Transcript Pork Carcass Lean Value Pricing

Pork Carcass Lean Value Pricing
Prepared by:
Dr. Davey Griffin
Texas A & M University
Conversion of “Pig to Pork”
Carcass Grading Systems
• Most Meat Animal Species Have a Dual
Grading System That Addresses Both
the Quality/Palatability of the Product as
well as the Yield of Edible Lean.
Carcass Evaluation of:
•Lean Quality
•Lean Quantity
Lean Quality
Ideal Pork Quality
• Color
– Reddish-pink
• Drip Loss
– < 0.5%
• Ultimate pH
– 5.6 - 6.2
• Marbling
– Equivalent to 2.5 - 4% intramuscular fat
Lean Quality May Be Influenced By:
Genetics
Nutrition
On-Farm Handling
Transportation
Carcass Handling
Stunning
Pre-Slaughter Handling
Lean Quantity
Pork Carcass Measurements
Backfat Measurements:
Last Lumbar Vert.
Last Rib
1st Rib
Carcass Length:
Anterior Edge of First Rib to
Anterior Edge of Aitch Bone
USDA Pork Carcass Grades
Expected Yield of the Four Lean Cuts
By Grade, Based on Percentages of
Chilled Carcass Weight
U.S. No. 1
60.4% and Over
U.S. No. 2
57.4 to 60.3%
U.S. No. 3
54.4 to 57.3%
U.S. No. 4
Less than 54.4%
U.S. Utility
USDA Yield Grade Equation:
(4 x Last Rib Fat Measurement) – Muscling Score
NOT commonly applied in commercial operations
Percent Lean (Ribbed Carcasses)
• Hot carcass weight
• Fat depth at the
tenth rib
• Loin eye area at the
tenth rib
Most accurate, but NOT commonly applied in commercial operations
because most carcasses are not ribbed
Fat Free Lean Equation
Pounds of
Percentage
Fat Free Lean =
Fat Free lean =
8.5876–(21.8957 x 10th rib fat, in)
+(3.0047 X LEA, in.2)
+(.4650 x HCWT, lbs.)
(Pounds of Fat Free Lean/
Hot Carc. Wt.)x100
Percentage Fat Free lean
• Typical values: 48-60%
– Extremely lean pigs >60%
• As live or carcass weight increases, what
happens to fat?
– With heavy-weight hogs, FRAME is very
important
Hog Procurement
• Live Cash (Spot) Market
– Auction
– Delivery to Packing Plant
– Hog Buying Station
• Few Hogs Traded on Live Cash
Market
– 62% in 1994
– 17% in 2001
– 9% in 2007
Hogs Sold on Carcass Basis
Versus Live Cash
Market hogs sold on a carcass basis (%)
Operation size/
1,000 hd. mktd.
2000
2006
1-3
63
80
3-5
80
91
5-10
80
90
10-50
77
92
50-500
97
98
500+
99
100
Source: Lawrence, John and Glenn Grimes. Production and Marketing Characteristics of U.S. Pork Producers, 2006,
Hog Procurement
• Marketing and Production Contracts
– Specifies time and quantity of hogs to be
delivered
• Production Contract - Contractor supplies hogs
• Marketing Contract - Types, numbers, pricing
formula are normally specified
Carcass Weight Pricing
Producer Paid on a Carcass Weight Basis
Dressing Percentage Is The Most Important Factor!
74%
26%
250 lbs.
“Dress-Off Items”
Head, Viscera, Pluck, Hair, Blood, etc.
65 lbs.
185 lbs.
Carcass Pricing
• Carcass pricing is heavily affected by dressing percentage
– Dressing percentage is affected by:
• Amount of fill
• Amount of fat
• Amount of muscle
• Amount of carcass trimming
• Producer is not paid if carcass is condemned
Lean Value Pricing
Lean Value or Carcass Merit Pricing
• Differential pricing by carcass, based on the estimated lean merit of each
individual carcass
• Lean Merit estimation is completed by a variety of methods, but usually
takes the form of a prediction equation using on-line measurements to
estimate total lean.
• A base carcass price is established and adjusted according to the results
obtained by the prediction equation
• The majority of lean value pricing formulas do not currently include
estimates of quality.
