PRODUCTION SYSTEMS
PIH-17
pork industry handbook
COOPERATIVE EXTENSION SERVICE • PURDUE UNIVERSITY • WEST LAFAYETTE, INDIANA
Pork Production Systems with Business Analyses
Feeding Purchased Pigs
Authors
David H. Bache, Purdue University
James R. Foster, Purdue University
Reviewers
David Spruill, North Carolina State University
Clyde Weathers, North Carolina State University
Feeding Purchased Pigs...
What It Is and Where It Fits
This pork production system involves buying young pigs (usually around 40-60 lb. each) and feeding them to market weight. Whereas sow herd enterprises are often organized to use a minimum of purchased inputs, this one is dramatically different in that it calls for major cash outlays for the purchase of pigs.

Since feeder pigs sell for about twice as much per pound as do market hogs, cost of the purchased pigs represents approximately 40% of total production expenses. Consequently, a feeder pig finishing enterprise requires rather large sums of operating capital and involves considerable financial risk.

This system is usually well suited to the producer who fits the following description:
1.	He is short of labor and the husbandry skills needed to manage a sow herd, but does have feed grain he wants to market through livestock (as would often be the case on large, well-capitalized grain farms).
2.	He is skilled in buying and selling and is willing to invest sufficient time to keep on top of the markets.
3.	He is able either to withstand periods of financial loss or to somehow "insure” himself against such losses. Some common forms of "insurance" (discussed in the next section) are no-loss contracts, price averaging or hedging in the futures market.

Advantages
■	Although capital requirements are high, the rate of capital turnover is relatively fast compared to farrow-to-finish operations. For instance, the period from start-up to first pay check is approximately a year with sow herds but only about 4 months with purchased pigs.
■	Since the producer is starting with well-established (40-60 lb.) pigs, he avoids the high labor period of hog
production and the demanding management problems associated with breeding herds and new-born pigs.
■	This enterprise permits a feed grain producer to expand his business by processing his gram through hogs while retaining the fertilizer value of the manure.
■	The "penalty" for halting production is relatively modest with this enterprise. The only certain loss associated with shutting down is the continuing ownership cost of idle buildings and equipment This is in contrast with the sow herd operator who upon shut-down may face serious problems in replacing breeding stock and a long start-up period.
Disadvantages
■	There are significant expenses associated with buying feeder pigs that certainly will include a transportation charge and may include charges for commission, yardage and shrinkage. In a typical situation, these costs might be expected to average $1.50 per pig
■	There is also some production “penalty" for purchased feeder pigs, When young pigs are assembled from various sources, co-mingled and sorted before shipment to their final home, genetic uniformity will be lacking and the threat of disease multiplies.
■	The price of feeder pigs is highly variable and is influenced by current market hog prices. Therefore, while profits from feeding purchased pigs are likely to be quite favorable in a period of rising market hog prices, losses may likewise be multiplied in a period of falling prices.

Types of “Risk Insurance”
No-loss contracts, price averaging and futures market hedging are types of “insurance" that may help relatively small, under-capitalized producers to enter the feeder pig finishing business by reducing the threat of
Cooperative Extension Work in Agriculture and Home Economics, State of Indiana, Purdue University and U. S. Department of Agriculture Cooperating. H. G. Diesslin, Director, West Lafayette, Ind. Issued in furtherance of the Acts of May 8 and June 30, 1914. It is the policy of the Cooperative Extension Service of Purdue University that all persons shall have equal opportunity and access to its programs and facilities without regard to race, religion, color, sex or national origin.