The resilience of the pig production sector in Ireland, as well as in other countries, has been severely tested since last year's grain harvest. Pig producers have incurred substantial losses while having to access additional working capital in order to maintain pig units in operation.
Feed normally represents 70pc of the cost of producing 1kg of pig meat. However, by last month, the average price of the feeds purchased from feed millers had increased by €81/t to around €314/t when compared with June last year. The cost of feed per kilogramme deadweight increased from 87c to 116c during this period.
These large increases in pig-feed prices are due to the worldwide rise in the price of feed grains, including feed wheat, maize and barley, driven by reduced supplies as a result of a series of weather-related poor harvests, increased world demand and more speculator activity in these commodities.
Unless pig prices increase immediately, in line with the rise in feed costs, the margin over feed costs generated for the pig producer is reduced.
Pig producers typically need a margin over feed costs of about 50c/kg deadweight to meet all other costs of production and generate some return on investment.
The 15-year (1996-2010) average margin over feed costs, as monitored by Teagasc's pig department, was 49c/kg.
Non-feed costs will vary from unit to unit and will be greatly influenced by the level of technical efficiency and the costs of financing the unit.
Since September last year, the margin over feed costs has been below 50c/kg deadweight (see table 1, right).
In the six months to April, the margin over feed costs per kilogramme has been, on average, 16.5c below a target of 50c/kg. This amounts to a shortfall of €13 per pig sold. On a 500-sow unit selling 210 pigs a week, this amounts to a shortfall of about €2,750 each week.
These periods, when pig price is less than the cost of production, are an integral part of the normal pig production pattern.
At times such as this, producers would normally seek additional credit facilities from financial institutions and from feed suppliers as well as deferring non-urgent expenditure, such as repairs, and by calling on any reserves accumulated in earlier profitable periods.
The very large increase in feed prices means that each unit needs additional working capital to continue to purchase feed.
The feed bill on a 500-sow unit for last month will have increased by about €22,000 compared with the year before. Given the restrictions on the availability of credit, pig producers and feed suppliers have had the additional challenge of accessing sufficient credit to continue to finance their businesses.
Across the national commercial sow herd of in excess of 150,000 sows, the cost of feed last month will have been about €6.7m higher than in June last year.
Increased levels of efficiency, such as higher sow productivity and increased sale weights, while improving overall profitability or minimising losses, actually increase working capital requirements.
Michael A Martin is a specialist based in the Pig Development Unit in Teagasc Athenry