Indiana Packers Corporation Procurement Department

Carcass Merit Pricing System Details

Indiana Packers Corporation offers a carcass buying program based upon a system of rewards and discounts.

The purpose of the system is to reward producers who do an exceptional job

• of genetically selecting hogs for leanness and meat quality;
• sorting hogs by weight;
• providing a consistent supply of hogs;
• and managing their drug use program.

IPC seeks to form a partnership, through a scheduling program, with loyal suppliers who are willing to work with us to improve the pork industry and supply the consumer with a safe, wholesome, lean product.

Under normal conditions, the following rules apply:

1. All hogs are purchased subject to government (USDA) inspection. All trim loss and USDA condemnations (total and partial) will be considered producer loss.
2. Any hog diagnosed, by the USDA, with tuberculosis will be considered condemned and of no value.
3. Hogs are adjusted for lean premiums or discounts and sort discounts as per published schedules.
4. We generally prefer that Carcass Merit lots are sized at quantities of twenty (20) head or greater.
5. Indiana Packers' computer systems have various error checking and error avoidance checks built in to determine that appropriate measurements were obtained from the probe and scale systems. For more information about these systems or other details of Indiana Packers Carcass Merit systems please contact your plant representative.
6. In the event that IPC is unable to recover carcass data from all hogs in a lot, the following procedures will be used:


Carcass Weights:
If carcass weight data recovery is 90%, or greater, any missing data will be substituted by using the average carcass weight of the lot. If data recovery is less than 90%. all data will be discarded and the carcass price will be converted to a live settlement price, adjusted by the lean %, sort discount and carcass yield based on the simple average of the last five (5) lots delivered by the producer during the prior 12 months (where data was successfully recovered).

Probe (Fat-O-Meter):
If probe data recovery is 60% or better, any missing data will be substituted by using the simple average of the back fat and loin depth of the lot. If data recovery is less than 60%, all actual recovered data will be used and the missing data will be substituted by using the simple average of the back fat and loin depth data from the last five (5) lots delivered by the producer during the prior 12 months (where data was successfully recovered).

Hog Count:
At times a carcass may lose identity due to illegible or misread tattoos. In the event that the lot is long, the carcass closest to the average carcass weight will be deleted.
 

7. Trimmed carcasses will be paid on actual weights and will be discounted according to the published carcass weight discount schedule.
8. Fat-O-Meter readings are taken midline between the 3rd and 4th rib.
9. Standard yield is 74.50%.
10. Payment from IPC will be made by the close of the next business day following the carcass evaluation of the hogs.
11. The weight discount schedule is provided herein.
12. Transit insurance is available.
13. IPC's carcass merit system is subject to periodic review and change. However, producers will be given notice prior to any changes.

The lean adjustment to the base carcass price equals the difference between the actual % lean and the standard lean (50%) multiplied by a lean factor, taken from the following schedule, and then multiplied by the base carcass price less sort, if applicable.
 

Formula 1 - IPC Lean Calculation

Calculated  Lean % = 54.672154 - ( 0.412525 x Fat depth in inches x 25.4 ) - ( 0.002982 x carcass weight ) + ( 0.1433242 x loin depth in inches x 25.4 ) 100

 
 

Calculated Lean % Factor Type From 0.00% to 44.99% -2.0 lean discount From 45.00% to 48.99% -1.5 lean discount From 49.00% to 49.99% 0.0 - From 50.00% to up +1.1 lean premium   Table 1 - IPC Lean Factor Schedule

Carcasses weighting less than 159lbs will receive no lean premiums or discounts.

For example:

Using a hypothetical price of $60.00 per cwt
54% lean - 50% lean = 4% lean
4% lean x 1.1 = 4.4%
4.4% x $60.00 (less sort if applicable) equals $2.64 per carcass cwt lean adjustment.
 

Carcass Weight Discount Schedule
 

Carcass Weight Discount Less than 149 lbs $12.00 per cwt 150 lbs to 159 lbs $8.00 per cwt 160 lbs to 169 lbs $2.00 per cwt 170 lbs to 214 lbs $0.00 215 lbs to 219 lbs $2.00 per cwt 220 lbs to 229 lbs $3.00 per cwt 230 lbs to 239 lbs $5.00 per cwt 240 lbs and up $12.00 per cwt   Table 2 - Carcass Weight Discount Schedule

Carcass Payment Examples
 

Lot 1 Notes Lot 2 $45.00 Base Price Live $45.00 $60.40 ($45.00 / 74.5%) Base Price Carcass (Base Price Live / Standard Yield of 74.5%) $60.40 ($45.00 x 74.5%) 250 lbs Live Weight 250 lbs 76.0% Carcass Yield (Total carcass weight / total live weight) 73.0% 190 lbs  (76.0% x 250) Carcass Weight (Live weight x Actual Lot Yield) 182.5 lbs (73.0% x 250) $0.00 Weight Adjustment (Sort) $0.00 +$0.50 Scheduling N/A 54.30% Lean Percent (calculated using formula) 48.20% +$2.86  (4.3% x 1.1 x $60.40) Lean Adjustment ((lean % variance from 50%) x lean factor x (base price carcass - sort if applicable) -$1.63 (1.8% x -1.5 x $60.40) $63.76 ($60.40+$0.50+$2.86) $ per cwt Carcass (base price carcass + scheduling + sort + lean adjustments) $58.77 ($60.40-$1.63) $121.14 (190 / 100 x $63.76) $ per Carcass Total (carcass weight / 100 x $ per cwt Carcass) $107.26 (182.5 / 100 x $58.77) $48.46 ($63.76 x 76.0%) $ per cwt Live ($ per cwt Carcass x Actual Lot Yield) $42.90 ($58.77 x 73.0%)

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