Ontario Swine Farms

Profitability versus Productivity

Presented to:

Federal, Provincial, Territorial Working Group

AAFC, Ottawa

October 26, 2012

Randy Duffy, Ken McEwan, Ken Poon

University of Guelph

Outline

Industry Background Ontario Farm Income Database - Preliminary Results

Continuous Sample (370 farms) Average vs. Top 20% / Bottom 20%

Ontario Data Analysis Project (ODAP – UGRC) Average vs. Top 50%

Preliminary Key Learning Points (OFID)

Industry Background

Ontario Hog Price vs. Estimated Net Return

Source: OMAFRA Swine Budgets

$190 $188

$126 $125

$165

$178

$141 $140

$168

$150

$132$126 $127

$121

$143

$161$154

$9 $19

($23) ($16)

$20

$32

($10) ($14)

$18 $14

($2)

($26)

($39) ($40)

($4) ($4)($10)

($50)

($25)

$0

$25

$50

$75

$100

$125

$150

$175

$200

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Price ($/ckg, index 100) Net Return ($/head)

Ontario Producers vs. Hogs Marketed

-

5,000

10,000

15,000

20,000

25,000

-

1

2

3

4

5

6

1980198219841986198819901992199419961998200020022004200620082010

# o

f Pro

du

cers

# H

ogs

Mkt

d

Millions

1-50 hogs 51-500 hogs 501-3000 hogs >3000 hogs # of Producers

Source: Ontario Pork

Producers that Market

Since 2005:20-25% reduction in sows / pigs50% reduction in producers

Ontario Farm Income Database

Swine Farms

OFID – Swine - Advantages

All Farms (1,000) Continuous Sample (370) Income Range / Gross Revenue (5 categories) Swine Production Type (5 categories) Link to Production / Inventory (swine, crops) Captures large share of total Ontario industry

OFID – Swine - Limitations

Completeness of production / inventory schedules

Declining swine farm numbers

Estimated Debt proxy

Estimated Share of Ontario Industry

Category All Farms Continuous Sample

Avg0310 2010 Avg0310 2010

Number of Farms 1,059 666 370 370

Sow Inventory 79% 85% 37% 44%

Market Hogs Sold 63% 74% 32% 45%

*Grow Corn for Feed 58% 66% 69% 75%

Source: OFID; University of Guelph, Ridgetown Campus calculations.

Estimated Share of Total Ontario Swine, by Farm Size

Category Number of Farms

Total Operating Revenue

EstimatedTotal Debt

2003 2010 2003 2010 2003 2010

$0-$100,000 13% 6% 1% <1% 2% <1%

$100,000-$300,000 31% 15% 8% 2% 10% 4%

$300,000-$500,000 20% 18% 10% 6% 13% 8%

$500,000-$1,000,000 19% 27% 18% 15% 22% 25%

> $1,000,000 16% 34% 63% 77% 53% 62%

All Farms 1,330 666 $978 m $897 m $938 m $845 m

Source: OFID; University of Guelph, Ridgetown Campus calculations.

Estimated Share of Total Ontario Swine, by Production Type

Category Number of Farms

Total Operating Revenue

EstimatedTotal Debt

2003 2010 2003 2010 2003 2010

Farrow to Finish 44% 49% 37% 49% 40% 53%

Finish 38% 27% 35% 30% 27% 23%

Farrow to Wean 8% 6% 12% 4% 18% 6%

Farrow to Feeder 7% 14% 8% 13% 10% 13%

Mixed 3% 4% 8% 4% 6% 4%

All Farms 1,330 666 $978 m $897 m $938 m $845 m

Source: OFID; University of Guelph, Ridgetown Campus calculations.

OFIDPreliminary Results– All Swine Farms

• 2003-2010• Profitability Quintiles

• Operating Profit Margin = EBIT / TOR

Total Operating RevenueAll Swine Farms

$0

$200,000,000

$400,000,000

$600,000,000

$800,000,000

$1,000,000,000

$1,200,000,000

2003 2004 2005 2006 2007 2008 2009 2010

Total Operating Revenue - cash Total Operating Revenue - accrual

Avg Diff: $14 millionRange: -$12 to +$44 mill.

Total Operating Revenue – Per Farmby Profitability Quintile

0

250,000

500,000

750,000

1,000,000

1,250,000

1,500,000

1,750,000

2,000,000

2003 2004 2005 2006 2007 2008 2009 2010

Bottom 20% Average Top 20%

Based on:Operating Profit Margin= EBIT / TOR

Total EBITAAll Swine Farms

$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

$140,000,000

$160,000,000

$180,000,000

$200,000,000

2003 2004 2005 2006 2007 2008 2009 2010

Total EBITA - cash Total EBITA - accrual

Avg Diff: $9 millionRange: -$24 to +$35 mill.

EBITA – Per Farmby Profitability Quintile

(400,000)

(300,000)

(200,000)

(100,000)

0

100,000

200,000

300,000

400,000

2003 2004 2005 2006 2007 2008 2009 2010

Bottom 20% Average Top 20%

Productivity vs. Profitability

Continuous Sample (370 farms)

EBITA Per Pig Sold

Bottom 20%

Bottom 20-40%

Middle 40-60%

Top 20-40%

Top 20%

Avg0.0

10.0

20.0

30.0

40.0

50.0

60.0

13.5 12.5

22.2

31.7

50.2

25.8

Avg0310

Pigs Sold Per Sow

Bottom 20%

Bottom 20-40%

Middle 40-60%

Top 20-40%

Top 20%

Avg18.018.519.019.520.020.521.021.522.022.523.0

20.4

22.5

19.9 19.6

20.5 20.6

Avg0310

Health Expense / Swine Sales Ratio

1.5% difference x$150 market hog = $2.25 / head

2%

3%

4%

5%

6%

7%

8%

9%

2003 2004 2005 2006 2007 2008 2009 2010

Bottom 20% Average Top 20%

1.5% difference x$150 market hog = $2.25 / head

Interest Expense / Swine Sales Ratio

1.5% difference x$150 market hog = $2.25 / head

2%

4%

6%

8%

10%

12%

14%

16%

18%

2003 2004 2005 2006 2007 2008 2009 2010

Bottom 20% Average Top 20%

2.5% difference x$150 market hog = $3.75 / head

Total Feed Expense / Swine Sales Ratio

1.5% difference x$150 market hog = $2.25 / head

30%

40%

50%

60%

70%

80%

90%

100%

2003 2004 2005 2006 2007 2008 2009 2010

Bottom 20% Average Top 20%

21.5% difference x$150 market hog = $32.25 / head

Ratio = (Feed Expense + Crop Expense + Crop Purchase)/ Swine Sales

ODAPProduction and Financial Data

Average vs. Top 50%

Pigs Weaned Per Sow

2001-05 2006-0918.018.519.019.520.020.521.021.522.022.5 21.58

21.921.52

22.09

Avg Top 50%

Feed Cost Per Pig

2001-05 2006-09$70

$75

$80

$85

$90

$95

$100

88

95

81

88

Avg Top 50%

NFI Per Pig

2001-05 2006-09-$40-$30-$20-$10

$0$10$20$30$40$50$60

16

-23

36

-5

Avg Top 50%

Preliminary Key Learning Points

Productivity vs. Cost Control Distribution of profitability

Variability Regardless of farm size, production type, debt level, year Top 20% very profitable, Bottom 20% not profitable** Ability to stay in the Top 20%** Top 60% okay, Bottom 40% struggle (depends on year)

Size doesn’t matter Debt not the deciding factor

The End

Thank you.

Any questions?