June 19, 2007

Higher feed costs may offset gains in UK pork price

Rising feed costs could offset recent price improvements of UK pork as average pork price increase of 14 percent may be counteracted by feed wheat prices which is now 107 GBP (Britain pounds) per tonne.

Pork price hike also included the cost of imports into the UK and deadweight pig prices have reached 109.2 GBP per kilogramme against 104.4 GBP in March.

UK marketing groups are also projecting a shortage of live pigs at a time of year when barbeque demand normally improves.

Further rises are expected to reflect this trend providing the value of the euro is maintained.

Future rises in UK interest rates could strengthen the pound against the euro, which could encourage imports.

Some grain trading groups are also offering "floor and ceiling", three-year feed wheat contracts between 100 - 120 GBP per tonne.  This underlines market sentiment that prices are unlikely to drop below 100 GBP per tonne maximum during the next three years.

Feed wheat was traded a year ago at 75 per tonne and the latest quotes represent a year-on-year increase of 30 percent.

Rising cereal and oil prices will put an extra 15 GBP per kilogramme (11.25 GBP/pig) on producers' costs once the forecast price rises have filtered through. 

Unless retailers and processors are prepared to lift their prices to match these extra feed costs, producers' margins will remain on a knife edge in the months ahead.