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Bethan Wilkins

Analyst

AHDB Pork Market Intelligence

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Cost of production falls but margins still negative

Home \ Prices & Stats \ News \ 2016 \ March \ Cost of production falls but margins still negative

The cost of pig production in GB fell by 4p/kg in the final quarter of 2015, to an estimated 135p/kg.

This is the lowest level since early 2010, as falling feed prices combined with improved productivity and feed efficiency to reduce costs. Nevertheless, with the pig price (APP) falling by 6p/kg from the previous quarter, to 130p/kg, producers lost an average of 5p/kg (or £4/head) during the three months. This continued the trend of most of 2015, with producers making small losses on a full economic cost basis.

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Once non-cash costs, such as depreciation and family labour, are taken into account, most producers will still have been making a cash profit in late 2015. However, the latest figures confirm that the situation is likely to have changed for many in early 2016. With feed prices relatively stable so far this year, production costs are likely to have remained at a similar level. However, pig prices have fallen sharply, taking producer losses up to around 20p/kg (£16 per pig). This is a large enough margin to mean a cash loss, which will likely be enough to push some producers out of the industry. There are already signs of this in sow slaughtering estimates, with numbers 17% higher than a year earlier in the first six weeks of 2016.

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Stephen Howarth, Market Specialist Manager
Stephen.howarth@ahdb.org.uk, 024 7647 8856