Producer margins shrinking but still positive in Q4
The average GB cost of pig production in the final quarter of 2014, as estimated by AHDB/BPEX, was just over 142p/kg (£116 per head).
This is 2p lower than in Q3 and is largely attributable a reduction in feed costs following last summer’s harvest. This is the lowest recorded cost of production since the third quarter of 2010, mirroring trends in feed prices. Carcase weights increased to the highest level on record, averaging 81kg, also helped by feed costs dropping as a proportion of input costs to 58%, down 4 points on the year. Consequently, fixed costs are distributed across a greater quantity of finished product, reducing the cost per kg. Overall, costs were 3p down on a year earlier, as an 8p fall in feed costs offset increases for some other inputs.
With finished pig prices falling throughout the quarter, producers’ net margins continued to tighten, standing at an average of £7 per pig (9p/kg) in Q4. This was down £5 on the quarter and was a third of the margin a year before, when finished pig prices peaked. However, with pig prices still falling and a modest increase in feed prices during October and November, by the end of the year producer margins would have been close to break even. Further falls in the New Year have taken prices well below the cost of production in Q4, suggesting many producers will now be back in the red, even though feed prices have eased somewhat in recent weeks.