Lean Value Pricing
On-Line Methods and Measurements
•
•
•
•
•
Ruler
Invasive Optical Probe
Ultrasound – Hanging Carcass
Ultrasound – Entire Carcass
MRI – Entire Carcass or Primals
Lean Value Pricing
On-Line Methods and Measurements
Ruler
Lean Value Pricing
On-Line Methods and Measurements
Invasive Optical Probe (Fat-O-Meater, Hennessy Grading Probe)
Lean Value Pricing
On-Line Methods and Measurements
Ultrasound – Hanging Carcass (Animal Ultrasound Systems
CVT, UltraFom)
Lean Value Pricing
On-Line Methods and Measurements
Ultrasound – Entire Carcass (AutoFom)
Lean Value Pricing
On-Line Methods and Measurements
MRI – Entire Carcass or Primals (TOBEC)
Lean Value Pricing
Merit Estimations
•
Typically Percent Lean or Percent Wholesale Cuts
derived from a formula (regression equation)
•
Merit = 55.234 - (.4 x Fat Depth) + (6.2 x Muscle Depth)
•
Calculated for each individual carcass (not an average)
Lean Value Pricing
Caution!!
• Equations are only as good as the data
used in deriving the equation
– They are an estimate (based on data),
not absolute
– Typically varies due to differences in
weight, genetic type, etc.
Lean Value Pricing
• Carcass merit estimates do differ from plant
to plant
– Different equipment, different data collected, human to
human differences, etc.
– Each processor develops their buying program (grid) to
meet their product needs.
– It is the producer/seller’s challenge to match the right
hogs with the right carcass merit program to maximize
value.
Lean Value Pricing
Each carcass is priced individually
Different Plant Examples:
PRICE = Base Price + Value Premium - Deductions
PRICE = (Base Price x Relative Value) - Deductions
Lean Value Pricing
• Base Price Does Differ From Plant to
Plant
– Each packer/plant sets it own base
– Base can differ from supplier to supplier, based on market
forces and past history
• Base Price Negotiated From:
–
–
–
–
Publicly reported cash or “spot” market trades
Futures market price
Publicly reported feed price
Plant averages
Lean Value Pricing
Lean Value Pricing
110
105
167-173
174-180
181-187
188-194
195-201
202-208
100
95
90
85
80
75
<.50
.51-.70 .71-.90 .90-1.1
1.111.30
1.311.5
Lean Value Pricing
• Grid carcass weight and leanness
adjustments may be applied:
– Fixed premiums (known dollar amount)
– Relative premiums (percent adjustment)
• Carcasses are not typically USDA (third
party) graded
– Packer employee measures
• Objective measures
– Fat-O-Meater, ruler, ultra-sound, etc.
Example Program 1
Begin with a negotiated base price and adjust according to the grid below:
Las t rib m idline fat de pth (in.) adjus tm e nt
Carcas s
We ight
0.50/Dow n
0.51-0.70
0.71-0.90
0.91-1.10
1.11-1.30
1.31-1.50
1.51/Up
159/Dow n
61.0%
64.0%
64.0%
61.0%
60.0%
48.0%
35.0%
160-166
83.0%
89.0%
89.0%
83.0%
75.0%
63.0%
50.0%
167-173
91.0%
96.0%
96.0%
91.0%
83.0%
71.0%
58.0%
174-180
101.0%
104.0%
104.0%
101.0%
95.0%
83.0%
70.0%
181-187
103.0%
108.0%
108.0%
103.0%
97.0%
83.0%
70.0%
188-194
103.0%
108.0%
108.0%
103.0%
97.0%
83.0%
70.0%
195-201
103.0%
108.0%
108.0%
103.0%
97.0%
83.0%
70.0%
202-208
103.0%
108.0%
108.0%
103.0%
97.0%
83.0%
70.0%
209-215
103.0%
108.0%
108.0%
103.0%
97.0%
83.0%
70.0%
216-222
102.0%
105.0%
105.0%
101.0%
97.0%
83.0%
70.0%
223-229
100.0%
100.0%
100.0%
100.0%
95.0%
81.0%
68.0%
230-236
86.0%
89.0%
89.0%
86.0%
80.0%
66.0%
53.0%
237-243
80.0%
83.0%
83.0%
80.0%
74.0%
60.0%
47.0%
244/Up
74.0%
77.0%
77.0%
74.0%
68.0%
54.0%
41.0%
Carcass Value/cw t. = Base price * %Premium/Discount
Example Program 1
Begin with a negotiated base price and adjust according to the grid below:
Las t rib m idline fat de pth (in.) adjus tm e nt
Carcas s
We ight
0.50/Dow n
0.51-0.70
0.71-0.90
0.91-1.10
1.11-1.30
1.31-1.50
1.51/Up
159/Dow n
61.0%
64.0%
64.0%
61.0%
60.0%
48.0%
35.0%
160-166
83.0%
89.0%
89.0%
83.0%
75.0%
63.0%
50.0%
167-173
91.0%
96.0%
96.0%
91.0%
83.0%
71.0%
58.0%
174-180
101.0%
104.0%
104.0%
101.0%
95.0%
