Profitability- could physical performance be key? Part 2
Previously, AHDB has explored how rising production costs have been contributing to narrowing producer margins this year. The latest figures show that, on average, farrow-to-finish operations were making just £1/head in the second quarter of 2018, while finishers were back in the red. There will clearly be variation between producers, with some still able to make good profits.
AHDB does not have access to financial information for individual farms, but by using Agrosoft data, we can see how physical performance may impact on returns, assuming other factors affecting the cost of production remain constant.
To read Part I: Breeding herd, click here.
Part II: Finishing herd
Based on estimates from the AHDB model, the finishing herd has struggled to remain profitable this year (click here to read more). The main impact of herd performance on costs is feed efficiency. By looking at the margin over feed, the impact of physical performance on returns can be analysed separately from the wider cost structure of producers.
On average, the margin over feed of taking pig from weaning to slaughter (around 7kg to 108kg) was around £24/head for Q2 2018. This figure includes the purchase of weaner pigs based on the quarterly average price. In context, on an annual basis, for a producer selling 10,000 pigs a year this equates to a margin over feed of around £240,000. Of course, as discussed previously, once other costings are added in, based on the level from Q2, producers would be making a net loss overall.
The top 10% of producers with the best feed conversion ratio over the past 12 months at the rearing stage (7-35kg) have a FCR of 1.34. Their margin over feed would be around £4/head higher than the average producer (FCR = 1.79). At the finishing stage (35-108kg) top producers have a FCR of 2.02. Here the impact is even larger, as the margin over feed would be £11/head above the average (with a FCR = 2.67). If the most efficient FCRs were combined, an extra £15/head might therefore be available. Of course, the impact that improving FCRs to this degree has on overall margins will depend on how other costs vary as these feed efficiencies are obtained.
Without farm level data for the full range of input costs, we can’t be sure that the best physical performance is achieved by the most profitable enterprises. However, the analysis above does illustrate that physical performance could be a major influence on margins. Even modest improvements to efficiency, especially if achieved without adding to wider costs, could be the difference between profit and loss at a time when feed prices are higher than in recent years and margins are under pressure.
AHDB recently released a new Horizon report, highlighting the key characteristics of the top performing farms, on a financial basis, across sectors. The report offers some insight into the practices on these farms and the mindset of the farmers running them. To read the full report, click here.
Bethan Wilkins, Analyst
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