High feed costs put Australian pig producers under pressure

09-Mar-2017 - Last updated on 09-Mar-2017 at 12:56 GMT

'If we can get the average feed cost down to $350/ton, which should be doable, then cost of production will fall by as much as 30 cents/kg so grain prices will not be the same problem in 2017.'

High feed costs are putting Australian pork producers at a disadvantage, but a bumper harvest could offer some relief in 2017.

While feed prices continue to drop substantially in all of the main pork producing markets due to falling grain prices, in Australia, firmer feed costs are making it hard for pork producers to remain internationally competitive, says the country’s High Integrity Australian Pork Cooperative Research Centre (CRC).

“The marked decline in our global competitiveness compared to 2014 is due to our feed costs going down slightly and those of other countries going down substantially, resulting in the biggest differences in cost of production we’ve seen for ten years,” said the cooperative’s CEO Roger Campbell in his opening address at the 2017 South Australia Pig Industry Day last month.

Disparity in grain prices and feed costs

Data provided by CRC demonstrates the marked difference in feed costs between Australia and almost everywhere else in the world. In 2014, the average feed cost in Australia was AUD $438/ton compared with $327, $348, $421 and $465 in the US, Canada, Denmark and the Netherlands respectively.

In 2015, feed costs in the US, Canada, Denmark and The Netherlands all fell to $269, $309, $352 and $358 respectively, whereas Australian pork producers only experienced a slight drop to $430.

CRC said this trend continued in 2016, with feed costs falling further in all the main pork producing countries other than Australia.

Asked why prices are so much higher in Australia than elsewhere, Roger Campbell told FeedNavigator this was “apparently due to export demand for Australian grain in 2015 and 2016” and to all countries being “awash with grain” this year. In addition, he said that feed milling and transport costs are high in Australia, adding to higher feed costs.

The problem with this situation, according to Campbell, is that it makes Australia’s pork sector vulnerable to imports and falls in pork prices.

“Australian pork producers are particularly vulnerable because in 2015 and 2016 grain and feed costs were so much higher than elsewhere, creating a gap that could encourage more imports,” he explained.

Further grain price falls forecast

However, Campbell was cautiously optimistic that 2017 could bring more substantial discounts owing to a bumper 2015/16 grain harvest in Australia.

“We have had a bumper harvest and grain costs have fallen substantially. If we can get the average feed cost down to $350/ton, which should be doable, then cost of production will fall by as much as 30 cents/kg so grain prices will not be the same problem in 2017,” he said.

Australian pork producers rely on domestically grown grains - wheat, barley, triticale and sorghum - for 50% of their animals’ dietary requirements. The other half of the diet is made up of protein meals (canola meal and imported soybean meal), wheat and other grain by-products, vitamins and minerals, meat meal and other non-grain materials.

As grain only makes up half of the diet of Australian pigs, grain prices are only part of the feed cost equation - further declines in grain prices might not have a significant impact on feed costs, cautioned Campbell.

Even if grain prices do fall sharply, emerging evidence of unexpected pressure on pork prices is a further source of anxiety for Australian producers.

“Pig prices have been falling rather rapidly over the last month but margins would remain similar to 2015 and 2016 if the average pig price doesn’t fall by more than 30 cents and would remain reasonable even if the price fell by 40 cents. The problem at the moment is uncertainty - how far will feed costs fall and how far and for how long will pig prices fall? Hopefully not much further,” said Campbell.

He added: “It really could turn out to be a reasonable year but there is some panic at the moment.”

Australia has not imported any pig genetics in over 20 years and in general lags behind the Danes and the Dutch in terms of reproduction rates and the number of pigs weaned and sold per sow per year. Due to retailer demand, Australian pigs also have a lower carcass weight than almost all other countries.

“Add the two up and our volume is relatively low and reflected in our costs other than feed, or overhead costs,” explained Campbell.