Margins squeezed as production costs rise and pig prices fall

Thursday, 26 November 2020

By Felicity Rusk

In Q3 2020, the estimated net margin for GB pig production was 8p/kg deadweight or £7/head. This was 4p/kg (or £3/head) less than in the previous quarter, according to our latest estimates.

Finished pig prices started to drop back in the third quarter of the year. Low prices in Europe, reflecting a combination of disrupted demand due to the pandemic, constrained slaughter capacity and some challenges exporting to China, ultimately also started to pressure prices here. The EU-spec APP averaged 166p/kg in Q3.

The average cost of GB pig production in Q3 was 158p/kg, 3p more than in the previous quarter. This was the highest quarterly production cost since 2013. Feed costs continued to rise in Q3, which accounted for the majority of the rise in production costs (+2p). Higher feed prices and increased feed usage both contributed to the rise in costs. ‘Other’ variable costs also recorded a slight uplift compared to the previous quarter (+1p). This was due to the sharp drop in cull sow prices, which made breeding costs more expensive.


 

GB finished pig prices have fallen further in recent weeks. The EU-spec APP was only about 159p/kg by early November, just above our estimated average production cost for Q3. However, feed prices have also been on the rise recently, reflecting the tighter domestic grain situation. In October, GB ex-farm prices for feed wheat averaged £180/tonne, £17 (11%) more than the average in July and £15 (9%) more than the average across Q3. With this in mind, it looks like average margins could now be entering negative territory.

The outlook is challenging for the British pork industry currently. Supplies available are testing demand levels, particularly as processors tackle lost efficiency as plants adhere to social distancing measures, while reports indicate pigs are backed up on farms. This, alongside the likelihood of more muted Christmas demand and ongoing low prices in wider Europe, will likely keep British prices under pressure in the coming weeks.

Felicity Rusk

Analyst - Livestock

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