Higher market hog prices in 1996 causing higher total returns resulted in Illinois hog producer profits to increase by $3.71 per hundredweight produced compared to 1995. Total returns for the farrow-to-finish hog enterprises exceeded total production costs by $5.05 per hundredweight produced in 1996. The 1995 return was $1.34. For the five-year period, 1992 through 1996, returns exceeded production costs by $1.01 per hundredweight. All of the past five years show a positive return for farrow-to-finish enterprises except for 1994 (Table 3).

The total cost of production in 1996 averaged $49.66 per hundredweight of pork produced, compared with $41.52 in 1995 (Table 1). Feed costs made up 67 percent of total costs, or $33.48 in 1996, as compared to $25.39 in 1995. Nonfeed costs accounted for $16.18 in 1996, an increase of only 5 cents from 1995. With total returns (on an accrual basis) averaging $54.71 per 100 pounds of pork, the average producer in this group exceeded total costs by $5.05 per 100 pounds produced. The 1995 return above all costs was $1.34.

The records for the hog enterprises reported in Table 1 were divided into groups according to the number of litters produced. The group farrowing fewer than 350 litters for the year averaged 202 litters. The group farrowing 350 or more litters averaged 760 litters.

The total cost of production per 100 pounds of pork averaged $1.80 less for the large enterprises than for the small ones. The most significant cost difference between the two groups of farms was in the feed cost per 100 pounds of pork produced. The large enterprises had a $3.55 lower feed cost than the small ones, $31.53 compared with $35.08. The $3 per ton lower price paid for commercial feeds by the larger enterprises and the 46 fewer pounds of feed that it took to produce 100 pounds of pork accounted for the lower feed cost. The number of pigs weaned per litter averaged 8.6 for the large enterprises and 8.0 for the small ones. Other production variables, such as the rate of death loss, were not significantly different.

The returns above all costs were $4.48 per 100 pounds of pork produced for the small enterprises and $5.74 for the large ones, a difference of $1.26. Total returns were $0.54 higher per 100 pounds of pork produced for the small enterprises as compared to the large enterprises. Management practices and production technology--such as the choice of building systems, method of transporting hogs to market, and on-farm versus off-farm systems for feed processing--may have affected the individual cost items reported in Table 1. However, the return above all costs should accurately reflect the relative profitability of the two groups of hog enterprises.

The cost data reported in Table 1 have been divided into two categories: "Cash costs" and "Other costs." This classification of production costs is important when making short-run management decisions concerning the level (volume) of production, particularly during periods of low prices.

The average cash costs of production in 1996 ranged from about $38.91 to $42.56 per 100 pounds of pork produced (Table 1). Feed is included as a cash cost, although for most producers a major share of the grains are farm-raised The readily available alternative cash market for grain makes the farm-raised feed the same as cash.

The "Other costs" category includes depreciation, labor, and an interest charge on all capital, although on most farms part of the labor and the interest charge are cash costs. The proportion of labor that is hired largely depends on the farm's size. A one-man farm does not hire much labor, while a four-man farm may hire a major share of the labor.

The share of the interest charge that is a cash expenditure depends upon the owner's equity in the business. It could range from zero to nearly 100 percent. On most farms, some share of the interest charge will be paid in cash.

Current feed costs can be estimated by using Table 2 as a reference. For example, with the price of corn at $2.50 per bushel and the price of supplement at $16 per hundredweight, the cost of feed would be $26.10 per hundredweight of pork produced. Estimating the 1997 average annual price for corn at $2.70 per bushel and supplement at $18.00 per 100 pounds, the average feed cost in 1997 would be $28.80 per hundredweight of pork produced.

Producers should evaluate expected returns for more than one year before making new investments in hog production facilities. For 1992 to 1996, the return above all costs except management averaged $1.01 per 100 pounds of pork produced for all enterprises included in the study. The returns averaged $0.13 per 100 pounds of pork produced for the small enterprises and $1.37 for the large ones (Table 3). The difficult question confronting producers is how profitable the industry will be in the upcoming five years. Recent profitability has resulted in expanded production, lower hog prices and reduced margins. At the same time, feed prices may stabilize at a higher level than what they have been in the early and mid 1990s. The amount of continued expansion or liquidation, the strength of consumer demand for pork, and the availability of reasonably priced corn and protein supplements, will largely determine the profitability of hog production during the next five years.

Producers in the high one-third group in terms of efficiency earned an average return above all costs of $5.60 per hundredweight of pork produced for the 1992 to 1996 period (Table 3). The average for all producers during that period was $1.01 per hundredweight produced, or $4.59 less than that received by the high one-third group.

Table 4 provides an overview of the costs and returns for the farrow-to-finish hog enterprise from 1992 through 1996. It also shows the changes in three key production factors during that period--feed conversion, pigs weaned per litter and death loss. Feed conversion has improved significantly during that time period.

The key lesson to be learned from Table 5 is that every hog producer should determine the level of production efficiency in their operation so that they can realistically evaluate the potential for profit and prospects for staying in business. It is especially important for producers who are considering expansion and for potential newcomers to the business to budget carefully by using reasonable projections of input requirements and the efficiency level that can be maintained.

Table 1. Costs and returns for the farrow-to-finish hog enterprise in Illinois by size of enterprise, 1996

per hundredweight of pork produced

^a Figures in parentheses are for 1995. ^b Includes utilities; machinery, equipment, and building repairs; machine hire; and fuel. ^c Includes machinery, equipment and building depreciation. ^d No charge was made for management

Note: The average price of corn in 1996 was $3.70 per bushel.

Source: Department of Agricultural and Consumer Economics and the Illinois FBFM Association.

Table 2. Feed cost for hogs per hundredweight of gain^a

^a Sow and litter, farrow-to-finish. The feed conversion is based on data from Illinois Farm Business Farm Management Association records, and was set at 5.0 bushels of corn and 85 pounds of protein supplement per hundredweight of pork produced.

Table 3. Returns above all costs by size of enterprise and efficiency, 1992 through 1996, and five-year averages, 1977-1996⁴

^a No charge was made for management.

^bBefore 1995, size was based on over and under 250 litters.

Table 4. Costs and Returns Per Hundredweight, Illinois Farrow-to-Finish Hog Enterprises, 1992-1996

Table 5 shows the effect of production efficiency on net hog returns. The high-efficiency hog producer will have more money for debt servicing, improved family living, and reinvestment than the average or below-average producer.

Table 5. Farrow-to-finish enterprise summary by level of efficiency, 1996

Table 6 provides a summary of the quarterly United States crop reports for sows farrowing. The first two entries in each block are intentions, the third is the final number. The percent change from the preceding year is also shown.

Table 6. Number of sows farrowing, United States, and percent change from preceding year

Table 7. Hog production costs and profits by quarters, per 100 pounds produced¹