A trading update from European feed manufacturer ForFarmers records a 7.2% fall in total feed volumes across all its country markets in the three months to the end of September. The decline, which includes a 9.1% drop in compound feed tonnage, is largely attributable to lower demand from the pig and egg-laying poultry sectors.
ForFarmers doesn’t release financial data at the first and third quarter stages of its financial year, but it reports a 17.3% fall in underlying EBITDA as higher production costs could not be fully recouped from the market.
The Group notes that net revenue increased in the period, despite smaller feed volumes sold, as rising feed material and energy costs were largely passed on to customers. While gross profit increased by 8.3% from Q3 2021, with a recovery in Poland and better gross profit in Germany and the UK, its underlying operating costs rose even faster. The company faced higher gas, electricity and fuel prices on top of more expensive raw materials and rising personnel costs – although wage inflation was mitigated by a lower headcount. The Group has also increased its bad debt provision due to pig sector market conditions. All these factors contributed to the 17.3% fall in underlying EBITDA.
The Group has terminated its share buyback programme, which was first launched in December 2021, but subsequently suspended the following March.
The company reports that average milk, meat and egg prices in Europe were significantly higher in the third quarter of 2022 than for the same period of 2021, as production of these commodities fell due to on-farm uncertainty over high input and energy costs. While feed grain prices fell slightly since the previous quarter, feed material values were up substantially year-on-year. The consumer price index rose even faster in Q3 than Q2 and is affecting consumer buying behaviour – for example there was a noticeable fall in demand for higher priced organic products.
The company says the “dire situation” in pig production across most of Europe means that farmers can’t make a return from their animals despite high pig prices. This is causing pig producers to quit in Germany; the UK sow herd is shrinking due to poor farm profitability and processing backlogs with a shortage of skilled labour; while pig numbers in the Netherlands have fallen in line with environmental measures. As a result, ForFarmers’ pig feed volumes fell, with only the relatively small – but growing – Polish pig feed market showing any increase.
Poultry feed volumes were also lower year-on-year in every ForFarmers country market save for Poland. While broiler feed volumes were little changed, layer volumes were down due to Avian Influenza (AI) and the company’s decision to cease layer feed production in Belgium.
The co-operative’s broiler feed volumes grew in Belgium, Germany and particularly Poland, where domestic production rose to offset reduced poultry meat imports from Ukraine. But UK broiler feed volumes fell in line with meat consumption due to the rapid rises in the cost of living.
ForFarmers’ ruminant feed sales were unchanged from the high level in Q3 2021. The very dry summer across much of Northern Europe constrained grass yield and quality, with many livestock farmers forced to supplement grazing with forages conserved for winter and /or additional concentrate and compound feeds in some cases. Milk production in Northwest Europe, already down due to market uncertainty and reduced cow numbers, was further affected by lower yields per cow during the prolonged periods of hot weather. But dairy farm margins improved through high milk prices.
“Volatile markets due to the war in Ukraine and the exceptionally long and hot summer determined results in the third quarter,” reports ForFarmers Group chief finance officer Roeland Tjebbes. “We could not fully pass on the higher energy costs nor the inbound freight costs due to the low water levels in the rivers. Particularly pig farmers and layer farmers were affected by the (financial) consequences of outbreaks of animal diseases. We consequently saw our volumes in these sectors drop.
“In Poland, however, we again sold more feed to broiler farmers and our volumes were also up in the ruminant sector in the Netherlands and the UK.
“Raw material prices were somewhat lower than in the second quarter. This was a positive development for all farmers, but not yet sufficient for pig farmers. In general, they continued to produce at a loss. The increase of gross profit was not enough to cover the higher operating expenses, which included energy costs which were roughly twice as high as a year before.
“This consequently resulted in our consolidated underlying EBITDA being a few million lower than a year earlier. On a quarterly basis this translates into a relatively high percentage. Excluding the higher energy costs, underlying EBITDA in the third quarter of 2022 would have been roughly the same as in the third quarter of 2021.
“We hope to soon be able to provide more clarity on the planned joint venture with 2Agriculture in the UK, with which we will further strengthen our position in the poultry sector.”