Cost of production falls but lower prices result in negative margins
The cost of pig production in GB fell by 6p/kg in the first quarter of 2016, to an estimated 129p/kg.
This is the lowest level since before 2009 as a result of a combination of improved productivity and feed prices being the lowest since 2010. However, with the pig price (APP) falling by 12p/kg from the last quarter of 2015 to 118p/kg, producers lost an average of 11p/kg (or £9/head) during the three months. The first quarter of 2016 continues the trend seen in 2015 of producers making a loss on a full economic cost basis.
Whilst feed prices have remained fairly stable, looking at the futures markets there is a chance that they will gradually increase over the coming months. With feed being a significant cost, this is likely to increase the cost of production even if productivity continues to improve.
Whilst pig prices (APP) improved to 119p/kg for week 14 May, the average for the second quarter to date is still 1p/kg below the 118p/kg average for the first quarter of 2016. Unless pig prices significantly improve for the remaining weeks of the second quarter, pig producer margins may well fall further, to levels last seen in 2012.
Carol Davis, Senior Analyst
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