Rising costs limit gains in producer margins in Q1

By Felicity Rusk

Finished pig prices continued to rise in the first quarter of 2020. However, an increase in feed and labour costs have eroded away some of the potential margin gains.

During the first three months of the year, the EU-spec APP averaged 165p/kg. Meanwhile, the average cost of GB pig production was 149p/kg, according to the latest AHDB estimates. Therefore, in Q1 2020, the estimated net margin was 16p/kg or £14/head.

On a per kg basis, production costs were 3p higher than in the previous quarter. This is due to a combination of higher feed and labour costs. While there was a 1p decline in ‘other’ variable costs, this was not enough to compensate for the rise in feed and labour costs.

Despite the global turmoil due to the pandemic, GB finished pig prices have continued on a slight upward trend so far this year. Since the end of March, pig prices recorded an increase of just under 2p. However, looking at feed wheat prices, feed prices have probably also been a little higher from late March. So, it seems unlikely margins will have increased further in recent weeks.

Looking forward, much uncertainty remains, as we still don’t know how domestic demand will develop as lockdown measures are eased. However, the export outlook remains cautiously optimistic.

China’s own battle with the coronavirus has only slowed the nation’s recovery from African Swine Fever (ASF). As a result, the Chinese pork output this year is likely to be lower than previously anticipated. This will only increase the nation’s reliance on imported protein, which if realised, would be price supportive. However, there is still a range of factors that could present challenges. A second wave of the virus in China remains an ongoing risk as the nation continues to adjust to post-lockdown life. Furthermore, there remains a risk of competition from lower-priced US and Brazilian product, although the ongoing disruption to pig slaughter in the US might mitigate this.

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