Finishers bearing the brunt of narrowing margins
Last week we highlighted how AHDB cost of production estimates indicate that, on average, GB margins had narrowed to just £1/head (1p/kg) in the second quarter of this year.This estimate covers the whole production cycle, and so is most relevant for farrow-to-finish operations. However, it is also possible to estimate margins for different production stages individually. How do breeding and finishing models compare?
The estimated cost of producing a weaned piglet averaged £34/head for Q2 this year, the highest since mid-2015. This is around £1 more than in the first quarter and £2 above year earlier levels. However, with 7kg weaner prices averaging £37.50/head across the same period, piglet producers have so far maintained a larger margin than farrow-to-finish operations, of over £3/head.
Piglet production has remained more profitable because feed makes up a smaller proportion of the total cost (35%). In addition, being earlier in the process, this stage of production has not been affected by the increase in rearing times that has elevated overall pig production costs. Weaner prices have also not declined to the same extent as finished pig prices over the past year; on a per head basis, the average finished pig price has declined by £9, whereas 7kg weaners have only fallen by £5.
In the second quarter of 2018, AHDB estimates indicate the average cost of raising a pig from 7kg to finished weight was around £89/head. With the piglet price averaging £37.50/head, the total cost to finishers in the quarter was around £127. On a per head basis, the finished pig price during the quarter was £125, so on a full cost basis, finishers taking pigs from 7kg were on average making a loss of £2/head during the quarter.
Interestingly, while total costs are estimated to have picked up by £2 between Q1 and Q2, and £1 compared to a year earlier, costs have actually fallen back compared to the end of 2017 as weaner prices have declined.
Unsurprisingly, it is the greater importance of feed to finishing costs that has driven finishers into the red recently. Although, as carcase weights declined between Q1 and Q2, falling finished pig prices on a per head basis have also been important.
As was discussed in the previous article, it is the rearing stage that has been particularly challenging producer margins in recent months. As such, producers of 30kg store pigs are also estimated to have been in a loss making situation early this year. In Q2, the cost of producing and rearing a 30kg weaner was estimated as £58/head, £6 above the average 30kg weaner price for the quarter, of £52/head. Considering that overall margins for farrow-to-finish were still positive in Q2, this indicates that the finishing phase alone is the most profitable part of pig production at present.
In light of the production costs estimated above, downward pressure might be anticipated for the 7kg weaner price, in order to protect finishing margins. However, prices actually rose during July, and have only recently started to move down again. This suggests there has been some optimism amongst producers around the expectation for pig prices at the end of the year, perhaps reflecting the hot weather during the summer which may have affected fertility and rearing rates. To read more about weaner prices in recent months, click here.
Bethan Wilkins, Analyst
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