The modest improvement of pig prices in recent weeks is unfortunately being overshadowed by a surge in feed prices, according to Stuart Ashworth, Head of Economics Services with Quality Meat Scotland (QMS).
The pig price improvement, up 1.25p/kg over the past six weeks to 150.62p/kg this week, has resulted from slightly tighter supplies as a result of the volume of prime pigs reaching UK abattoirs decreasing between May and June. However, said Mr Ashworth, when compared to a year ago more pigs are reaching abattoirs and, despite this recent improvement, the producer price remains around one per cent lower than twelve months ago.
“Historically prime pig availability increases in the second half of the year although early indications are that during July 2012 UK supplies were little changed from June 2012 which would be consistent with the smaller sow population reported in the December 2011 census,” said Mr Ashworth.
Over the first four months of the year European pig meat production was less than 0.5% per cent higher than last year. Availability is expected to improve seasonally in the third quarter of the year before falling behind year earlier levels in the final quarter.
“However, uncertainty still remains as to how some EU member states will adapt to the full implementation of the stalls and tether legislation on 1 January 2013 and there may be some liquidation of herds ahead of this date,” he said.
European pig prices are currently edging up and are about 7-8% higher than twelve months ago. However, when converted to Sterling values they are 4-5% lower than last year. This, of course, makes European pigmeat cheaper on the UK market and it is more challenging for our processors to export to Europe.
But, observed Mr Ashworth, currency turmoil has also made European pigmeat more competitive on international markets and sales by EU processors outwith the EU are running ahead of year earlier levels.
“With the UK perhaps looking less attractive, despite currency movements, the volume of imports of pigmeat into the UK trailed last year’s levels through May, and the volume of pigmeat available on the UK market was slightly lower than last year. So with a relatively tightly supplied market UK producer prices have begun to benefit,” he added.
While improvement in producer price is welcome, the bigger concern for the pig and poultry producers, and to a lesser extent the ruminant livestock sector, is the rapid increase in feed prices, Mr Ashworth said.
With the UK harvest only just beginning, spot prices for wheat and barley have surged as old season stocks run down. Taking a longer view, the weather induced delay to the wider European harvest combined with downgrades on the volume of export grain available from Russia and Ukraine is also making the market nervous. When the latest USDA grain market update showed deterioration in crop condition this added to the tension in the market.
Compared with twelve months ago feed wheat and barley are some 25% more expensive while soya bean meal is almost 40% more expensive. Although the feed grain price may ease a little as the UK harvest gathers momentum, latest futures prices suggest they will continue to trade more than 25% higher than last year.
Similarly, soya bean meal may ease from the current highs over the next six months but futures prices still remain well above year earlier levels. Feed price inflation, then, looks set to remain for sometime. The only relief for Scottish pig producers is that the 40% surge in soya price looks modest compared to the over 70% increase when quoted in Euro and being paid by European producers because of the weakening of the Euro over the past six months.
“Set against these changes in feed costs the recent improvement in pig prices pale in to insignificance and result in reduced margins that even improved technical performance can do little to mitigate,” said Mr Ashworth.