November 19, 2024
UK swine producers see profit margins increase amid falling costs, but EU price drops pose risk
UK swine producers continued to report positive profits on average during the third quarter of 2024, benefiting from falling costs. However, the domestic market is now facing pressure due to declining EU swine prices.
According to the latest data from the UK Agriculture and Horticulture Development Board (AHDB), average UK swine margins rose from GBP 15 (US$18.92) per head in the second quarter to GBP 19 (US$23.97) per head in Q3. While average prices remained steady at 212p per kg (APP), the same as in the previous two quarters, production costs decreased by 5p per kg, averaging 190p per kg. This led to a rise in net margins from 17p per kg to 22p per kg, with margins per slaughter swine estimated at GBP 19.40 (US$24.47) per head and 21.90p per kg deadweight.
Though lower than the GBP 25 (US$31.54) per head margin recorded in Q3 2023, this marked the sixth consecutive quarter of positive margins, a notable recovery following 10 quarters of negative margins, including a peak of -GBP 58 (-US$74.16) per head in Q1 2022. This period of relative stability has been welcomed by producers after a challenging period.
Feed costs, which make up a significant portion of production costs, fell to 116p per kg in Q3, the lowest since the end of 2020. These costs now represent 61% of total production costs, the lowest share since early 2020. At the height of the swine crisis in Q2 2022, feed costs had soared to 175p per kg, representing 73% of total costs. Energy, fuel, building, and finance costs also decreased throughout the quarter, although there was a slight increase in other variable costs, including breeding, veterinary, and maintenance costs.
Despite the improvement in margins, swine prices have fallen in the current quarter, mainly due to higher supplies and a significant drop in EU swine prices in recent months. For the week ending October 26, the APP stood at 208.14p per kg, and the SPP fell below 207p per kg in early November. While these prices are about 11p lower than last year, they remain around 6p per kg higher than the same week in 2022. Despite the price drop, costs remain manageable, and producers are still expected to maintain positive margins on average.
Many farms are still recovering financially from the challenges faced between 2020 and 2022, but there are reports of on-farm investment, particularly in new breeding stock and the upgrading of buildings and equipment.
Several uncertainties lie ahead for the industry. The decline in EU swine prices poses a risk of increased import volumes to the UK, which could pressure domestic prices. In addition, geopolitical tensions are expected to impact global market dynamics in the coming months.
The UK government's decision to maintain the farming budget at the same level is expected to lead to reduced spending by Defra in real terms, due to inflationary pressures. This could affect grants for further on-farm investments and adjustments to new welfare regulation proposals. Additionally, changes to inheritance tax laws highlight the importance of succession planning for farming businesses of all sizes.
- National Pig Association
