August 25, 2010

 

Soaring feed costs may force UK pig producers into the red

 

 

Higher grain prices have left many UK livestock farmers watching their feed costs spiral, but pig producers face a particularly tough autumn.

 

Feed accounts for 55-60% of the cost of production for pork, so the rise in prices of key ingredients over the summer - namely wheat, barley and soy - could force many businesses into the red, after only a relatively brief spell of better returns.

 

Latest BPEX figures suggest that the average cost of production for English pig production will rise to GBP1.463/kg (US$2.256/kg) by November, up from GBP1.365/kg (US$2.105/kg) in July and almost GBP0.20 (US$0.30) more than the 2009 average of GBP1.279/kg (US$1.972/kg). Augusts' figure is forecast to exceed GBP1.40/kg (US$2.159/kg).

 

Those costs compare with a current deadweight average pig price that has slipped over recent weeks to around GBP1.45/kg (US$2.236).

 

According to Agriculture and Horticulture Development Board pig market analyst James Park, the impact of these increases in cost of production is that English pig producers will move into negative returns for every pig slaughtered, subject to future movements in the DAPP.

 

Even if producer prices maintain their current value, the industry is forecast to be making a loss by the final quarter of 2010, Park said.

 

All European pig industries faced the same challenge from rising feed costs and profitability would rely on pig price movements in individual countries over the near future, he added.

 

NFU Scotland called on buyers of pig and poultry products to improve the prices paid to farmers and "wake up to the damage they are doing to the sectors by not reacting to the sudden surge in costs."

 

Philip Sleigh who represents the pig and poultry sectors on the NFUS Board, said the rise in feed costs had been so rapid that many producers had not been able to protect themselves by forward buying feed requirements.

 

Sleigh warned that failure to pass on price rises could force more producers out of business, something which the Scottish pig sector in particular could not afford, as it had already shrunk significantly over recent years.

 

After a period of negative margins, the cost of production for pigs has improved considerably last year due to reduced feed costs and better physical performance. According to BPEX, the 2009 average was GBP1.279/kg (US$1.972/kg), 7% lower than the previous year.

 

Feed accounted for 52% of production costs last year, down from 56% in 2008. However, by July 2010 the situation had reversed and feed accounted for 57% of total pig production costs.

 

Production costs actually fell slightly between June and July this year, although this was outweighed by a fall in DAPP. August production costs are estimated to climb to over GBP1.41/kg (US$2.174/kg), rapidly closing the margin between the average price.