Feed Prices and the UK Pig Industry

By Tony Fowler, BPEX - This article from the British Pig Executive looks at the causes of the current feed price increases and the impact on production.

11 December 2006

3 minute read

Introduction

Since the summer, cereal prices have risen strongly throughout Europe. In the United Kingdom delivered prices of feed barley averaged £83 in early October, 19 per cent more than a year earlier while feed wheat prices were up 33 per cent at £91/ tonne. This briefing note examines the reasons behind the higher prices, discusses the outlook for the remainder of the current season and examines the impact of this on pig producers' costs of production. It also looks at whether market conditions are different from the last time feed prices rose sharply, in the 2003/04 season.

Causes of the increase in prices

The dominating feature of the UK, world and European grain market at present is the tight supply, and, with weather problems in Argentina and Australia, there is no early respite on the horizon. The hot weather that affected most parts of Europe in July has influenced this year's EU yields and crop production even more heavily than previously thought.

Total cereal production in the EU-25 is now expected to be about four per cent less than last year, when drought also affected yields - especially in South west Europe. However, average yields will still be about 7% higher than in 2003, the last very hot year. Germany, Poland, the UK, France and Italy are identified by the European Commission as the countries most affected by this year's drought.

Tight supplies are having an effect on cereal prices. It means that the EU is running at significant premiums to the world market prices. There is also the potential for stocks to fall to historically low levels. There are supplies of cheaper wheat available from the US and the Black Sea, but both are limited. The Black Sea market is continuing to rise. In the United States there is cheap soft wheat but the hard wheat market is at significant premiums.

Cereal prices have risen in most European countries, particularly in Northern Europe, Price movements in some of the main markets are shown in Appendix 1. In addition there is growing demand in other areas of the world, for example in India, which is seeking to import significant quantities of wheat. It was reported in September by the news agencies that India has bought 1,7m tonnes of wheat, 550,000 tonnes of it from Australia.