Pork Carcass Lean Value Pricing Prepared by: Dr. Davey Griffin Texas A & M University.

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.

•Lean Quality

•Lean Quantity

Carcass Evaluation of:

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

Genetics Nutrition On-Farm Handling

Transportation

Pre-Slaughter Handling

Carcass Handling

Stunning

Lean Quality May Be Influenced By:

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

Pounds of

Fat Free Lean =8.5876–(21.8957 x 10th rib fat, in)

+(3.0047 X LEA, in.2)

+(.4650 x HCWT, lbs.)

Percentage

Fat Free lean =(Pounds of Fat Free Lean/

Hot Carc. Wt.)x100

Fat Free Lean Equation

• 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

Percentage Fat Free lean

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

Source: Lawrence, John and Glenn Grimes. Production and Marketing Characteristics of U.S. Pork Producers, 2006,

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

• 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

Hog Procurement

Carcass Weight Pricing

“Dress-Off Items”

Head, Viscera, Pluck, Hair, Blood, etc.

65 lbs.

250 lbs.

185 lbs.

74%

26%

Producer Paid on a Carcass Weight Basis

Dressing Percentage Is The Most Important Factor!

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 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

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 MeasurementsRuler

Lean Value PricingOn-Line Methods and Measurements

Invasive Optical Probe (Fat-O-Meater, Hennessy Grading Probe)

Lean Value PricingOn-Line Methods and Measurements

Ultrasound – Hanging Carcass (Animal Ultrasound Systems CVT, UltraFom)

Lean Value PricingOn-Line Methods and Measurements

Ultrasound – Entire Carcass (AutoFom)

Lean Value PricingOn-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

75

80

85

90

95

100

105

110

<.50 .51-.70 .71-.90 .90-1.1 1.11-1.30

1.31-1.5

167-173174-180181-187188-194195-201202-208

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 1Begin with a negotiated base price and adjust according to the grid below:

Last rib midline fat depth (in.) adjustmentCarcass Weight 0.50/Down 0.51-0.70 0.71-0.90 0.91-1.10 1.11-1.30 1.31-1.50 1.51/Up

159/Down 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/cwt. = Base price * %Premium/Discount

Last rib midline fat depth (in.) adjustmentCarcass Weight 0.50/Down 0.51-0.70 0.71-0.90 0.91-1.10 1.11-1.30 1.31-1.50 1.51/Up

159/Down 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%

Example Program 1Begin with a negotiated base price and adjust according to the grid below:

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 2Begin with a negotiated base price and adjust according to the grid below:

% Lean

Hot Carcass Weight (lb)

Weight Premium/ Discount > 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/cwt. = Base price + (Weight Premium/Discount ± Percent Lean Premium/Discount)

Example Program 2Begin with a negotiated base price and adjust according to the grid below:

% Lean

Hot Carcass Weight (lb)

Weight Premium/ Discount > 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/cwt. = Base price + (Weight Premium/Discount ± Percent Lean Premium/Discount)

Example: Base Price = $85/cwt., Carcass Wt. = 200 lbs., 10thR Fat = .90 in., LEA = 7.00 in2, %Fat-Free Lean = 51.5%.

Carcass Price = ($85/cwt + $0.00) + $1.50 = $86.50/cwt. 200 lbs. X $86.50/cwt = $173.00 Total Value

Fat-O-Meater% Lean

Premium/Discount

CarcassWt.

Premium/Discount

≥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 3Begin with a negotiated base price and adjust according to the grid below:

Base Price = $85.00/cwt

FOM Adj. + $2.50/cwt

Carc. Wt. Adj. – $3.81/cwt

Carcass Price = $83.69/cwt

Total Value = $83.69/cwt

X 200 lbs.

$167.38

Fat-O-Meater% Lean

Premium/Discount

CarcassWt.

Premium/Discount

≥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: Base Price = $85/cwt., Carcass Wt. = 200 lbs., 10thR Fat = .90 in., LEA = 7.00 in2, %Fat-Free Lean = 51.5%.

Example Program 3Begin with a negotiated base price and adjust according to the grid below:

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).

Lean Value Pricing Summary