29 August 1997

Dalgety feed deals

By Philip Clarke

LIVESTOCK farmers struggling with volatile input costs could soon be locking into "maximum price" contracts for buying animal feed from Dalgety.

The arrangement will work in much the same way as minimum price contracts for selling grain, which are becoming increasingly common for risk management by cereal growers.

In essence, for a fixed premium, farmers will be able to order their feed at a price which will not go up even if raw material costs increase. But they will still be able to benefit from any downturn in prices.

These maximum price deals are already being used in feed sales to Dalgetys pig outfit, PIC, and also to certain large poultry producers. And a similar product is being worked on for other livestock farmers, says executive director, Paul Kirk.

Even in the absence of a maximum price contract, farmers should be booking some of their winter feed requirements now, he suggests, with compound prices £30 to £35/t lower than last year. "You might save more by waiting a bit longer. But it could equally cost you an awful lot if world prices suddenly take off again."

With world soya stocks low, prices will remain volatile and managing that risk is as important for the individual farmer as it is for Dalgety.

The company itself has had a torrid 12 months, having to face up to the loss of 15% of its animal feed business due to the BSE crisis. Lost sales due to falling cattle feed demand have not been made up for in the white meat sector. For even though consumer demand for pig and poultry meat has increased, much of that has been met by imports due to the strong £.

Falling grain and milk prices are also set to knock about £1bn off UK farmer incomes this season, damaging the spending power of Dalgetys customer base.

Last month the company warned of a 35% drop in profits, before exceptional charges. That has led to intense speculation about Dalgetys future, with rumours rife about a possible takeover and sell off.

Mr Kirk says that is very much in the hands of the shareholders. But, while there are no plans to sell the business, if it is ever transferred to a new owner, the Dalgety name will almost certainly prevail. The company has invested heavily in upgrading its facilities and also has the geographical spread and traceability systems to see it through the hard times. "We are an industry that has its problems, but we are not a problem industry," he says.

But further rationalisation of the animal feed sector is inevitable, says Mr Kirk. Nationally, he believes there is another 2m tonnes of surplus capacity to be lost, equivalent to about 25 mills.

Paul Kirk – further closures in the animal feed industry are inevitable.