83.0%
70.0%
181-187
103.0%
108.0%
108.0%
103.0%
97.0%
83.0%
70.0%
188-194
103.0%
108.0%
108.0%
103.0%
97.0%
83.0%
70.0%
195-201
103.0%
108.0%
108.0%
103.0%
97.0%
83.0%
70.0%
202-208
103.0%
108.0%
108.0%
103.0%
97.0%
83.0%
70.0%
209-215
103.0%
108.0%
108.0%
103.0%
97.0%
83.0%
70.0%
216-222
102.0%
105.0%
105.0%
101.0%
97.0%
83.0%
70.0%
223-229
100.0%
100.0%
100.0%
100.0%
95.0%
81.0%
68.0%
230-236
86.0%
89.0%
89.0%
86.0%
80.0%
66.0%
53.0%
237-243
80.0%
83.0%
83.0%
80.0%
74.0%
60.0%
47.0%
244/Up
74.0%
77.0%
77.0%
74.0%
68.0%
54.0%
41.0%
Carcass Price = $85/cwt x 1.08 = $91.80/cwt.
200 lbs. X $91.80/cwt = $183.60 Total Value
Example: Base Price = $50/cwt., Carcass Wt. = 200 lbs., LR Fat = .90 in.
Example Program 2
Begin with a negotiated base price and adjust according to the grid below:
% Le an
Hot Carcas s
We ight (lb)
We ight
Pre m ium /
Dis count
> 58.9
58.9 - 57.0
56.9 - 55.0
54.9 - 53.0
52.9 - 51.0
50.9 49.0
48.9 - 47.0
46.9 - 45.0
44.9 - 43.0
< 43.0
< 164
-$13.50
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
164 - 169
-$6.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
170 -177
$0.00
$3.00
$3.00
$4.00
$2.75
$1.50
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
178 -185
$0.00
$3.00
$3.00
$4.00
$2.75
$1.50
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
186 - 192
$0.00
$3.00
$3.00
$4.00
$2.75
$1.50
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
193 - 200
$0.00
$3.00
$3.00
$4.00
$2.75
$1.50
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
201 - 207
$0.00
$3.00
$3.00
$4.00
$2.75
$1.50
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
208 - 214
$0.00
$3.00
$3.00
$4.00
$2.75
$1.50
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
215 - 222
$0.00
$3.00
$3.00
$4.00
$2.75
$1.50
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
223 - 229
-$3.00
$3.00
$3.00
$4.00
$2.75
$1.50
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
230 - 237
-$5.26
$3.00
$3.00
$4.00
$2.75
$1.50
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
238 - 244
-$16.00
$3.00
$3.00
$4.00
$2.75
$1.50
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
> 244
-$16.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
Carcass Value/cw t. = Base price + (Weight Premium/Discount ± Percent Lean Premium/Discount)
Example Program 2
Begin with a negotiated base price and adjust according to the grid below:
% Le an
Hot Carcas s
We ight (lb)
We ight
Pre m ium /
Dis count
> 58.9
58.9 - 57.0
56.9 - 55.0
54.9 - 53.0
52.9 - 51.0
50.9 49.0
48.9 - 47.0
46.9 - 45.0
44.9 - 43.0
< 43.0
< 164
-$13.50
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
164 - 169
-$6.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
170 -177
$0.00
$3.00
$3.00
$4.00
$2.75
$1.50
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
178 -185
$0.00
$3.00
$3.00
$4.00
$2.75
$1.50
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
186 - 192
$0.00
$3.00
$3.00
$4.00
$2.75
$1.50
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
193 - 200
$0.00
$3.00
$3.00
$4.00
$2.75
$1.50
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
201 - 207
$0.00
$3.00
$3.00
$4.00
$2.75
$1.50
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
208 - 214
$0.00
$3.00
$3.00
$4.00
$2.75
$1.50
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
215 - 222
$0.00
$3.00
$3.00
$4.00
$2.75
$1.50
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
223 - 229
-$3.00
$3.00
$3.00
$4.00
$2.75
$1.50
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
230 - 237
-$5.26
$3.00
$3.00
$4.00
$2.75
$1.50
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
238 - 244
-$16.00
$3.00
$3.00
$4.00
$2.75
$1.50
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
> 244
-$16.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
-$2.50
-$5.00
-$9.00
-$10.00
Carcass Value/cw t. = Base price + (Weight Premium/Discount ± Percent Lean Premium/Discount)
Carcass Price = ($85/cwt + $0.00) + $1.50 = $86.50/cwt.
