• TABLE OF CONTENTS
HIDE
 Front Cover
 Title Page
 Table of Contents
 Foreword
 Section
 The present situation
 The models
 Analysis of models
 Appendix














Group Title: Virgin Islands of the United States. Agricultural Experiment Station. Virgin Islands Agricultural Experiment Station report
Title: Profitability of hog production in the U.S. Virgin Islands
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 Material Information
Title: Profitability of hog production in the U.S. Virgin Islands
Series Title: Virgin Islands of the United States. Agricultural Experiment Station. Virgin Islands Agricultural Experiment Station report
Physical Description: vi, 14 p. : ;
Language: English
Creator: Jensen, Farrell E
Park, Robert L., 1932-
Donor: unknown ( endowment )
Publisher: Virgin Islands Agricultural Experiment Station
Place of Publication: St. Croix
St. Croix
Publication Date: 1974
Copyright Date: 1974
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Genre: government publication (state, provincial, terriorial, dependent)   ( marcgt )
non-fiction   ( marcgt )
Spatial Coverage: United States Virgin Islands
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Bibliographic ID: UF00096189
Volume ID: VID00001
Source Institution: University of Florida
Holding Location: University of the Virgin Islands
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: oclc - 02408744

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Table of Contents
    Front Cover
        Page i
    Title Page
        Page ii
    Table of Contents
        Page iii
    Foreword
        Page iv
    Section
        Page v
        Page vi
    The present situation
        Page 1
    The models
        Page 2
        Page 3
    Analysis of models
        Page 4
        Page 5
        Page 6
        Page 7
        Page 8
        Page 9
        Page 10
    Appendix
        Page 11
        Page 12
        Page 13
        Page 14
Full Text
































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44











Virgin Islands
Agricultural Experiment Station
Report No. 6
August 1974










Profitability of

HOG PRODUCTION

In the U.S. Virgin Islands


















College of the Virgin Islands
Virgin Islands Agricultural Experiment Station
Fenton B. Sands, Director
St. Croix, U.S. Virgin Islands









CONTENTS


Foreword
Summary and Conclusions
The Present Situation
Demand ..... ..
Feeding Programs '
Buildings and Equipment
Efficiency
The M odels ............. ...
Feeding Programs
Drylot Requirements . ...
Buildings and Equipment
Variable and Fixed Costs
Sale Weights ......
Analysis of Models
Sensitivity Analysis
Returns to Owner's Labor and Management
Per Unit Costs and Returns
Breakeven Analysis
Internal Rate of Return .... . .....
A 50-Sow Commercial Operation
Appendix


Page
iv
v

1
. .. 2
2
2
2

2


4
4
5
5
7
7
8
9
. .11







FOREWORD

This report, "Profitability of Hog Production in the U.S. Virgin Islands," is one of a series
of feasibility studies sponsored by the newly created Virgin Islands Agricultural Experiment Sta-
tion, College of the Virgin Islands. These investigations were financed totally with Federal funds
made available to the Station under the provisions of the Hatch Act, Amended.
Preparation of this report was accomplished by contracting for the services of the following
team of specialists: Dr. Farrell E. Jensen, Assistant Professor, DepartnUet (iof Agricultural Ec-
onomics and Marketing, Rutgers University, New Brunswick, N.J. and Dr. Robert L. Park,
Professor of Animal Science, Brigham Young University. Provo. Utah. This team conducted the
study and wrote the manuscript for this report.
The objective of these studies was to try to determine the agricultural enterprises both plant
and animal, that have economic potential on the Virgin Islands. It is my belief that the agricul-
tural industry must be economically sound in order to he viable.
On the Virgin Islands, agriculture has been on the decline since the early part of the 1960's.
The average number of farms, fanners, and production of agricultural commodities (with the
exception of fluid milk) have all declined at a consistent rate. Among the questions which are
uppermost in the minds of many people are: What factors have been responsible for these de-
clines? Can these downward trends be stopped and perhaps reversed? What is the future of the
agricultural industry, particularly on St. Croix where 85 percent of the farmland is located? This
report on the profitability of hog production, along with the others, sheds some light on these
questions.
These feasibility reports have also revealed the areas where lack of training and education
on the part of the fanners has adversely affected production. These subhjects have now be-
rome part of the new program of the V.I. Extension Service. At the same time. the lack of infor-
mation about the response of crops and livestock in this environment, which also limits inodur-
tion, has been recognized. These gaps in our knowledge have become the b;sis for the planned
research program of the V.I. Agricultural Experiment Station. Thus, these studies have given
more direction to the efforts of the Extension and research programs of this land-grant institu-
tion. More importantly, the results of these studies are expected to be beneficial to full- and
part-time farmers, as well as to potential investors.
This series of reports rests squarely on the belief that a revival of agriculture would con-
tribute substantially to the general welfare through increased output of goods and services and
by providing additional employment. Moreover, expanded production and marketing of famine
products rould provide greater, and in some cases cheaper, sources of nutritious foods for
consumers.
A more fully developed agriculture would complement the major industry-tourism-in
two ways. First. visitors would be pleased to be served local products, especially tropical fruits
and vegetables, by hotels and restaurants where such products are often not now available. Sec-
ond-and perhaps more important-an expanded agriculture would tend to preserve the en-
vironment of exotic tropical islands. Most visitors and some permanent and semi-permanent
residents come to the Virgin Islands to seek this environment. If this attraction is destroyed, the
basis of the major industry of the Islands will be undennined.
The Virgin Islands Agricultural Experiment Station gratefully acknowledges the cooperative
assistance and contributions from many St. Croix farmers: Rudolph Shulterbrandt, Commission-
er, V.I. Department of Agriculture, and his staff; and Bennett S. White, Jr., project consult-
ant and formnner USDA agricultural economist, now retired.
Fenlon B. Sands, Director
March 1974










