Profitability- could physical performance be key? Part 1
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. Nonetheless, 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, so it is unfortunately not possible to ascertain what sets the most profitable enterprises apart from the rest. However, using Agrosoft data, we can see how physical performance may impact on returns, assuming other factors affecting the cost of production remain constant.
Part I: Breeding herd
Based on estimates from the AHDB model, the average estimated cost of producing a piglet in Q2 was £34 per head. This was around £3 lower than the average 7kg weaner price during the quarter. To put this in context, across a year this would equate to a positive margin of around £44,000 from a £485,000 sales income, for a breeder with 500 sows.
However, these estimates use the 12 month average physical performance, of 25.9 pigs weaned per sow per year across the indoor and outdoor herd. The top 10% of performers across both herds achieve an average of 29.9 pigs weaned per sow per year, which is around an additional £75,000 income, assuming that piglets still achieve the average price.
How improved productivity affects producer margins will depend on how achieving the additional productivity affects costings on farm. If it is assumed that wider costs are fixed, moving from an average performance to the top 10% could be worth around £150 per sow. Equally, under the same assumption, a poorer performance with only 22.9 pigs weaned per sow, would push the breeder into a loss making situation.
Of course, in reality farm costs are unlikely to remain constant as physical performance levels change. Some farms with poorer performance may have lower outgoings or achieve higher piglet prices. Equally, achieving the top physical performance levels may incur higher costs, and so not lead to a financial benefit. Nonetheless, the analysis does highlight the importance and potential of physical performance measures in determining producer returns.
Even modest improvements to productivity, if achieved without adding to wider costs, could help protect producer margins from the inevitable volatility in both the pig and feed markets. Next week, in Part II, we will consider the importance of feed efficiency to the finishing herd.
AHDB also recently produced 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 mindset of these farms and the farmers running them. To read the full report, click here.
Bethan Wilkins, Analyst
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