The UK pig sector recorded its worst financial performance in the first half of this year, driven by record production costs, with little sign of immediate improvement.
Producers lost, on average, Â£ 24 / head in the second quarter of this year, following similar unsustainable losses in the first quarter, forcing some producers to leave the industry and leaving many on the brink of the abyss.
The estimated costs of producing pigs in the UK in the second quarter hit a record 182p / kg, according to the latest AHDB estimates, an increase of 8p / kg from the previous high of 174p / kg recorded in the first quarter. . Production costs were 27 p / kg higher than the same period last year.
The increase primarily reflects higher feed costs as high world prices for grains and oilseeds impact the cost of pig feed. However, both labor and fixed costs had also increased compared to the first quarter of 2021.
Pork prices have increased from the start of the year. APP averaged 154p / kg in Q2, 9p / kg higher than in the first trimester. However, compared to last year, prices are 13p / kg lower. This means that on average, pork producers remain in a situation of significant loss.
The estimated net margins stand at -28p / kg (-24 Â£ / head) in the second quarter of 2021, a similar situation in the first quarter.
AHDB analyst Bethan Wilkins said: âThe first half of 2021 therefore represents the worst financial situation ever for pork producers in a six-month period. It is typical for pig production to go through cycles of profitability and loss. However, it is unusual for margins to be this low for an extended period. “
The AHDB estimates for net margins use cash feed prices and she pointed out that producers will have different purchasing strategies to mitigate volatility in food markets, which means that the level of exposure to the increase in feed costs may be lower in some cases than estimates indicate. Non-cash costs, such as depreciation and family labor, are also included in the calculation of the cost of production, which does not affect the short-term cash flow of the business.
“Nonetheless, the latest estimates paint a picture of finances that will be difficult for UK pork producers to maintain for long,” said Ms Wilkins.
There are currently no signs that the situation will improve in the current quarter, with the AHDB forecasting a contraction in the pork sector. EU APP averages 165 p / kg from early July to mid-August, which is above the Q2 average, but prices are now on a downtrend.
“Low EU prices and a more difficult Asian export market could mean that this trend will continue in the weeks to come,” added Wilkins.
âAt the same time, it seems that the animal feed markets have remained strong. Thus, the outlook for UK pork producers remains difficult.
âLooking ahead to July, we already thought that some reduction in the number of breeding herds was underway and these latest financial figures support the idea that some industry contraction would be expected. “