SUMMARY AND CONCLUSIONS


The hog industry on St. Croix is small-both
in overall size and scale of individual operation-
and has been in a state of decline in recent years.
Individual production units are typically herds of
9 to 10 sows operated on a part-time basis. In
1970 there were 61 Virgin Islands farms pro-
ducing hogs. Between 1964 and 1970 the hog
population declined by nearly a third to 898
animals, and numbers sold decreased from 622 to
430-a drop of 30.9 percent.
Much of the demand fur pork is for 40 to 60
pound animals for roasting; this demand peaks
at Christmas time. An intermediate market also
exists for pigs from roasting weight up to approx-
imately 125 pounds. There is a limited demand
for heavier hogs (over 125 Ixmnds) and these are
usually sold on a cut-and-yield basis. Carcass
prices range from $.75 to $1.00 per pound; $.85
per pound is typical. Liveweight prices range from
$.50 to $.70 per pound.
Under present conditions, the future for the
hog industry on St. Croix is uncertain. The two
major problems are high feed costs and sub-
standard manager int practices.
Feed costs are high largely because of transpor-
tation rates; shipping charges exceed $50 per ton
for feeds originating in the U.S. mainland.
Fanners have insufficient management skills to
operate efficient units. Many hog enterprises are
characterized by slow gains and high death losses.
Too many pigs are lost between the time of birth
and market age. Most hogs do not get enough
proper feed for satisfactory growth.
The demand for 220-pound hogs is unstable.
Butchers often discount the heavy hogs because
the market prefers lean meat. The average size of
hogs slaughtered in 1972 was approximately 108
pounds.
As a basis for analysis of factors affecting costs.
returns, and profitability, a model was developed
featuring an 8-sow part-time operation. This size
was selected because it represents the operation of
a majority of island producers. The analysis as-
sumes proper management practices which gen-
erally do not prevail at present.
To cover all costs except the owner's part-time
labor, 66-pound pigs must sell for $.79 per pound:


132-pound pigs at $.56 per pound: and 220-pound
animals at $.50 per pound when feed prices are
$9.00 per cwt.-which approximates the July
1973 situation when this study was made. A major
problem for farmers serving the roasting pig mar-
ket (40-100 lbs.) is that local prices do not re-
flect the differences in the costs of production.
Production costs per pound are greater for light
pigs, but general there are no price differentials
in the market for this weight range. The model
shows that heavier hogs are more profitable under
present price conditions. However, buyer prefer-
ence for lighter weights likely would lead to price
discounts for heavier animals if larger numbers
were produced. For 132-pound pigs, the costs per
pound of gain excluding manager's labor was
$.45 per pound at $7.50/cwt. feed price.
The internal rate of return for the model with
132-pound pigs, $7.50/cwt. feed price and $60
per pound liveweight price was equal to 0.9 per-
cent-which is not an attractive investment.
It is doubtful that a full-time operation with
the necessary investment in facilities and relying
on commercial feed at present prices would be
profitable. This type of operation would he more
capital intensive than the 8-sow model which did
not provide a satisfactory return to a limited
amount of invested capital.
If the decline in the hog industry is to be re-
versed, the importance of lowering feed costs and
improving nmanagernment cannot be overempha-
sized. The success of research efforts to reduce
feed costs through providing ihe basis for much
larger supplies of locally grown sorghum for grain
and development of local feed processing are
critical to the future of the hog industry.
On every hand, there is evidence that produc-
ers could do a better job with the resources
they are now utilizing. An educational program is
needed to provide more information about feeding
programs, equipment and facilities, and proper
sanitation and medication practices.
The model used in this analysis assumed com-
plete reliance on commercial feed. More than one-
half of the producers at present are feeding gar-
bage to reduce feed costs, and as a result they
have been able to stay in business. These growers








would benefit from some information about a bal-
anced garbage feeding program. A balanced diet
would improve the rate of grain of their animals.
When farmers bargain over prices with buyers,
they should be aware of the higher cost of pro-
ducing roasting pigs.


If costs of purchased feed can be reduced sig-
nificantly and if vigorous extension efforts suc-
ceed in inducing growers to improve management
to levels that are clearly attainable, hog produc-
tion could be a viable part-time enterprise in the
Virgin Islands.












PROFITABILITY OF HOG PRODUCTION

in the U.S. Virgin Islands

by

FARRELL E. JENSEN and ROBERT L. PARK


The hog industry on St. Croix is characterized
primarily by small herds of 7 to 10 sows operated
on a part-time basis. In 1970, 61 Virgin Islands
farns were producing hogs. From 1964 to 1970,
the hog population declined by 32.2 percent to
898 animals. Over the same period, the total num-
ber of hogs sold decreased from 622 to 430-a
drop of 30.9 percent (Table 1).

Table 1.--Statistical summary of Virgin Islands hog
numbers and production by size of farm, 1964, &
1970.

Year
Percent
Description 1964 1970 change

Number of farms with hogs Number Percent
Under 3 acres 29 19 -34.5
3 to 9 acres 69 18 -73.9
10 to 49 acres 35 13 -62.5
50 to 99 aires 10 1 -50.0
100 to 3500 acres 1S 3 -66.7
Over 500 acres 1 -
TOTAL 159 61 -61.6
Number of hogs on farjls
Under 3 acres 316 151 -52.2


3 to 9 acres
10 to 49 acres
50 io 99 acres
100 to 500 acres
Over 500 acres
TOTAL
Number of hogs sold
Under 3 acres
3 to 9 acres
10 to 49 acres
50 to 99 acres
100 to 500 acres
Over 500 acres
TOTAL


310
182
137
175
3
1,323

134
208
67
168
45

622


Source: 1969 Census of Agriculture, U. S. Department
of Commerce, Bureau of Census, 1972.


