loss, if the farmer operates a single stage weaner farm, a loss will immediately impact the farmer’s ability to earn revenue. In these cases the farmer may choose to rent out temporary facilities to continue to operate the weaner barn, although this is not always possible.
If the farmer operates a multi-stage hog operation a loss at the weaner stage results in the farmer not being able to grow his own stock. In this case it is likely that the farmer will attempt to outsource the weaner growing stage to minimize the loss’ impact on revenue. If the farmer is successful in outsourcing, the farmer will incur extra expenses related to the outsourcing and possibly freight to and from the outsource location.
Finishing:
A loss at the finishing stage immediately impacts the farmer’s ability to earn revenue regardless of whether the farmer has a multi-stage operation or solely operates a finishing barn.
Hog Farm Loss Calculation
In all cases the losses incurred will include both the profit loss from the deceased hog(s) as well as the value of the actual animal (inventory/stock loss).
Hog Inventory/Stock Loss
For a farrowing loss, the calculation typically considers the value of the sows lost along with a relatively nominal value for the piglets lost.
In a weaner and finishing loss, the weight of the hog is considered as the hogs are considered to be sold on the day of loss. Market pricing is usually available through various livestock exchanges or the Pork Producers of Ontario website.
Profit Loss Calculation Approach
The first step in calculating a hog farm income loss is to understand how the farm operates.
Revenue Shortfall Projection:
Single Stage Farming:
Farrowing:
If the loss occurs at the farrowing stage, the first consideration is to project how many piglets would have been born had the loss not occurred. Information from the farmer should allow for a calculation of average piglets per sow as well as the typical mortality rate among the piglets as this information must also be considered.
If the farm is strictly a farrowing operation, the piglets are sold at 3 weeks old when they become weaners. The farmer should be able to provide sales invoices for pre-loss litters. This will help establish the price typically received by the farmer and should also support the number of piglets calculated.
Weaner:
Weaner farms tend to operate in an all-in/all-out fashion, meaning that a full group of weaners is brought in at one time and raised to 37kg, and then all are sold to the finishing barn at the same time. This allows for proper decontamination of the facility between groups. Therefore, a loss in a single stage weaner farm is relatively straight forward.
The first step is to understand how many groups of weaners the farmer raised each year and how many weaners were in a group. Considering weaner age is from 3 to 12 weeks, a farm would have 4 to 5 groups a year, depending on the length of the decontamination stage. The farmer will have this information available from a historical prospective.
The farmer will also know the number of weaners per historical group. Both purchase and sale records should be considered as some animals will perish between the purchase and sale date.
Once the number of groups and weaners per group is established, contract or market price information can be utilized to project the sales foregone as a result of the loss.
Finishing:
The first step in calculating a finishing barn loss is to understand trending in that hog operation (i.e. how many times the barn turned over in a year, what is the average sales weight, is the barn usually kept at full capacity, average daily weight gain, etc.). Typically an analysis of pre-loss purchase and sales invoices is needed to determine the number of hogs bought and sold. This will also establish the sale weight. The farmer will be able to advise how many hogs are typically kept in the facility and should be able to advise the average daily weight gain.
Using the pre-loss sales invoices, the number of hogs sold every week or month is determined as well as the average sales weight. Utilizing the applicable market price, the sales projections can be established.
Multi-Stage Farming
In the case of a multi-stage farm, losses at both the farrowing and weaner stage result in the income loss calculation being delayed as the income stream expected from the hogs would not be affected immediately. Similar to single stage finishing losses, multi-stage losses that occur at the finishing stage result in an immediate income loss.
The difference with a multi-stage finishing loss is that the farmer can sell the weaners produced to other finishing barns and thus recoup some of the profits the farmer would have earned had the farm operator finished the hogs.
Revenue projections are similar to the single stage finishing barn.
The projected sales are reduced by the actual revenue earned by the farm during the loss period to calculate the revenue shortfall.
Saved Variable Expenses
As with other types of losses, non-operational hog farms will experience a savings in variable expenses when compared to an operational hog farm. Analysis of the pre-loss monthly profit and loss statements compared to the post-loss profit and loss statements provides detailed information on what expenses discontinued during the loss. Typically in a hog farm the variable expenses will include veterinary, feed, bedding and labour. In addition, in single stage hog farming, weaner and finishing hog farms will realize a significant savings absent the need to purchase stock.
Conclusion
Quantifying economic damage in a hog farm loss has many aspects that must be considered when preparing the calculations. Attention to detail and an understanding of the operations are crucial to the accuracy of the end report.
Published in Claims-Canada magazine April-May 2014 issue.
The statements or comments contained within this article are based on the author’s own knowledge and experience and do not necessarily represent those of the firm, other partners, our clients, or other business partners.
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