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  • shea.kuia shea.kuia Jun 17, 2011 9:16 PM Flag

    Agfeed China Hog Division Operational Metrics

    The current quarter (Q2 2011) concludes in a couple of weeks, with results to be reported in early August. With this in mind, I thought it worth reviewing the results of Q2 2010, since the street tends to focus on year over year changes. Further, toward the goal of better understanding of those results, I thought it would also be worth addressing why there is a need to introduce new metrics in quarterly reports; specifically, so that shareholders may better analyze and compare results of the Agfeed China Hog Division using more meaningful, operationally specific metrics.

    Q2 2010 Results for China Hog Production Division
    Hogs sold: 95,000
    Avg price/head: $131
    Total revenue: $12,560,000
    Avg cost/head: $154
    Total cost: $14,769,000
    Hog/corn price ratio: 5.08 to 1

    Q2 2011 Results for China Hog Production Division
    Hogs sold: ???
    Avg price/head: ???
    Total revenue: ???
    Avg cost/head: ???
    Total cost: ????
    Hog/corn price ratio: ???

    During the first six months of 2010, Agfeed China sold 270,000 head with an average selling price of $154 per head at an average weight of 88.8kg (196 lbs.).

    During the first three months of 2011, Agfeed China sold 84,275 head (excluding discontinued operations).

    Now, you will note that in terms of price-driven revenue generation during Q1 2011, Agfeed achieved $136 per market hog on average vs $164 per market hog in the comparable period in 2010). While this represents a decline of $28 per market hog, the metric itself is meaningless in that it fails to address significant changes in operational marketing from Q1 2010 to Q1 2011.

    Case in point, during Q1 2011, Guangxi regional farms marketed feeder pigs (~20-30kg weight class) in lieu of growing them to traditional market weights (90-100kg weight class). Depending on the market at the time of sale, feeder hog sales can return significant margin advantages due to the lower costs associated with raising feeders, which consume much smaller quantities of feed than a 80-100kg finisher.

    Indeed, with the continued development and expansion of Agfeed's genetic program, marketing of feeder hogs is likely to be a growing revenue generating segment of Agfeed's china operations. Thus, in this context, a more meaningful metric would be to measure, and compare, quarter over quarter, and year over year revenue on a 'per kg basis'. On that basis, Agfeed received $2.45/kg in Q1 2011 versus $1.81 in Q1 2010.

    This is, of course, just one example which recognizes the importance of using multiple metrics for analyzing changes in China hog division's operational results. As the company evolves and moves forward, there will clearly be the need for more in depth analysis involving the use of numerous new metrics, some of which have only recently been addressed in quarterly reports.

    Take care

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