The objectives of the hog study were to
(1) identify and define a typical benchmark pro-
duction unit appropriate to the Virgin Islands,
(2) determine the costs and returns to the pro-
duction unit. (3) determine the breakeven points
tinder changing conditions, and (4) calculate the
internal rate of return as a standard for assessing
feasibility.
Interviews were conducted with local farmers
to obtain relevant production information. Addi-
tional information was obtained from local busi-
nessmen and other sources. The analysis assumes
higher levels of efficiency than presently exist in
the operations. With proper management prac-
tices, however, the standards can be achieved
under Virgin Islands conditions.

THE PRESENT SITUATION

Demand
The demand for pork appears to be relatively
unstable. peak demand occurs at Christmas time
when 40-60 pound hogs are sold for roasting and
Lbarbecuing. A majority of the producers inter-
viewed for Ihe study sold must of their pigs for
roasting. An intennediate market also exists for
pigs from roasting weight up to approximately
125 pounds. Local butchers purchase most of the
internnediate weight hogs. The local demand for
hogs heavier than 125 pounds appears to he lim-
ited because lighter weight animals are preferred.
The heavy hogs" (over 125 pounds) are usually
sold on a cut-and-yield basis; that is, total value
is detennined after the hog is dressed and the fat
is trimmed from the carcass.
Animals are sold on both a liveweight and
dressed weight basis, but dressed weight prices
were most commonly reported. Carcass prices
ranged from $.75 to $1.00 per pound; the majority









were around $.85. These correspond with live-
weight prices ranging from approximately $30 to
$.70 per pound. The same carcass prices generally
apply over all weight ranges.

Feeding Programs
Six of the nine farmers who were interviewed
fed waste food products supplemented by a com-
plete commercial ration. The waste food is col-
lected from hotels, restaurants and in some in-
stances from homes. One producer used waste
products exclusively, while the others purchased
their commercial feed from Puerto Rican firmnns.
High commercial feed prices and insufficient
knowledge of good feeding and management prac-
tices hamper the industry.

Buildings and Equipment
Most of the structures have been made from
used lumber and tin. The facilities are generally
inadequate for a successful enterprise. The most
serious pmllemri is the lack of suitable facilities
for farrowing and handling baby pigs. A large
number of baby pigs are lost as a result. Out of 9
farmers interview, 5 sold less than 4 pigs per
litter and 2 ulwerators sold less than 2 pigs per
litter.
Equipment is limited and consists of a few
barrels, buckets, and improvised walerers and
feeders. The operations are mostly drylot.

Efficiency
Feed conversion and rates of gain could be im-
proved. In many instances, pigs 4-5 months of
age weigh only -10-50 pounds. Under proper feed-
ing and management programs, a hog should
weigh 125-150 pounds at 4 months. The slow
growth rates are a result of a combination of fac-
tors including insufficient amounts of feed and
essential nutrients.
Other problems the study team noted were
thievery, some instances of hogs being attacked by
dogs, and a need for management knowledge.

THE MODELS
The model selected for the analysis was an
8-sow part-time operation, because this size repre-


scented that of the majority of island producers.
The analysis asstimes proper management prac-
tices and the following factors:
1. Owner supplies all labor except for two
weeks.
2. The operation has 8 sows and 2 gilts for
breeding stock.
3. Gilts are bred at 8 months; sows farrow
twice each year.
4. Each sow has four litters before culling.
Sows weigh 4M00 pounds at time of sale. Replace-
inent gilts are taken from the litters.
5. Seven pigs are weaned from each litter. This
should be a minimum standard.
6. Operator builds his own buildings and in-
stalls his equipment.
7. Feed conversion is one standard deviation
below the National Research Council Standads
average.
8. A death loss of 2 percent is assumed for
pigs under 66 pounds, and an additional I per-
cent for those over 66 pounds. These estimates
are in addition to the usual losses in the U.S.
mainland.

Feeding Program
The feeding program is based on a total com-
mercial ration to determine the feasibility of such
an operation. Table 2 shows the average pounds
of feed required per day, the number of days on
feed and the total pounds of feed per sow and
hog at various sizes. These conversion rates should
be attainable in commercial operations. A sow is
assumed to consume 1,127 IXounds of feed be-
tween litters. Market lihns require 853 pounds of
feed to reach a weight of 220 pounds.

Drylot Rquirements
A drylot program was used for the model to
keep the investment in facilities to a mninimumn.
The space requirements are shown in Table 3.

Buildings and Equipment
Estimated costs for buildings and equipment
are shown in Table 4. Costs for the construction
materials were obtained from a local lumber corn-
pany. Amounts of materials necessary for the fa-










cilities were then estimated to arrive at the cost
figures. The cost estimates do not include a labor
charge, as it is assumed that the owner will do the
construction. All buildings have a wood super-
structure, concrete floors and galvanized roofs.
The farrowing facility has a concrete floor with
3V-foot block walls to protect the baby pigs from
the weather. Four farrowing stalls are included.
The equipment includes heat lamps for the baby


Table 2.-Assumptions for feeding program for hog
enterprise, St. Croix. Virgin Islands, 1973.

Feed requirements
Stage A average
of Unit pounds Numbel Total
production offered of pounds
per day days

Sow Pounds Number Pounds
Breeding Per li ter 7.0 35 243
Gestation Per litter 4.0 72 288
Prefarrowing Per litter 6.0 21 126
Lactation Per litter 10.1) 42 420
Other Per litter 4.0 12 48
TOTAL 182 1127
Finishing pigs
Birth to 22 lbs. Per pig 1.3 42 5
23-66 lbs. Per pig 3.3 43 142
67-132 lbs. Per pig 5.9 40 236
133 220 lbs. Per pig 8.4 .0 420
TOTAL 175 853
Gilt
Pre-breeding Per gilt 7 60 420


Table L.-Assumptions for determining drylot space
requirements for hog enterprise, St. Croix, Virgin
Islands, 1973

Type Space requirement
of Function per animal
unit (sq. ft.)

