Calculate borrowing

2 October 1998

Calculate borrowing

PUT the pig crisis into perspective and think survival, says Signet pig specialist Dan Morgan.

Mr Morgan believes that despite frighteningly low pig prices leaving producers feeling powerless, a simple calculation to determine short-term borrowings will put the crisis into perspective against prospects of higher prices to come.

"Work out cash costs of production for a kilo deadweight or on an individual pig basis using actual production figures and current feed prices," says Mr Morgan. "Add in cash labour costs, fixed costs and present interest charges. Dont include figures for depreciation and return on capital invested."

Subtract the cash cost of production/kg deadweight from the price you think you will receive over the next 20 weeks, he says. "This could be 50p/kg deadweight, but increased sow slaughtering may push the price up slightly, possibly to 60p/kg."

Working out numbers of finished pigs to be marketed over a 20 week period and multiplying it by loss/kg deadweight should work out extra borrowing. "It may look a lot, but should be within prudent borrowing limits," he says.

For example, a herd selling 20 pigs/sow/year at 70kg deadweight would sell 538kg/sow in the next 20 weeks. Where cash costs are 80p/kg and net sale price is 60p/kg, the deficit is 20p/kg x 538kg/sow totalling £108/sow.

"Even where borrowings are already running at £200/sow, total borrowing of £300/sow is still a financially viable situation when theres a prospect of a period of high prices which may result from a shortfall of pigs next year."

However, where borrowing exceeds £400/sow a units long-term viability must be re-assessed. Look at potential to modify production systems to maximise output while containing costs, he says. "Be confident production costs are sufficiently low to pay back borrowings." &#42

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