Managing your feed costs
Animal feed is the single largest expense in the production of pigmeat, accounting for approximately 60% of the total cost. Volatility in the commodity market, can cause large and unforeseen changes in the price of feed, which can have an almost immediate impact on livestock producers.
Managing risk has become crucial for all pig producers and the first step on that road is to determine the impact of price volatility on the overall costs of production. AHDB Pork has developed a feed calculator which can be used to help identify the impact of changes in the price of wheat and barley on costs of production. Using this tool together with knowledge of net margins, can allow users to see the net impact of changes in the price of feed to the overall profit (or loss).
It is important to note there are a great number of risk management strategies and there is no ‘one size fits all’ approach. A strategy will depend an individual’s appetite for risk, the nature of that risk and the potential impact to a business. A strategy should ultimately be designed to meet specific needs. Factors to consider in developing a strategy include:
- The attitude to risk and exposure to market forces;
- The desired level of flexibility in responding to unforeseen events;
- How much time can be devoted to monitoring the market;
- Practical issues, such as storage facilities;
- Any cash flow requirements during the year.
In terms of when to start developing a strategy to manage feed costs, it is possible to plan beyond the current year and production cycle. Futures markets allow for grains and protein crops to be traded almost three years in advance. This can allow you to ‘lock in’ a price for your grain and extend the length of time you have to plan your business model.