Sow facility Feeding 150
Shade 30
Finishing
Pigs under 100 pounds Feeding 75
Shade 7
Pigs over 100 pounds Feeding 100
Shade 10
Boan Feeding 200
Shade 30


pigs. Baby pigs are to be left with sows until
weaned at 8-weeks of age.
The nursery-growing facility consists of a
fenced enclosure with a concrete slab under the
shade. Three sides are made of hog wire and the
fourth from chain link fencing. The same con-
struction for the fencing and shade was also used
for the finishing and gestation facilities with one
exception: the gestation facility has two strands
of barbed wire around the hog wire perimeter for
extra strength.
One-fourth of the cost of a pickup truck was
prorated to the hog enterprise. Depreciation is
charged over eight years. Miscellaneous costs in-
clude the installation of mist sprayers in each of
the facilities to cool the animals.

Variable and Fixed Costs

Table 5 contains a list of all variable costs ex-
cept for feed costs and death losses. The price
of feed and the death losses were handled as
variables and will be discussed at a later point in


Table 4.-Estimated purchase cost and depreciation
schedule for buildings and equipment, hog enter-
prise, St. Croix, Virgin Islands, 1973


Itemi


Farrowing facility
Building
Equipment
Nursery-growing facility
Fence
Shade
Water cup
Finishing facility
Fence
Shade
Water cup
Gestation facility
Fence
Shade
Water cup
Pickup truck
Miscellaneous
TOTAL


Esti. Esti-
mated mated
cost life


Dollars
700
400


Years
10
10


Annual
depre-
ciation

Dollars
70
40


270 5
160 10
50 10

250 5
230 10
50 10


210
330
50
1,125'
300
4,125


'Share for hog enterprise.









Table 5.-Partial listing of assumptions for variable
and fixed costs calculations, hog enterprise, St.
Croix, Virgin Islands. 1973

Cost Total
Cost item per annual
litter cost

Variable -- -Dollars---
Breeding charge' -
Veterinary
Medication and sanitation 10.50 168
Hired labor 5.00 90
Building and fence repairs 2.00 32
Equipment repairs .75 12
Utilities 2.75 44
Trunick, fuel, tirem and maintenance' 6.50 104
Marketing' 5.25 84
Miscellaneous 3.50 56

Fixed
Property taxes'
Insurance 10
Truck' 70
Building and equipment' 50
Depreciation"
Building, fences and equipment 513

Interest on investment
Buildings and equipment @ 7,5% 150
Land @ 7.5/ -- 130
Livestock @ 7.5% / 200
TOTAL 1,733


'Assume that snws are serviced by breeding stock
owned by Virgin Islands lDepartment of Agriculture.
: Assume truck is driven 3.000 miles at 3.), cents per
mile. Estimate includes depreciation, and insurance.
'Assume that owner pays for pressing 8,.10( pounds
thiruugh slaughterhouse at I cent per pound.
According to the tax assessor, land and buildings are
assessed at 60% of appraised value. The tax rate is
1\/4% of assessed value. Agricultural tax liability i,
25% of amount determined by applying tax rate to as-
sessed value. The hog operatic requires I acre of land
at $2,000. The value of buildings and equipment is
$3,000.
Insurance estimate from local company was 327j per
year for liability and collision coverage of which 2.5%
is charged to hog enterprise.
'Fire and extended coverage rates for wooden frame
farm buildings obtained front local insurance company
are $1.75 per $100.
See Table 4.
See Table 4.
'Breeding stock value is assumed to be $251) per head.
Assume an average investment of $1200 in feeder and
finishing hogs.


the analysis. Assumptions underlying the cost
factors are specified in the footnotes. Estimates
were obtained from local resources whenever
possible.
Only a minimal amount of hired labor was
charged to the operation, as the opieraior should
be able to handle the workload on a part-time
basis. Inrn-st on the investment in land, build-
ings, equipment and livestock was charged at 7Ya
percent per year. This represents the opportunity
cost of capital investment in the enterprise and
does not represent in interest figure paid to a
lending institution. The total of the listed fixed
and variable costs excluding feed and death
losses is $1,733 per year.

Sae rWeights
Models for three market weights were devel-
oped. The 66-pound hogs are assumed lo meet
the needs of the roasting pig market and the
132-pound hogs are for the intenuediate weight
market. A model for 220-pound pigs is also in-
cluded. The model assumes no price differentials
for the alternative market weights.

ANALYSIS OF MODELS
Returns to Labor and Management Equations
The first stage of the analysis was to determine
the returns to owner's labor and management after
subtracting all ctlsts including interest on invest-
ment (opportunity costs). This figure indicates
the annual income that the owner could generate
from the enterprise.
The following equations were developed for
each market weight model:
1. 66-pound market:
R =-4 Pm t3.92 N- t) -3396.96 PrNf
-22336Pf + 1600P1- 1732.96

2.-132-pound market:
Rim 4We Pm (3.92 Nt--1) 7105.12 PfN
-21392P, +1600P 1732.96

3.-220-pound market:
R m4W 1'm (3.92 N,-1)- 13623 PrNJ
-19712P + 16OOP- 1732.96

'Ser Appendix. section I (or derii 1tion.









