Agribusiness News May 2024 – Sector Focus: Pigs

Rocky period for pig sector profits

Those of certain vintage will remember when the pig sector was renowned for its boom-or-bust nature and “the pig cycle”. The start to 2024 however has been remarkable for the relative stability to pig prices with only very small gains or losses being recorded each week.

After peaking in August 2023, prices fell away until the turn of the year before levelling off. Although profits are being made at the moment, the scars of the previous few years remain. While some of the losses are being recouped, it will take some time for reserves and borrowings to return to previous levels. Indeed, there are still reports of some producers deciding to leave the sector and trade journals are full of second-hand equipment from redundant units.

Standard Pig Prices (SPP EU Spec): After peaking at just under 226 p.p.kg in August 2023 following an increase in prices of nearly 65% over the previous 18 months, prices declined fairly steadily over the autumn and winter, levelling off at 211 p.p.kg in January (AHDB). Prices had started to edge upwards in March however the past two weeks has seen successive falls, eroding any of the gains. More encouraging is that prices across the EU have started to rise with the differential between UK and EU prices having narrowed to 20 p.p.kg from a high of 32 p.p.kg at the start of the year. Reduced supplies have helped support prices at home with processors starting to look for pigs again as home demand improves and pig farmers, like everyone else are hoping for sunny weather to bring the barbecues out, helping encourage demand further.

Slaughter Weights: Slaughter weights remain high at around 91kg, reaching 91.68kg last week. This is around 2kg higher than 12 months ago and an astonishing 10kg higher than 10 years ago (AHDB). Slaughter numbers are still declining with recent figures showing that 10% less pigs were slaughtered in March 2024 compared with March 2023 with cull sows and boars also 9% back on the year. While most of the this can be blamed on the significant contraction of UK sow numbers over the past few years, productivity has also been impacted in recent months by the wet winter and some reports of disease issues.

Cull Sows & Weaners:  Cull sows have firmed over the past few months with values at 115-128 p.p.kg (T.V.C.), which is only slightly back on the same time last year. Although there has been a rise in cereals prices in recent weeks, there remains good demand for weaners from specialist finishers, with 7kg weaners trading at £53-55/head (T.V.C.) and supply of pigs beginning to tighten.

Costs of Production: Despite lower prices, the latest published margins from AHDB (for Q4 of 2023) showed pig producers were still making a margin of 21 p.p.kg (£19 per pig), back from 28 p.p.kg and £25 per pig in Q3. Costs had remained the same between the two periods at 195 p.p.kg (£172 per pig). Within this, feed made up 62% of the total costs, at 121 p.p. kg or £106 per pig. While it is hoped that prices received will strengthen as we enter the summer, this is tempered by cereal prices rising by £20 per ton in recent weeks, putting pressure on margins along with concerns rising about the size of this year’s harvest due to the wet weather. The return to profitability has also meant that some producers are looking to start re-investing in their businesses again, although are being met with much higher building and machinery costs than before the pig crisis started.

Figure 1.  GB All Pigs Price (APP) vs. Cost of production Jan 2022 to Dec 2023, (Source: AHDB Pork)

EU pig sector update

The EU pig sector continues to have a big impact on the UK market. Prices have now started to rise again due a combination of a hugely contracted pig herd and also a very welcome upturn in demand, which had felt the effects of the cost-of-living crisis. EU pigmeat production is at its lowest for a decade and pig numbers are also at their lowest since records began in 2021 (AHDB). Imports are also at their lowest levels (excluding the initial impact of Brexit) with the UK losing market share, slipping from supplying 85% down to 71% in 2023 with a reduction in tonnage of just under 30Kt on the year. Pig numbers are not expected to recover in the EU and indeed when coupled with increasing environmental regulations, the EU commission is now predicting further annual declines in pig population of around 1% until 2035.

George Chalmers, george.chalmers@sac.co.uk