Significant cost variations continue to impact on final margins

A new AHDB Pork evaluation of cost variations between farms has shown that the impact on final returns continues to be significant for both breeders and finishers.

While noting that a complete understanding of variation levels would require access to financial information for each individual farm, AHDB Pork concludes that even modest improvements in productivity or efficiency, if achieved without adding to wider costs, could add tens of thousands of pounds to producers’ margins.

Based on estimates from the AHDB Pork model, the average estimated cost of producing a piglet in 2014 is put at £34 per head. This was around £5 lower than the average 7kg weaner price during the year.

“For a breeder with 500 sows and average productivity, this equates to a positive margin of around £60-70,000 from sales income of around £475,000,” said AHDB Pork, adding that there were, however, significant variations seen around these figures.

“The 10% of producers with the best physical performance, above 28 piglets weaned per sow per year, would have made around £80,000 more income, if prices for their piglets matched the average. The 10% of producers with the lowest physical performance, 20 piglets per sow or below, would have had income about 18% below average.

“How this impacted on margins would depend on the cost structure of businesses, although it suggests that perhaps around 15% of producers would have had negative margins, even in 2014, one of the best recent years for producers. However, if wider costs were fixed, moving from the bottom 10% to the top 10% could be worth around £300 per sow.”

Large variations are also seen between finishing units, with the main impact on herd performance in that sector being based on feed efficiency.

“Adjusting for differences in weights at transfer to finishing and slaughter, the average margin over feed for taking a pig from 35kg to 105kg, a typical range, was just under £30 per head in 2014,” said AHDB Pork, noting that this figure includes the purchase of store pigs, based on the annual average price.

“For a producer selling 10,000 finished pigs a year, this equates to a margin over feed of around £300,000, although the final margin will have been much lower than that once other costs are added.

“Based on this analysis, the most efficient 10% of feeders, according to feed conversion ratio, had a margin over feed about £6 per head higher than the median. The gap was bigger at the bottom end, with the margin over feed of the least efficient tenth of producers around £14 per head below average.

“The gap between the top and bottom end is, therefore, around £20 per head, although, as always, the difference in overall margins will depend on how other costs vary between producers.”

 

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