Net Present Value Analysis of Sow Longevity and the Economic Sensitivity of Net Present Value to Changes in Production, Market Price, Feed Cost, and Replacement Gilt Costs in a Farrow-to-Finish Operation

Abstract

Abstract Historical (1994 to 1998) market hog price, feed costs, and other expenses were combined with average industry production values in an economic analysis of replacement gilt investments in a 600-sow farrow-to-finish operation. Based on historical data, a replacement gilt must remain in the breeding herd for three parities or more to attain a positive Net Present Value (NPV). The earlier (lower parity) a sow reaches a positive NPV, the more profitable the operation. Sensitivity analyses were used to evaluate the impact of assumption changes on the parity in which a positive NPV is attained. Assuming all other items are held constant, an approximate 5% change in number of pigs born alive per litter, market hog price per kilogram, or feed cost per market hog changes the parity in which a positive NPV is attained from parity three to parity two or four, depending on the direction of change. Assuming all other items are constant, a 35% increase in replacement gilt purchase price increases the parity from three to four in which a positive NPV is realized. Similarly, an equity decrease from 50 to 30% in the modeled swine operation also increases the parity in which a positive NPV is attained from three to four. Opportunity exists for commercial swine producers to increase the profitability of their replacement gilt investments by increasing the number of productive parities the sow produces. Swine producers should focus on management and genetic factors to improve sow longevity and hence, the profitability of a replacement gilt investment.