200 lbs. X $86.50/cwt = $173.00 Total Value
Example: Base Price = $85/cwt., Carcass Wt. = 200 lbs., 10thR Fat = .90 in., LEA = 7.00 in2,
%Fat-Free Lean = 51.5%.
Example Program 3
Begin with a negotiated base price and adjust according to the grid below:
Fat-O-Meater
% Lean
Premium/Disc
ount
Carcass
Wt.
Premium/Disc
ount
≥59%
$7.25
<124
($32.06)
57-58%
$5.75
124-130
($19.84)
55-56%
$4.75
131-137
($10.68)
53-54%
$3.75
138-143
($4.58)
51-53%
$2.50
144-150
($1.52)
49-50%
$1.25
151-157
Base
47-48%
Base
158-163
Base
45-46%
($1.25)
164-170
Base
43-44%
($2.50)
171-177
Base
41-42%
($3.75)
178-183
Base
39-40%
($4.75)
184-190
($0.76)
37-38%
($5.75)
191-196
($2.29)
35-36%
($7.25)
197-203
($3.81)
204-210
($6.87)
Example Program 3
Begin with a negotiated base price and adjust according to the grid below:
Fat-O-Meater
% Lean
Premium/Disc
ount
Carcass
Wt.
Premium/Disc
ount
≥59%
$7.25
<124
($32.06)
57-58%
$5.75
124-130
($19.84)
55-56%
$4.75
131-137
53-54%
$3.75
51-53%
Base Price =
$85.00/cwt
($10.68)
FOM Adj.
+ $2.50/cwt
138-143
($4.58)
Carc. Wt. Adj.
– $3.81/cwt
$2.50
144-150
($1.52)
Carcass Price =
$83.69/cwt
49-50%
$1.25
151-157
Base
47-48%
Base
158-163
Base
Total Value =
$83.69/cwt
45-46%
($1.25)
164-170
Base
X 200 lbs.
43-44%
($2.50)
171-177
Base
$167.38
41-42%
($3.75)
178-183
Base
39-40%
($4.75)
184-190
($0.76)
37-38%
($5.75)
191-196
($2.29)
35-36%
($7.25)
197-203
($3.81)
204-210
($6.87)
Example: Base Price = $85/cwt., Carcass Wt. = 200 lbs., 10thR Fat = .90 in., LEA = 7.00 in2,
%Fat-Free Lean = 51.5%.
Lean Value Pricing Summary
Selling On:
• Live weight
– One average price for all live pounds
– Negotiated price before delivery
– Weighing conditions important
– Mud, shrink (fill, time, stress)
– Was most common for hogs
Lean Value Pricing Summary
Selling On:
• Carcass weight
– One average price for all
carcass pounds
– Negotiated price before delivery
– Dressing percent (also called
yield) is extremely important!
– Producer stands risk of trimming
and condemnation losses
Lean Value Pricing Summary
Selling On:
• Lean Value Pricing (Grid Marketing)
– Each carcass evaluated and priced independently by the packer
(not third party)
– Producer stands grading risk
– Base price may be negotiated or come from packer-generated
formula
– Premiums and discounts typically determined ahead of delivery
– Different buyers have different systems
– Most market hogs are sold by some variation of this method today
Lean Value Pricing Summary
Lean Value Pricing differentiates carcass
merit and the producer is paid its worth to
the packer.
Producers must determine how best to
capture relative value of the pigs produced
by matching them with the most profitable
pricing program (limitations due to
transportation costs or other variables may
also influence marketing decisions).