Rising feed costs erode producer margins in Q2

By Felicity Rusk

In Q2 2020, the estimated net margin for GB pig production was 12p/kg deadweight or £10/head. This was 4p/kg (or £4/head) less than in the first quarter.

Finished pig prices actually continued to rise in the second quarter of this year, although at a slower rate than had been recorded in the previous 12 months. The EU-spec APP averaged 167p/kg in Q2. However, a significant rise in feed costs pushed up the cost of finishing pigs and so margins were eroded. The average cost of GB pig production was 155p/kg in Q2, according to the latest AHDB estimates, 7p higher than the previous quarter.

The majority of this rise in production costs was due to higher feed costs (+7p), as well as a marginal increase in ‘other’ variable costs (+1p). While there was a 1p decline in building, finance and miscellaneous costs, this was not enough to compensate for the other increases.

GB finished pig prices have moved down in recent weeks. Since the week ending 11 July, the EU-spec APP has fallen by almost 3p. Meanwhile, feed prices have been on the rise. Since the start of July, average GB ex-farm prices for feed wheat have risen by £4.70/tonne, bolstered by high premiums to encourage the movement of grain into deficit areas. As such, it is likely that producer margins have been under further pressure in recent weeks.

Looking ahead, much uncertainty remains in the market. It is unclear how domestic demand will develop, as more of the foodservice sector reopens and people head back into offices and schools. Furthermore, we do not know what the trading relationship between the EU and UK looks like post-Brexit.

Nevertheless, opportunities on the export market look promising. Chinese demand for pig meat is expected to peak in 2020, according to the latest OECD-FAO outlook. However, demand from 2021 onwards is expected to fall back, as the nation’s own domestic production is expected to show some recovery.

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