Where:
Rm-Annual dollar retu
and management.
Wt= Weight of market
Pm= Price of market ho
Nf= Number of pigs we.
P-= Price of hog and s
(not per hundred weight).
The last figure on the righ
to $1,733 and represents thO
rosts contained in Table 5.
equations is that an operator
tres for any of these variabi
returns to labor and manageii

Sensitivity Analysis
For the sensitivity analyst
the price of feed. market wI
weight price were assumed (
price assumptions range froi
The present pricr in effect is
highest price: the lowest
what might be the lowest p
on the island under the pi


Table 6.-Value ranges for
sensitivity analysis, hog enter
Islands, 197


Variable


Price of feed per cwt.'
Ilog and sow ration=
Market liveweight in pounds
Farm liveweight price/pound"'
66 Pounds
132 Pounds
220 Pounds
Sows


rate structures. The cost of shipping grain from
urns to owner's labor Florida is $2.62 per cwt. or $52.40 per ton. If this
is added to the price of feed in the U.S. main-
hogs in pounds. land (prior to the June 1973 high price period)
igs per pound. then $6.00/cwt. appears to be the best possible
aned per litter. feed price for hog pellets or mash. Liveweight
ow feed per pound prices vary from $.50 to $.65 per pound-the
most common being $.60 per pound.
t can be rounded off The returns to owner's labor and management
e variable and fixed from all possible combinations of the variables
An advantage of the are shown in Table 7. A relationship demon-
can uie his own fig- stated in the table is that the owner's return in
les and calculate lhe dollars increases with the market weight of the
erit. hogs. At $6.00 feed costs, all combinations of
weight, liveweight prices (except the $.50 live-
weight price in 66-pound class) had a positive
return although the amounts were less for the
is, three values for smallest market weight hogs. At both $7.50 and
eight and farm live- $9.00 feed costs, only the intermediate and
Table 61. The feed heaviest weight classes had positive returns. At the
iI $6 to $9 per cwt. highest feed costs, liveweight prices had to be
approximated by the $.60 and $.65 per pound to provide a positive re-
figure approximates turn for the owner's time.
possible price of feed In the bottom section of the table, a charge
resent transportation was calculated for the value of the owner's labor
and management and this figure was included in
variables included in the costs. To cover all costs, the figures in the
rise, St. Croix. Virgin table should be zero or greater. However, most
3- of them are negative which indicates that the
enterprise was not covering all costs. With $6.00
Range feed prices, there is opportunity for selling 132-
-----------------
1 2 and 220-pound hogs. At $7.50 feed costs, the
only profits are for 132-pound hogs at $.65 per
pound or 220-pounders at $.60 and $.65 per
$6.00 $7.50 $9.00 pound. At prices approximating the present situa-
66 132 220 tion, only the 220-pound hogs at $.65 per pound
covered all costs. However, as previously stated,
$ .50 $ .60 $ .65 the market for the heavy hogs is unstable.


.50
.50
.25


Loral shipping company quotted a rate of $2.62 per
cwt. to ship feed from Florida.
'For cost analysis, the cost of pig starter is assumed
to be 1.33 times the cost of hog and sow ration. This is
the price relationship that existed on price list of a
local feed supplier.
'Dressing percentages are 73% for 66-pound pigs.
71% for 132-pound pigs and 70% for 220-pound pigs.
Prices listed here cover range of prices received by
farmers.


Returns to Owner's Labor and Management

Complete breakdowns of the sales and costs for
the three footnoted returns in Table 7 are shown
in Table 8. These are labeled as alternatives A,
B and C. Alternative A is for 132-pound hogs,
$7.50 feed prices and $.60 per pound liveweight
prices. Alternative B is the same, except that feed
prices are $9.00 per cwl. For alternative C, feed
prices are $9.00 and liveweight prices are $.50 per











Table 7.-Senitivity analysis to measure impact of charges in variables on returns
to owner's management and labor and net returns after all costs, hog enterprise. St.
Croix, U.S. Virgin Islands, 1973

e of hog 66-pound hogs 132-pound hogs 220-pound hogs
and sow feed Selling at a liveweight Selling at a lineweight Selling at a liveweight
per cwt. price per pound of: price per pound of: price per pound of:
.50 .60 .65 .50 .60 .65 .50 .60 .65

------..--------.Dollar returns to owner's management and labor .. --------------
$6.00 -610 88 437 1,380 2,776 3,474 3,396 5,723 6,886
7.50 -1,301 -603 -254 313 1,709' 2,407 1,670 3,997 5.160
9.00 1,993 -1,293 -946 -7541 642' 1,340 -56 2,271 3,434
-------------------------- Net dollar returns after all costs'----------------- ----
6.00 -2,436 -1,758 -1.409 -773 623 1,321 935 3,262 4,425
7.50 -3,147 -2,449 -2,101) -1,840 -444 254 -791 1,536 2,699
9.00 -3,839 -3,141 -2.792 -2,907 -1,511 -813 -2,517 -190 973

1 See Table 8 for total breakdown of sales and cost items.



Table 8.-Returns to labor and management for hog enterprise, St. Croix. Virgin
Islands, 1973

Item Alternatire A' Alteranti;e H' Alternative C'

Sales --------- Dollars--...---
Market hogs (132 pounds) 8,376 8,376 6,980
Cull sows 400 400 400
Gross sales 8,776 8,776 7.3149
Variable costs
Commercial feed 5,334 6,401 6,401
Hired labor 90 90 90
Veterinary, medication and sanitation 168 168 168
Building and fence repairs 32 32 32
Equipment repairs 12 12 12
Truck fuel, maintenance 104 104 104
Utilities 44 44 44
Marketing 84 84 84
Miscellaneous 56 56 56
Total variable costs 5,924 6,991 6,991
Fixed costs
Depreciation on bldgs., fences, equipment 513 513 513
Property taxes 10 10 10
Insurance 120 120 120
Total fixed costs 643 643 643
Interest on investment 500 500 500
Total costs 7,067 8,134 8,134
Returns to labor and management 1,709 642 -754

Based on amssmption olf feed price of $7.50 per twt, and a market price of $.60 per pound liveweight.
"Based on assumption of fred price of $9.00 per cwt. and a riarkri price of $.60 per p.und livrweight. Most
closely approximates present situation in island (Jinp 1973).
'Based on assumption of feed price of $9,1x1 per rwt. and a market prick of $.50 per pound liveweight.











pound. The returns are the same as shown in the
previous table.

