Cost-price squeeze hits crisis point for pigmen

With wheat prices up by more than 16% in the space of three weeks, many producers are worried about whether they will make it to this coming winter, let alone through it.

On the back of concerns about prospects for the US crop, soya prices have also soared.

An increasing number of producers are concerned about their ability to borrow more and some who are exclusively in pig production are already coping with negative equity.

The weakening Euro, at just under 79p on Wednesday (11 July), is making pigmeat imports more competitive at the same time as making our cull sow exports more expensive.

So, the remainder of 2012 still provides many challenges to the UK pig industry. Unless there is a rapid improvement in pigmeat prices or a fall in feed costs, margins will remain under pressure and in many cases in negative territory.

Old crop feed wheat is close to £200/t as old season supplies dwindle, while the LIFFE wheat futures price for November 2012 stood at £183/t on Tuesday (10 July) compared with just over £150/t at the start of the year.

These rises are in stark contrast to the DAPP which stands at 150.31p/kg compared with 147.85p at the start of the year, although spot prices are currently about 150p/kg and have risen by an estimated 8p since the start of the year.

Those prices have been hit by reduced barbecue demand because of the weather across northern Europe but producers are hoping for an Olympics effect to pick up demand.

Producers badly need a price increase and this must come from retailers. Although supermarkets need to be competitive with each other, pigmeat is very good value and retailers can afford to put the price up without affecting demand. They just need to charge a bit for pork and milk.

According to BPEX, finished pig prices need to rise to above 173p/kg deadweight to allow many producers and finishers to hit break even levels.

The weaner market continues to bear the brunt of feed price rises with the latest AHDB 30kg ex farm weaner average quoted at £41.37 a head and 7kg piglets reported to be trading at £30/head and lower in some cases.

Signs are emerging however of slight shortage of pigs. Cull sow demand has remained reasonably firm with most sellers achieving 113 – 116p/kg.

Rising costs put pig businesses in jeopardy

Soaring grain and protein prices mean that there is a gap of 20 to 25p/kg between pig production costs and farmgate selling prices. Retailers are being warned that unless prices improve, the pigs simply will not be there.

NPA wants meetings with retailers to impress on them the impact of high costs of production – latest figures from BPEX show a loss of £18 a pig before accounting for the full effect of the most recent grain price hikes.

Achieving pig price rises of at least 20p/kg will be a real challenge with consumers under pressure and retailers locked in price wars, making it increasingly difficult to see how sufficient production can be maintained, said NPA.

The viability of pigmeat production in Britain and across the EU was causing increasing concern, with only 20% of pig producers having taken feed cover through to the end of the year compared with the more usual 50%.

Grain prices have risen by up to £30/t in just three weeks on fears for the US maize crop which is suffering prolonged searing heat at a critical point. Soya prices have also jumped, reaching more than £400/tonne last week

A briefing note including cost-price data is being prepared by BPEX to be sent by NPA to minister Jim Paice and to selected MPs. This will also form the main plank of the pig industry’s case in a new round of meetings with supermarkets for which NPA is calling.

Scottish NFU pigs committee chairman Phil Sleigh predicted “a real scramble for pigs” when the partial stalls ban is introduced in January 2013. “The retailers should know that if they don’t act now, it won’t be our fault if prices go through the ceiling next year.”

The UK national breeding herd had dropped by about 8,000 sows in recent months, said NPA, with the gap between pig production costs and farm gate prices worsening cashflow, insufficient funds for overdue reinvestment, and key members of staff deciding to leave all seen as triggers for more producers to quit.

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