Where is the pork sector heading in 2021? - Menter a Busnes
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January 2021
Technical Article
Where is the pork sector
heading in 2021?
by Mick Sloyan
It’s been a pretty good 18 months for pig farmers in Wales, at least in terms
of positive margins. However, in the last few months pig prices have slipped
back and feed costs have been rising sharply which is likely to set the trend
for 2021. From the second half of 2019 onwards the market for finished pigs
has been reasonably good. Prices were driven along by strong demand on
world markets, especially China.
Brief overview of recent conditions
African Swine Fever (ASF) & China
The outbreak of African Swine Fever and subsequent largescale slaughter of
pigs to control the disease resulted in pork production falling by about 15
million tonnes between 2018 and 2020. That in turn resulted in large scale
imports of all proteins to fill at least some of the gap. The EU was initially a
major beneficiary of this surge in demand due to strained relations between
China and the USA.
Global Market
As 2020 progressed a combination of high prices in the EU, increased market
access for countries such as Brazil and the USA and the start of the recovery
in the Chinese pig herd resulted in increased competition and growing
pressure on prices. In the EU that pressure was intensified after ASF was
discovered in wild boar in Germany on 9 September 2020. This led to the
immediate suspension of German exports to China.
Click here for further information and guidance on ASF
To view the Menter Moch Cymru Biosecurity
– Invest in a healthy herd factsheet, click here
COVID-19
COVID-19 had an impact on the pork sector as it did across the wider economy. It caused disruption
in the supply chain as some abattoirs were forced to close temporarily due to outbreaks among
their staff. More recently abattoirs have had exports to China disrupted as the Chinese authorities
introduced COVID checks on imported meat packaging.
On a more positive note, producers in Wales and other parts of Great Britain have generally benefited
from disruption in the market. COVID-19 caused a big increase in retail pork and pork product sales in
this country as demand for food service fell. Data from the market research company, Kantar showed
that during the pandemic retail pig meat sales increased by nearly 15% compared to the previous year.
As the retail market is dominated by home produced pork this benefited producers in Wales.
What are the prospects for 2021?
Although producers in this country are seeing better prices than in Continental
Europe, the gap has become so large that European price trends are putting
the British market under considerable pressure. As figure 1 shows prices in this
country have maintained a healthy premium of about 30p-35p/kg dead weight
over recent months.
The problem is that
• m
ore than 50% of the pig meat sold in the UK is imported
and this is becoming more and more price competitive
• In recent years, the EU has become reliant on exports,
particularly to China
The Chinese market is likely to become more competitive in 2021
due to several factors:
• China is rebuilding its pig herd and so import demand is falling
• W
hile this still leaves China with production lower than before
ASF it could weaken import demand
• F orecasts vary but it seems likely that China will recover
10%-15% of production
Within the EU, Germany has lost access to China because of ASF. The prospect
of Germany regaining export approval in 2021 is slim. It is now faced with
finding buyers for the annual equivalent of 800,000 tonnes (excluding offal).
To put that into perspective it is about the same as total annual UK pork
production. Germany is already looking to sell this meat within the EU which is
putting pressure on pig prices. And with COVID-19 causing disruption to supply
chains in many exporting EU countries such as Denmark the overall impact is
likely to be further downward pressure on EU pig prices.
Figure 1 - UK and EU Pig Reference Price
180
170
160
Figure 1 Source: Author, based on data from EU Commission (2020)
p/kg deadweight
150
140
UK
130
EU
120
110
100
6/1/19
6/2/19
6/3/19
6/4/19
6/5/19
6/6/19
6/7/19
6/8/19
6/9/19
6/10/19
6/11/19
6/12/19
6/1/20
6/2/20
6/3/20
6/4/20
6/5/20
6/6/20
6/7/20
6/8/20
6/9/20
6/10/20
6/11/20
6/12/20
DateGlobal Feed Prices
China is also having an impact on global feed prices which has been felt in this
country. China is taking the opportunity of ASF to modernise pig production and
move away from small scale production to larger scale integrated production.
The resulting increase in demand for feed ingredients combined with some
supply shortages in major producing countries has forced up the price of feed
wheat for the rest of this harvest year to close to £200/tonne and oilseeds to
£380-£400/tonne. For those producers that do not have forward cover this will
put a big dent in margins.
What does this all mean for pig producer margins in Wales?
It used to be said that “pigs are either all muck or all money”. While this is less
true than in the past, 2021 has the makings of being a mucky year. Producers in
this country are likely to hold onto the price premium over EU producers but this
will be under considerable pressure.
At the time of writing a trade deal has been agreed with the EU although details
have yet to be published. The deal should allow imports and exports without
tariffs or quotas. This effectively maintains the status quo, although there will be
some extra costs on both sides from increased bureaucracy. The UK government
is likely to pursue trade deals with other countries, which could include giving
tariff free access to pork and pork product imports. However this is unlikely to
impact on the market in 2021.
Figure 2 - Quarterly Estimated Net margins £/head
25
20
15
10
£/head
5
0
-5
-10
-15
2017 2017 2017 2017 2018 2018 2018 2018 2019 2019 2019 2019 2020 2020 2020 2020
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4*
Figure 2 Source: AHDB & authors estimate for Q4 2020
Estimated Net marginsConclusion In conclusion, it looks like it could be a tough year for some pig
producers. For those that are competing in the mass market, heavily
influenced by EU prices, it will be a question of getting through it and
looking forward to the recovery that will come when the market rights
itself, as it invariably does in pigs. It’s also a good opportunity to review
your current business and herd performance to ensure you are operating
as efficiently and profitably as possible.
For businesses that are less affected by the wider market, the outlook is
more positive if the trend we’ve seen of buying local continues.
Contact the Menter Moch Cymru team to find
out how to take advantage of the support and
assistance available for pig keepers in Wales.
Whether it’s attending the free expert-led
training sessions, accessing tailor-made
resources or receiving funding towards
marketing and promotion or herd health
improvements.
Click here to visit the website or speak with a
member of the team for more information.
Menter Moch Cymru 2021 Virtual Conference – 27th January 2021
For a more in-depth overview of the sector and forecast for 2021, with a
www.mentermochcymru.co.uk chance to have your questions on this topic answered, join us and Mick
Sloyan, industry expert, on the 27th January 2021 for a live webinar as part
of the Menter Moch Cymru virtual conference.You can also read