Per Unit Costs and Returns
Table 9 contains a breakdown of the costs and
returns on a per-unit basis. The total costs per
hog sold including the owner's labor are $64.40,
$741.12 and $74.12 for the three alternatives. At a
feed price of $7.50 per cwt., feed costs per hog
total $48.60; they amount to $58.32 at a $9.00
per cwt. feed price. Costs per pound range from
$.454 to $.522. Returns to labor and management
per hog sold are $15.58, $5.85 and -$6.87 for the
three alternatives.

Breakeven Analysis
Feed costs are the largest cost component in


the model. Breakeven equations were determined
to find the relationship of feed prices and farm
meat prices for the producer to breakeven. At the
breakeven points, all costs are covered except the
owner's labor.
The equations are: 2
1.-66-pound market:
1332.96+461.15 P'f
P
M'.G*,. 105.76 Wt

2.-132-pound market:
1332.96+711.28 P'l
p -
m.c.s2 [105.76 Wf

See Appendix, section 2 for derivation.


Table 9-Summary of per unit costs and returns for 132-pound hogs for hog enterprise,
St. Croix. Virgin Islands, 1973 (Includes manager's labor)


Iterm


Number of pigs weaned per year
Number of hogs sold per year
Market hogs
Sows
TOTAL
Number uf pounds sold per year
Market hogs
Sows
Value per animal sold
Market hogs
Sows
Costs per hog sold
Variable (excluding feed & manager's labor)
Fixed
Interest on investment
Feed costs
TOTAL
Costs per pound sold
Variable
Fixed
Interest on investment
Feed costs
Total cost per pound sold
Returns to labor and management
Per hog sold
Per pound sold


112

105.76
4
109.76

13,960
1,600

$ 79.20
100.00

$ 5.38
5.86
4.56
48.60
$ 64.40

$ .038
.041
.032
.343
$ .454

$ 15.58
.110


112

105.76
4
109.76

13,960
1,600

$ 79.20
100.00

$ 5.38
5.86
4.56
58.32
$ 74.12

$ .038
.041
.032
.411
$ .522

5.85
.041


Alternative

A B C


105.76
4
109.76


13,960
1,600

$ 66.00
100.00

$ 5.38
5.86
4.56
5B.32
$ 74.12

$ .038
.041
.032
.411
$ .522


-6.87
-.048









3.-220-pound market:
1332.96+ 1150.77 P'
P
me,sso 105.76 W


P., =Breakeven liveweight price

W= Weight of market hogs in pounds

P'f= Feed prices per hundredweight.

Figure 1 shows the relationship between the
two prices for each of the three market weight
models. The fact that farmers must receive a
higher price per pound for small pigs is evident
in the chart. To break even (all costs except
owner's labor and management) at $9.00 per
cwt. feed prices, the fanner must receive $.50 per
pound for 220-pound hogs, $.56 for 132-pound
hogs and $.79 for 66-pound hogs. The present
market pricing system (1973) does not reflect
these cost differences. Any other feed price and
meat price relationship can be determined in the
same manner. The equivalent carcass price is on
the right vertical axis. Table 10 shows the rela-
tionship between a series of liveweight and equiva-
lent carcass price relationships.

Internal Rate of Return

The internal rate of return (IRR) is defined
as that discount rate which equates the stream of
cash benefits and the stream of cash over the
planning horizon. If the internal rate of return is
above the rate for alternative uses for capital, then
the investment should be considered after com-
pensation for risk. If the internal rate of return is
below alternative uses, the investment is not
feasible.
To determine the internal rate of return, it is
necessary to estimate the amount of cash generated
each year. Non-cash items like depreciation are
not included as costs. Since the IRR represents
a return to capital, a charge for the owner's
management and labor was included (Table 11).
After deducting $2,153 for the owner's salary, the
alternative A model generated $569 in cash. The
other alternatives were cash deficit each year after
the owner's salary withdrawal. Table 12 shows the
20-year budget used to calculate the net benefits


,0so


S3.00 4.00 s5.0 600 7.00 OO 900 00 1oo.00 12.00
Pi ;e # 1-- feed pi. twt.


1.12
.9f'
a4 I


.56
:I

,42

.28

.A


Figure 1,-Breakeven relationship between price of
feed per cwt. and liveweight and carcass weight
per pound, hog enterprise, St. Croix, U.S. Virgin
Islands, 1973. Note that on any point on the lines,
the owner would cover all costs except his manage-
ment and labor.


Table 10.-Equivalent car
per pound at a 72 pert
ratio

Price per pound
Live Careass

$ .10 $ .14
.20 .28
.30 .42
.40 .56
.50 .69
.60 .83
.70 .97
.80 1.11
.90 1.25
1.00 1.39


ma and liveweight prices
ent carcass-to-liveweight


Price per pound
Carcals Live

$ .20 $ .14
.30 .22
.40 .29
.50 .36
.60 .43
.70 .50
.80 .58
.90 .65
1.00 .72
1.10 .79
1.20 .86
1.30 .94
1.40 1.01
1.50 1.08


.701.









stream. Periodically, fences, buildings, equipment
and the pickup are replaced. These are included
in the buildings and equipment column.
The discounted net benefits curve is shown in
Figure 2. The point where it is equal to zero gives
the internal rate of return. For alternative A, the
TRR=0.9 percent which is less than the rate
from alternative uses of capital. This model is
not a profitable investment for capital after the
withdrawal for the owner. The IRR for the other
models would also be negative.

Comment on a 50-Sow Commercial Operation

Based on the study team's analysis of the 8-sow
models, the possibility of a 50-sow operation ap-
pears marginal. The larger model would require
a greater investment per animal in facilities and
equipment, more hired labor, and may neces-
sitate expenses for boars. The combination of these
factors and the high feed costs are the major
imperdiinrnts to a successful large scale full-time
hog operation.


