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Cost of production will rise 15p a kilo

by 5m Editor
14 November 2003, at 12:00am

UK - The UK's pig producers have enjoyed a period of relative stability this year, following four and a half years of high costs and poor prices. But further recovery looks extremely unlikely in 2004, unless higher prices are realised, and maintained for a sustained period.

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Higher feed costs will mean cost-of-production increases of an average 15p-16p a kilo. Continental pig producers face similar difficulties, but some - with arable enterprises - may see state aid benefits.

Many British producers have not yet felt the full impact of feed price increases, because they are still paying prices they locked into around harvest.

But the majority - acting on best advice available at the time - have not locked into prices beyond January, February or, at best, March. So in the new year they will suffer the full impact of increases in feed ingredient costs over the past 12 months...

  • Wheat up nearly 350 a tonne.
  • Soya up 360 a tonne.
  • Wheatfeed up 340.
  • Lysine up 31500 a tonne
  • Wheat prices are still rising. They increased 33 a tonne on Monday, 34 yesterday and 34 today.

The effect of these across-the-board increases will be to make a typical pig diet 335- 340 a tonne more expensive than it was a year ago. Although some producers have supply contracts that will offer varying degrees of protection against the increases, the majority will be doing some hard thinking about this new setback, in an industry that's had more than its fair share of crises over the past half decade.

The National Pig Association had already warned retailers of the pending feed price hike, but the situation has worsened since their alert was issued, partly because China is currently buying considerable quantities of world market wheat and soya.

The NPA is in the process of building up a likely pig supply picture for next year. A key question is whether the effects of the continental heatwave this summer will cause a significant dip in continental pig supplies over the next few months, which would help firm up prices in Britain as well as on the continent, and so offset the soaring cost of feed. The association is also looking at European grain supply forecasts for 2004-2005.

"Given the way the feed supply situation is developing it is clear we are going to have to talk to processors and retailers in the hope that we can all work closely together to make sure that it is British producers that stay in production over the difficult period ahead," said chairman Stewart Houston tonight.

Pig producers were aware that the drought in Europe this summer would have an impact on feed prices but nobody predicted prices would keep rising, driven by the poor harvest and the China wildcard.

With new crop wheat prices (harvest 2004-2005) already at 390, it is becoming clear that higher feed prices are not a temporary blip. "This could make PMWS look small-time," said one worried producer today. "lf a few big producers throw in the towel as a result, the knock-on effect with smaller producers doesn't bear thinking about."

A compounder told me today that least-cost formulation could only make a difference in price of 32- 33 a tonne. "As the gap widens between wheat and soya and other ingredients, prices of the other ingredients get dragged up," he said.

Some producers will consider switching to co-products, but many do not have the necessary building and equipment infrastructure, and some may not be able to find adequate local supplies.

Improving productivity will help offset the effects of high feed prices but it would require a Herculean effort to make a significant impact.

On current figures, a pig farmer producing 16 pigs a sow per year and taking them to 75 kilos will see an increase in his cost of production in 2004 of 16.6p a kilo. A producer achieving 20 pigs a sow, but slaughtering at 72 kilos, will see a CoP increase of 15p a kilo.

If wheat and soya prices stay where they are through 1994, the feed bill for a 350 sow herd will increase by around 370,000. That - in a nutshell - is the extra money the producer will need from the marketplace.

The Traffic Lights website has a useful Cost of Production spreadsheet.

Source: Digby Scott - National Pig Association - 13th October 2003

5m Editor