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Iowa State Professor Discusses Cost of Production

Turning a profit takes two primary functions: cost management and developing a marketing plan. Dr. Lee Schulz is an Associate Professor in the Department of Economics at Iowa State University says from a revenue perspective, this is the highest prices since 2014.

“This is likely back-to-back years as we look at 2021, It was 50 percent higher than the lower prices that we experienced in 2020. And the prices in 2022 look to hold those levels. Now, we need to realize too that this is the backdrop of much higher cost of production.”

Dr. Schulz says lowering costs doesn’t always mean improved profits. “I always cautioned that some cost cutting measures can erode production or quality and therefore reduce revenue and profit. So,, I think it’s important to be focused on not becoming a low cost producer, being a low cost producer, but think about being the best manager of your costs, and a better marketer of your hogs.”

Schulz says producers should utilize all the tools that are available to them to manage their price risk management goals.

“There’s a lot of tools out there available for producers when it comes to the futures or options market. There’s a lot of really attractive insurance products like Livestock Risk Protection, Livestock Gross Margin. In particular, we talk about Gross Margin, it’s managing that margin between the revenue side of things as well as the cost side of things when we’re in this environment of much higher costs.”

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