26 June 1998

Up-and-down industry sees the down in 97

Pigs go up and pigs go

down, so the saying goes

about fortunes in the pig

business. And 1997 was a

year when they were going

down at Easton Lodge.

Tim Relf reports

PIG farmings cyclical nature is clearly evident at Easton Lodge, where profits in 1997 were half the previous years record level.

The unit made just under £65,000 in the 12 months to Nov 30, 1997, with the drop mainly due to lower prices. As the pig price cycle began heading downwards, deadweight averages fell from nearly 137p/kg to 102p/kg during the year.

Despite that, farm manager John Lambkin is reasonably pleased. And it wasnt as if the lower prices were a surprise.

But it was a year of surprises in other respects. An outbreak of pneumonia took its toll, raising mortality rates in the finishing herd from 1.6% to 3.3%. The vaccination programme which followed was the main factor in the 17% rise in vet and med costs to £17,125.

Another surprise – and a particularly unpleasant one – was the blue ear positive test in the isolation unit. This forced culling of replacement gilts, and the resulting delay in purchasing new gilts meant keeping on sows that would otherwise have been culled, leading to a loss of production.

Matters were further complicated by the decision to change the source of replacement stock from Cotswold to PIC.

In view of all that, the final surprise, says Giles Penn of accountants Deloitte and Touche, was how good the end result actually was.

"A very creditable performance," he says. "Blue ear, potentially, could have been catastrophic – but Easton Lodge had a disaster prevention programme – and it worked."

It must have been particularly stressful for all the people involved, too, he adds. "Ive seen pigmen reduced to tears on hearing similar bad news."

Benefits, meanwhile, began to be felt from the new Straw-Flow building built the previous summer, which enabled stock to be taken to heavier weights. The carcass weight sold totalled 565,000kg, a rise of 121,000kg.

Despite the production hiccoughs, 7789 head were finished, compared with 6807 in the previous year.

This had the effect of diluting fixed costs against a bigger output. "That was the main purpose of making the investment," says Mr Penn.

Not that there were that many extra costs to dilute. Feed fell in price, with the finishing ration ranging from £169/t – £140/t, compared with £180 – £162/t in the previous year. As a result, the 27% rise in production was achieved with just a 3% rise in the purchased feed bill. But even at this low level, feed still accounted for 60% of the cost of each animal sold.

Other costs were also controlled well. "Attention to detail always filters back down to the bottom line," says Mr Lambkin. He quotes the £2120 saving in bedding costs as an example – achieved through better straw storage and management, despite the extra production.

The labour bill rose 9% to £55,112, with extra staff needed during the head stockmans sick leave and also due to changes in husbandry. (As before, for ease of comparison with other farms, the accounts exclude the salary of pig manager, Jasper Renold, treating him as a tenant and sole trader).

At least the rise in labour costs were more than compensated for by the extra production. Future rises caused by the abandonment of sow stalls will not be.

Some machinery cost increase in 1998 is likely, with an £8500 skid-steer loader coming on to the farm. It will work alongside the small Massey Ferguson tractor which has been there since the late 1960s. "It looks like itll go on for ever," says Mr Lambkin.

Tight cost control also helped put Easton Lodge in a strong cashflow position. The cashflow break even point- – the level of pig price at which capital assets can start to be paid for – was 97p/kg. (This comes from a break even figure of 102p/kg, less the 2p/kg adjustment for changes in unit valuation movements and the 3p/kg depreciation charge.)

With prices sliding downwards, the physical performance of the pigs became ever more important. Overall, sow productivity increased, with the number of piglets reared per sow per year rising 0.9 to 22.2.

But it was a year of two halves, with the improvement concealing much volatility. Following the blue ear scare, no replacement gilts came onto the farm between January and June, when the first PIC gilts arrived. Sows were retained longer than normal to maintain production – but this raised the average age of the herd.

The 23.3 piglets typically reared per sow per year in the first six months worsened to 21.2 in the later part of the year. This resulted from the drop in the average number of litters per sow per year from 2.49 to 2.27 over the same period.

Further improvements are also possible in growth rates, says Mr Penn. The daily liveweight gain of the finishing herd was 694g, well below whats achieved by the MLCs top-third herd. This reflected the pneumonia problem, which reduced food intakes – but the unit has, at times, shown the potential to be up there among the very best. The last three months of the year, for example, saw a daily liveweight gain of 864g. "Off the top of the graph," as Mr Renold puts it.

"Combine the sow productivity in the first six months and the finishing performance of the last three months and well be well on track," says Mr Renold. The task now is to turn intermittent potential into consistent reality.

But doing that, the whole Easton Lodge team recognise, is easier said than done. Putting aside the cost, the one good thing that came out of the disease problems was that it focused everyones minds on the need to improve output as well as pig flow through the finishing herd.

Variations in productivity in the past year caused big swings in the physical occupancy of the unit. This had knock-on affects on cashflow. The three months to the end of November, for example, typically saw 1466 animals in the finishing herd, compared with 1623 over the previous six months. And changes in the size of the finishing herd meant that approximately one week of sales were lost. "Thats £5,000 to £6,000 off the bottom line," says Mr Penn.

As lower prices are forecast for 1998, better physical performance is now more important than ever, he adds. "Improvements in growth rates is about the only area which offers potential savings of sufficient scope to make up the shortfall."

And with the budgeted price for the current year (to Nov 1998) expected to be 94p/kg, theres much to make up.

One of the biggest unknowns is the impact of Malton Bacon Factorys recently announced plans to change its contracts. Easton Lodges pigs are sold to Malton Foods through Hargrave & Co of Spalding.

The change will mark the death-knell of the AAPP and herald an era of even lower prices, fears Mr Lambkin. "We are examining our marketing options very closely."

Newly-prepared budgets show the pig unit likely to slip into the red this year, with a £15,000 loss on the cards. It has, however, earned £300,000 positive trading cashflow in the last three years, allowing big money to be drawn from the business, as well as funding last years building work and the yet-to-be-completed conversion from sow stalls.

As Mr Lambkin says: "Thats pigs." &#42

As pig prices dropped, so profits fell at Easton Lodge in 1997. The question everyones asking now is: Where do prices go from here?

Pig trading account year ended Nov 30, 1997 (£)

12 mths to 12 mths to

30.11.97 30.11.96

Cull sows 18,165 31,351

Cull boars 1,225 1,607

Finishers 638,742 617,735

658,132 650,693

Opening

valuation 213,383 188,318

Purchases 24,597 42,308

237,980 230,626

Closing

valuation 181,706 213,383

(56,274) (17,243)

Output 601,858 633,450

Variable costs

Purchased

feed 343,146 334,403

Bedding 6,739 8,859

Haulage 11,215 10,459

Vet and med 17,125 14,645

AI 4,072 3,525

Livestock

sundries 6,887 8,584

389,184 380,475

Gross margin 212,674 252,975

Profit and loss account (£)

year ended Nov 30 1997

1997 1996

Gross margin

Pigs 212,674 252,975

Sundry income 1,706 94

214,380 253,069

Fixed costs

Labour 58,112 53,432

Power and

Machinery 30,539 30,855

Property 34,282 20,775

Other overheads 19,422 19,121

142,355 124,183

Net farm income

(before rent) 72,025 128,886

Rent 7,160 6,845

Net farm income 64,865 122,041