Watch production costs, farmers warned
Published:  31 August, 2012

Head of agriculture at HSBC Allan Wilkinson has warned livestock and dairy producers to keep a close eye on costs of production.

The need for vigilance, warned Wilkinson, is due to input price volatility, which he said is here for the “foreseeable future”.

According to Wilkinson, current market forces are keeping beef prices healthy, however, input costs are likely to rise further due to currency movements and increasing grain-based livestock feed prices. The increase in feed prices, Wilkinson explained, is due to the droughts in the US and Russia, “which is a stark contrast to the very wet and cool summer the UK is enduring,” he said.

Feed wheat prices in the UK hit £230 per tonne (pt) in July compared to £182pt for the same month last year. However, currency fluctuations are having an affect on exported UK beef to Europe and are diminishing returns.

Wilkinson said: “Generally stagnant or declining EU cattle numbers, reduced supplies from South America and a very significant increase in EU beef exports have created a strong demand for UK beef within the UK. These market dynamics are keeping beef prices high which is very pleasing for farmers. That said, input costs are rising and livestock farmers must keep an eye on their own specific costs to ensure they don’t significantly erode existing margins.

“The main concerns for beef and sheep producers are primarily rising input costs, mainly feed, fertiliser and bedding straw. Concerns over CAP Reform have been placed on the back burner for the time being. While our whole farm budgets suggest some narrowing of the deficit between cost of production and sale prices, the vast majority of farmers continue to rely heavily on support payments for any level of profitability.”

Also highlighted by Wilkinson was the importance of improving communications throughout the food chain to “ensure all parties understand the needs of others”. Farmers, processors and food retailers, he added, need to adopt an open dialogue to help avoid issues.

Wilkinson said: “We need a proper functioning market across all sectors of farming and in order to achieve that we need better lines of communication. We will continue to support these sectors, and our individual customers as detailed plans are drawn up to ensure that farm viability is maintained in the longer term.”

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