The Economics of Finishing Hogs in Hoop Structures and Confinement; Financial Comparison

Iowa State University Animal Industry Report 2004. From June 30, 1998 to Feb 21, 2001, a study to compare swine production facility types was conducted at the Iowa State University Rhodes Research and Demonstration. The two types of pork grow-finish production facilities compared in this study were hoop and total confinement. This report evaluates financial measurements from six groups of hogs; three groups fed in during the winter and three groups fed during the summer. This financial examination provides mixed results. The hoop facilities have superior return on investment, internal rate of return, modified internal rate of return, and a shorter pay back period. These advantages can be attributed largely to the hoops smaller initial investment. However, the confinement facility has the advantage of a longer service life as well as higher net profit per year per pig space. This gives the confinement system an advantage of a higher net present value. Hoop operations will need to invest in more pig spaces to generate the same net present value. The report goes on to examine the sensitivity of the financial measures to changes in input and output values such as carcass prices, ration cost, and cost of capital. The result is that due to its lower investment per pig space, shorter service life, and lower net profit per year the hoop facilities are more sensitive to changes in hog prices, ration costs, facility costs, and net profit per head. However, the confinement facility is more sensitive to changes in the cost of capital due to its longer service life and higher initial investment level. This makes the question of which system is a better financial investment dependent on several issues. The availability of initial capital, operating capital, land for manure application, labor available, and pig flow are all important in order to make a decision on which investment is best. Operators must also consider the cost of capital, value of alternative uses for the capital, market conditions, risk aversion level, as well as intrinsic values of the alternatives when deciding on which pig finishing option to select.