Soaring costs could force pig producers into the red
Higher grain prices have left many 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 pigmeat, so the rise in prices of key ingredients over the summer – namely wheat, barley and soya – could force many businesses into the red, after only a relatively brief spell of better returns.
Latest BPEX figures suggest the average cost of production for English pig production will rise to 146.35p/kg by November, up from 136.5p/kg in July and almost 20p more than the 2009 average of 127.9p/kg. Augusts’ figure is forecast to exceed 140p/kg.
Those costs compare with a current deadweight average pig price that has slipped over recent weeks to around 145p/kg.
“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,” Agriculture & Horticulture Development Board pig market analyst, James Park, said.
“Even if producer prices maintain their current value, the industry is forecast to be making a loss by the final quarter of 2010.”
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.
“They are therefore taking much higher production costs on the chin without a corresponding increase in what they are paid for their pigs, broilers and eggs.
“Buyers must be in no doubt about the significance that their pricing policies for pigs, poultrymeat and eggs will have in the coming weeks and months. Continued failure to recognise current rising production costs would have very serious implications for the future supply chain in both directions,” he said.
Mr 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.
Pig cost trends
After a period of negative margins, the cost of production for pigs improved considerably last year due to reduced feed costs and better physical performance. According to BPEX, the 2009 average was 127.9p/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 141p/kg, rapidly closing the margin between the average price.