Iain Macdonald, QMS: Record pig prices driven by tight supply
This was 37% higher than the same week last year and 45% above the five-year average. While the market has historically edged higher in March and April, the unusual feature in 2023 has been a steady upwards trend since the beginning of the year, with the SPP rising by 8.3% in thirteen weeks.
Iain Macdonald, QMS Market Intelligence Manager, explains: “While a large part of the year-on-year change reflects the sharp increase in pig prices between spring and summer 2022, when pork processors had supported prices in an attempt to protect future security of supply, the further price lift in 2023 appears to have been driven by a sharp tightening of supply.”
Going back to June 2022, while a census was not carried out in Scotland, the census results for England had shown year-on-year declines of 17% in the English sow herd and of 1.4% in prime pigs on farm. Recently published December census results showed that the pace of year-on-year sow herd contraction in England had reached 20%, while the year-on-year fall in prime pigs had accelerated to 7.9%.
This lagged impact on the prime slaughter market is reflected in Defra slaughter statistics as GB abattoir throughput fell by less than 1% year-on-year between June and November 2022. However, slaughter numbers then fell by 8.7% on a year earlier in December 2022, followed by declines of 2.6% in January and 18.6% in February.
Over the three months to February 2023, prime pig throughput at GB abattoirs fell by 10.1% year-on-year and was down by 8.4% on the five-year average. Meanwhile, data from ScotEID showed an 18.5% year-on-year reduction in pigs leaving Scottish farms for slaughter in the first quarter of 2023.
Iain continues: “Adding to this decline in pig availability has been a rebalancing of carcase weights from the elevated levels seen over the winter of 2021/22. With abattoirs able to handle the volume of pigs ready for slaughter this year, the average carcase weight of standard pigs at price reporting abattoirs was around 6% behind year earlier levels between December and February.
“As a result, the year-on-year decline in prime pig throughput of 10% in the December to February period at GB abattoirs turned into a 15% reduction in the volume of pigmeat produced.”
Over and above this fall in prime pigmeat output, the volume of sow meat produced for export and further processing has fallen even more sharply, with GB abattoir throughput of sows and boars down by 24% year-on-year in the three months to February 2023. While some of this decline reflects the elevated sow slaughter levels of winter 2021/22 due to herd contraction, throughput was still nearly 14% below the five-year average, a stronger decline than for prime pigs.
Defra figures highlight the scale of the decline in UK pigmeat production this year, with the UK producing 25,800 fewer tonnes in the first two months of 2023 compared to 2022, more than double the 12,500 tonne increase in UK pigmeat production that was seen in the calendar year of 2022.
Meanwhile, after adjusting domestic pigmeat production to account for import and export volumes, total UK pigmeat market supply is estimated to have fallen sharply since summer 2022. The estimated decline between July 2022 and February 2023 is enough to more than offset the previous lift in supply from the first half of 2022.
Iain highlights: “As well as reduced trade flows, the price of pigmeat imports and exports will have been having an impact on the domestic pig market. Indeed, the average value of pork imports to the UK from the EU rose sharply in 2022, reflecting the surge in EU pig prices. In the first two months of 2023, the average price per tonne imported to the UK from the EU was 26% higher than a year earlier, while exports averaged 78% more expensive than in early 2022.”
These external pricing pressures are likely to have continued given that EU pig prices have risen at nearly twice the pace of GB prices since the start of 2023, narrowing the difference between GB and EU farmgate pig prices to around 4-5% since the beginning of March compared to a gap of around 12% at the beginning of the year.
Iain adds: “Looking forward, the sharp decline in pig numbers reported in England in December 2022 suggests that domestic supply is set to remain tight for much of this year. Although the steep fall in sow slaughter in early 2023 could be a sign that some producers are beginning to rebuild herds now that farmgate prices have rebalanced higher and the cost of straight feeds has fallen back sharply, any recovery in prime pig numbers will come at a considerable lag.
“Meanwhile, external factors look set to support a tight domestic market. In the EU, the pork market continues to look tight. Indeed, EU pigmeat production reduced by 5.6% in 2022 and the EU Commission is forecasting a 5.1% decline in 2023. While the EU Commission had been expecting pork import volumes from non-EU sources to rise in 2023 to support consumption, tight supply in the UK limited the volume exported from the UK to the EU in January and February.”
Iain concludes: “Looking further afield, the Chinese pork market has softened slightly further in recent weeks after an improvement in supply led to a sharp fall in wholesale pork prices between October 2022 and February 2023.
“However, there are reports of a spike in cases of African Swine Fever in China and futures market pricing in China suggests that traders are expecting supply to tighten in the second half of the year, potentially supporting demand for imports. Similarly, there have been reports from the Philippines that ASF is leading to a shortage of pork.”
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