S3,0W0


$?.00


-1,000


IAM

3.000

-14,010

-5t5.On


IInii .01. ol ,.i.no=O.9%
-7.


0o % 2% 3% 4% 5% 6% 7%



Figure --Determination of internal rate of return
from discounted net benefits. Alternative A. hox
enterprise, St. Croix, U.S. Virgin Islands, 1973.
Note: the Internal rate of return is that interest
rate at which the sum of the discounted net bene-
fits is equal to zero.


Table 11.-Internal rate of return after a charge for owner's labor and management
for hog enterprise, St. Croix, Virgin Islands. 1973

Alternative'
Item ---- --------------- ---- - ----
A B C

Annual operating income ---------- Dollars ---------
Market hog sales 8,376 8,376 6,980
Sow sales 400 400 400
TOTAL 8,776 8,776 7,380
Annual cash operating expenses
Variable costs 5,924 6,991 6,991
Owner's labor and management 2,153 2,153 2,153
Fixed costs (rash items only) 130 130 130
TOTAL 8,207 9,274 9,274
Annual cash generated 569 (4981 I1,894P1
Investment (Year 1)
Buildings and equipment 4,125 4,125 4,123
Land 2,000 2,000 2,000
Livestock 2,667 2,667 2,667
TOTAL 8,792 8,792 8,792
Internal rate of return' 0.9% Negative Negative
(After a charge for owner's labor and management)

'See footnotes on Table 8 for feed costs and price assumptions.
'Brackets indicate a loss in cash. See Table 12 for computations.










Table l--Cash flow projections for internal rate of return, hog enterprise. St. Croix.
Virgin Islands, 1973 (Alternative A)

Buildings Total
Year Land and Livestock Operating cash Operating Net
equipment expenses outlay income benefits

.- ______-----------_---- Dollars----- - --- -- --- --
I 2,000 4,125 2,667 8,207 16,999 8,776 -8,223
2 8,207 8,207 8,776 569
S-- 8,207 8,207 8,776 569
4 8,207 8,207 8,776 569
5 730' 8,207 8,937 8,776 -161
6 __ -- -- 8,207 8,207 8,776 569
7 8,207 8,207 8,776 569
8 1,125' -- 8,207 9,332 8,776 --556
9 __ -- 8,207 8,207 8,776 569
tO 3,000' 8,207 11,207 8,776 -2,431
11 8,207 8,207 8,776 569
12 -- 8,207 8,207 8.776 569
13 -- -- 8,207 8,207 8.776 569
14 -- -- 8,207 8,207 8,776 569
15 -- 730 -- 8,207 8,937 8,776 -161
16 1,125' -- 8,207 9,332 8,776 -556
17 __ -- -- 8,207 8,207 8,776 569
18 -- 8,207 8,207 8,776 569
19 8,207 8,207 8,776 569
20 -2,000 -563' -2,1(i7 8,207 2,977 8,776 5,799


' Replace fences
' Replace pickup truck


'Replace buildings, fences and equipment excluding pickup truck
4 Estimated remaining value of pickup









APPENDIX

Appendix Section 1: Derivation of Grows Income, Total Cost and Returns to Owner's
Labor and Management Equations, Hog Enterprise, St. Croix, Virgin Islands, 1978


DEFINITION OF FACTORS

Income Equation
G: -- Gross income per litter
N,= Number of pigs weaned per litter
N =Number of sows soid per litter
W-= Weight of market pigs in pounds
W Weight of sous in pounds
P Price of market pigs per pound
P = Price of sows per pound
N=Number of pigs weaned per litter
G = Gross income


Cost Equations
Er,- Total costs per litter
V= All variable costs excluding feed and owner's
labor per litter
F Fixed costs per litter
R = Number of pounds of baby pig starter con-
sumed per pig
R.=-Number of pounds of hog ration consumed
per pig
R= Number of pounds of sow ration consumed
per litter
R = Number of additional pounds of feed con-
sumed by gilts to breeding age
P = Price of Ihby pig starter per pound
P-= Price of hog ration per pound
P Price of sow ration per pound
Er= Total costs for year


INCOME EQUATIONS
Income Equations-Per Liner
G- =(N,-.25) W,P.+NWPC-.02 [NW P,]


(N--.25) pigs are sold because 4 gilts are
retained from a yearly total of 16
litters for breeding stock. There-
fore N =.25 or 4 sows are sold
a
per year.
The last tenn accounts for a 2% death loss after
weaning.
G.= N,WP --.25WP+N .WP,-.02 NWP.
But N,=.25 and W%,=400
* L---NtWfPm-.25W +Pm+100Pe-.02 NtWPm
GL=.98NWP --.25WP.+100PC


Income Equation-Per Year
G,= (2) (8)[.98 N(W,P--.25W1P + 100 P,]
G,= 15.68 NfWtP -4WP, +1600 P


EXPENSE EQUATIONS
Expense Equation-Per Litter, 66-Pounds
Sale Weight
E=(V + F) +RbPbNC + RPN,
+RP +.25RP.-.02[R,PtNLI
Last term assumes that 2% mortality rate occurs
at 25 pounds.
But Rb=55, R,= 1127, R,=420 and R.
= 12 for 66-pound pigs
EL- (V+F) +55PbN + 142 PeN,
+ 1127P + (.25) (1076) P,-2.84 PtN,
EL = V+F+55 PbNt+ 139.16 P,Nr + 1396 P

But P-- 1.33 Pr Approximate relationship existed
on June 1973 price list of local feed company.
EL =V+F + '73.15 PN, +139.16 PN,+1396 P.









Expense Equation-Per Litter, 66-Pounds
Sale Weight (continued)
EL V+F+212.31 Pf N + 1396P.

