Falling pig prices lead to tighter margins for producers

Pig producers are seeing their profit margins squeezed as finished pig prices drop back while costs remain stubbornly high.

The GB (EU-spec) deadweight standard pig price has fallen by almost 14p/kg since its peak last August, to average 211p/kg in the first week of February.

A heavy drop in pig prices on the Continent has driven the most recent decline in the UK, with EU pig prices falling by the equivalent of 34p/kg in the past six months to 201p/kg deadweight.

See also: Pig values ease back to £213p/kg despite drop in supply

Pig marketing group Scotlean reported that the UK premium over EU prices has widened to more than 30p/kg deadweight due to big falls in Germany and the Netherlands.

However, there is some hope among industry stakeholders that the EU market might be starting to bottom out.

Looking at the UK market, demand from retailers has been steady. Volumes of pork sold at retail fell by 0.5% in the 12 weeks ending 21 January compared with year-earlier levels, but total spend was up 7% year on year, according to Kantar data.

Matthew Banks, livestock marketing specialist at Meadow Quality, said fresh trade demand had been slightly poorer in places and prices had come under pressure recently.

He added there had been downward movement on processor contributions, with some dropping between 1-2p/kg in the past week.

Costs stay high

The full economic cost of production remained at 195p/kg throughout the second half of 2023, according to AHDB estimates.

This resulted in an average net margin for producers of £19 a pig during the final quarter of 2023, £6 a pig less than the previous quarter.

Jess Corsair, senior analyst in trade and policy at AHDB, said energy costs have continued to decline, compared with high prices through 2022 and the beginning of 2023.

However, production costs stayed level, with falling energy prices offset by rising fuel costs.

Feed accounted for 62% of the total cost of production and lower feed wheat and barley prices could offer some relief to pig producers in the short term.

While many producers are currently turning a profit, tighter margins will be felt by the pig sector, with the effect of heavy losses throughout 2021, 2022 and early 2023 leaving a large number of farm businesses paying off debt.

Supply

There is still a tight supply of pigs in the UK, with GB clean pig slaughterings down 10% in 2023 compared with the previous year.

Total pigmeat production was down 11% on the year, increasing the reliance on imports.

Analysts at Quality Meat Scotland said: “A stronger seasonal softening of the EU pork market than in GB has seen the price differential widen at the start of 2024, suggesting that import prices may fall further.”

However, the Scottish levy board did suggest that herd liquidation in China towards the end of last year could lead to a fall in production in 2024, boosting the country’s import requirement later in the year and offering some support to markets.