Free range egg producers are being warned to brace themselves for further increases in the cost of feed.
Tom Hind, head of economic and international affairs with the National Farmers Union is warning that feed prices could rise by another £40 per tonne over the coming months, and feed compounders confirm that current prices are likely to increase as the commodity markets continue to rise.
Tom Hind’s warning came at a meeting of the NFU council when he said that a dramatic rise in wheat prices was already impacting on the price of feed and it was going to get worse over the next few months. He said it was vital that pig meat, poultry meat and egg buyers responded by paying more to producers.
Free range egg producers have found themselves squeezed in recent months between increased feed prices and lower returns for their eggs, although two leading packers recently announced price increases following lobbing by BFREPA.
Noble announced an increase of six pence per dozen and Fridays increased payments by eight pence per dozen for first class eggs. Both packers said the move was in response to rising feed costs.
One of the big drivers of the rise in feed prices has been a surge in the price of wheat. In June wheat was selling for £100 per tonne. At the time of writing this article the price was up to £168 per tonne, and with wheat accounting for 60 per cent of poultry feed it has inevitably had a substantial impact on the cost of free range egg production. It is estimated that each £10 on a tonne of wheat equates to 1.4 pence on a dozen eggs. A £68 increase in the price of wheat is the equivalent of 9.5 pence on a dozen eggs.
At the time of writing wheat futures for November 2010 stood at £164. The figure for November 2011 was £137.50 and for November 2012 it was £133.
Tom Hind told the NFU council that even though there was not an overall world shortage of wheat, there were still many uncertainties surrounding the wheat price - such as who held the stocks and how they were going to be used, as well as the impact of the weather on plantings, unilateral export restrictions and speculation. He said the situation in Russia would be critical. Drought in Russia led to the country suspending grain exports. Tom Hind said the Russian export ban had removed one of the cheapest sources of wheat from export markets.
Martin Humphrey of Humphrey Feeds pointed to possible concerns about wheat in the UK. "The amount of exportable surplus of wheat is very small this year because of increased usage by the biofuel plants amongst other things.
UK wheat is amongst the cheapest in the world – it certainly comes at a significant discount to the French. The UK grain traders will export – depending on who you speak to – three million tonnes by Christmas, which is on the high side, or one million tonnes by November. If you think that we have only a bit over a million tonnes to export, anyway, that means come the New Year they will carry on exporting and we will import more grain than we ever have."
Martin said some people might question how it could be that the grain would be exported when it was needed here. "That is because they will export it before the feed guys get into using it in April, May and June," he said. "Some areas of the country are used to being in deficit, like Scotland, and they already have plans to bring in Scandinavian wheat towards the end of the season. But to bring it in from other countries costs us shed loads more than current levels." Martin said that if it had to be bought from France it would cost £25 per tonne more than UK wheat. There would also be a cost of £15 per tonne for transportation.
"We are looking at higher feed prices from January onwards. Let’s say £10. Then beyond that we have got the impact of this wheat. That’s probably about £24.
That’s the extreme, but it is certainly possible to hypothecate that the price of wheat will rise significantly. And that’s before you ask whether we have got enough non-GM soya coming into the UK. The answer is we do not have enough non-GM to see us through to new crop non-GM in May. At the moment you cannot get any suppliers to price you from May onwards for non-GM." He said that was because the level of GM soya in Brazil – the main source of non-GM soya for European feed – had risen over two years from 55 per cent to an anticipated 75 per cent for the harvest in March and April next year. He said it was going to become even harder to source non-GM soya and that meant it would become even more expensive to buy.
The vast majority of free range egg producers are required by supermarkets to use only non-GM. One poultry industry representative says that at a time when producers are suffering from big increases in the price of feed, this restriction imposes an unnecessary and expensive burden on farmers. NFU chief poultry adviser Rob Newbery described the requirement as "ludicrous."
"These conditions are not imposed on other livestock sectors, and I believe are not in the interests of consumers." He said the premium for non-GM soya was £53 per tonne. That represented the equivalent of £10 per tonne on a finished ration and he estimated it would cost the entire poultry industry £62 million a year.
With Brazilian growers moving a greater percentage of their crop to GM soya, it is possible that the margin for non-GM soya will continue to grow. If that trend does continue it remains to be seen whether supermarkets will continue to insist on the non-GM requirement for the poultry sector when they impose no such requirement on other areas of the livestock industry.
Rob Newbery said the recent increases in the price of feed were a serious concern for the poultry sector. "Because feed accounts for between 60 and 70 per cent of the cost of producing eggs and poultry meat, any fluctuation in price has a significant impact on farmers’ income. People tend to forget that wheat price rises have the most profound effect on poultry producers and chicken and egg costs," he said.
Most observers believe the upward pressure on feed prices will continue over the coming months. Martin Humphrey said that he had unfortunately had to increase prices by £40 per tonne since the third quarter of the year.
He said that, given the ongoing rise of commodity prices, there would unavoidably be further rises in the first quarter of 2011.