But from: Table 5 V+F=$1733=$108.31
16
E, -108.31 +212.31 PNr+ 1396 P


Expense Equation-Per Year, 66-Pounds
Sale Weight
E = (2) (8).(108.31 +212.31 PtNt+ 1396 P)
E,= 1732.96+ 3396.96 PNt + 22336 P,


Expense Equation-Per Utter, 132-Pounds
Sale Weight
EL= (V I F) +55 PbN,+378 PfNt
+ 1127 P,+ (.25) (840) P,-.03 [236 PNtf]
Last term assumes that 3% mortality rate occurs
at 66 pounds.
EJ = (V + F) +55 PbN, +370.92 N,Pt+ 1337 P,
But P = 1.33 P, (See previous example)

EL =V F+ 73.15 PbNf + 370.92 Nt+ 1337 P?

EL =V+F+444.07 PN,+ 1337 P
EL= 108.31 +444.07 P1Nt+ 1337 P


Expense Equation--Per Year, 132-Pounds
Sale Weight
E (2) (8) (108.31 | 444.07 PN+ 1337 P)

E =1732.96+7105.12 PAN+21392P,


Expense Equation Per Litter-220-Pounds
Sale Weight
E, = (V + F) + 55 PbN + 798 PfN
+ 1127 P,+ (.25) (420) P,-.03 [656 PrN,]
Same death loss assumption as 132-pound ex-
ample.


Expense Equation Per Litter-220 Pounds
Sale Weight (continued)
EL= 108.31 + 851.47 Pt + 1232 P See previous
examples for computation procedure.


Expense Equation-Per year, 220-Pounds
Sale Weight
E-= (2) (8) (108.31 +851.47 PfN,+ 1232 P,)

E,= 1732.96 + 13623.52 PSNr + 19712 P,



RETURN TO OWNER'S LABOR AND
MANAGEMENT EQUATIONS

Sale Weight, 66-Pounds
R,--Return to owner's labor and management

R,= 15.68 N,WPm-4 W,P I 1600 P
-[ 1732.96 + 3396 PN + 22336 P]

R1,, -15.68 NWtl- -I WrP + 1600 P,
1732.96- 3396.96 P N-- 22336 P1

However P = P (Prices are about equal on local
feed price costs)
RaM= 4 WYPm (3,92 Nt- 1) -3396.96 P1N,
22336 Pf + 1600 P;-1732.96


Sale Weight, 132-Pounds
R, =([15.68 N,WP.-4 WIt^+ 1600 Pe]
-[1732.96 +7105.12 PNt+21392 P,]

Ri 4 WVP 3.92 N,- 1]-7105.12 PN
-21392 P + 1600 PC-1732.96


Sale Weight, 220-Pounds
R =[ 13.68 NfWP -1 W.P }- 1600 PJ
--(1732.96+ 13623 PN + 19712 P,]

Rm =4 WrP [3.92 Nr- 1J-13623 P,N,
-19712 Pt + 1600 PC- 1732.96








Appendix Section 2: Breakeven Equations for all costs excluding owner's Labor and
Management for 66-,132- and 220-Pound Sales Weights, St. Croix, Virgin Islands,
1973


BREAKEVEN EQUATIONS'
Breakeven Liveweighs Price-66-Pound Sale
Weight
At breakeven point G, = E
15.68 N,WP -4 WP + 1600 P,
= 1732.96 + 3396.96 PtN, + 22336 P,
But assume (as in the analysis) P-=.25, Nr=7
and P,- Pf
(15.68) (7) W1,P. -4 WrP m +400
=- 1732.96 + (3396.96) (7) P, + 22336 Pf
109.76 WPm --4 WPm +400
-- 1732.96 + 23778.72 P, + 22336 Pt
105.76 WP = 1332.96 + 46114.72 Pi
1332.96 + 46114.72 Pr
105.76 Wr
P- is the price per pound of feed. With feed prices
expressed in cwt. the equation becomes:
I Calculated to include all costs except owner's labor
and management, as this is assumed to be a part-time
enterprise.


Breakeven Liveweight Price-66-Pound Sale
Weight (continued)

1332.96 +461.15 P's
105.76 Wt
P = Breakeven prices for 66-pound hogs



Breakeven Liveweight Price-1 82-Pound Sale
Weight

By the same procedure as above the 132 pound
breakeven equation is:
1332.96 + 711.28 P'f
105.76 W,


Breakeven Liveweight Price-220 Pound Sale
Weight

1332.96 + 1150.77 P'f
105.76 Wt


Appendix Section 3: Explanation of the Internal Rate of Return

The internal rate of return, or discounted rate of interest as it is sometimes called, is a means
of refining the usual cost and returns analysis by taking into account the income and cost flows over
over the life of the project as opposed to an estimate for a point in time under the usual analysis.
The internal rate of return is a measure of long term profitability under specified cash flow as-
sumnptions. The concept is particularly useful if year-by-year cost and returns relationships are
expected to change over time. For example, major capital costs may be incurred during the first
two or three years of a project while the revenues may not reach full development levels until
the project is several years underway. Since the internal rate of return is based on discounted cash
flows, it is useful in paralyzing the above effects even when based upon the same data used in the
conventional analysis.
In layman's language, the internal rate of return is the highest rate of return on invested cap-
ital that an enterprise could afford to pay and cover total costs over the life of the project. If
the rate of interest charged by banks is higher than the indicated rate of return on the proposed
investment, the project is not considered feasible because anticipated returns are insufficient to








pay for the cost of the capital. If the internal rate of return is higher than the rate of interest
charged by the bank, the project is feasible and will contribute some entrepreneurial income to
the owner or owners because the returns on capital are greater than its cost.
Technically, the internal rate of return is that rate of interest on invested capital at which
the sum of the discounted income flows is equal to the sum of the discounted cost flows. Alter-
natively, it is the rate of interest at which the sum of the differences in the cost and income
flows is equal to zero.




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