Wednesday, 24 November 2021
The British pork sector is undoubtedly facing an extraordinarily challenging period. Margins have been difficult for a prolonged period, driven by elevated feed costs, and more recently we have also been hearing of logistical difficulties getting pigs to slaughter on time. There appears to be too little processing capacity for the available slaughter-ready pigs at the moment, with reports indicating a particular lack of butchery staff. This mismatch in supply of pigs on farm and demand for them, has been putting downward pressure on pig prices. This downward trend has also been heavily influenced by low pig prices across Europe, where the drop in Chinese import demand has led prices to fall in an effort to stimulate demand nearer to home.
With all these difficulties, there is clearly interest in how many pigs might be available for slaughter in the coming months. Here, we take a look at how recent slaughter figures compare to our expectations earlier in the year and what this might mean going forward. We also explore how recent trade figures have been playing out and what this means for the market.
Slaughter and production figures are reported on a statistical month basis, so they are comparable to previous years.
UK clean pig slaughter
In Q3 clean pig slaughter totalled 2.75 million head, actually a small increase of 1% compared to last year. Slaughter in October was also 1% above year-earlier levels.
In July, we had forecast a 2.5% increase in clean pig slaughter compared to 2020 in the second half of this year. This is influenced by the tail-end of breeding herd growth last year and artificially low slaughter in Q4 2020 when pigs were rolled into Q1 2021. The actual increase in slaughter recorded has only been a little lower than expected, perhaps by around 60,000 head.
While the slaughter figures look unremarkable at face-value, there have been reports of significant backlogs of pigs waiting on farms. A large rise in carcase weights recently clearly shows many pigs have not been able to go to slaughter at the usual time. So, it seems that there are even more pigs available than forecast, either due to better than expected herd performance or higher than expected sow numbers earlier in the year.
What does this mean going forward? In the short-term, it remains difficult to establish exactly how many pigs are remaining on farms, and what slaughter would need to be in order to clear them. However, there are increasing expectations of a decline in pig availability as we progress through 2022. The latest reports from the NPA suggest the sow herd could drop by around 25,000-30,000 sows this year. With a lack of clear decline in sow numbers in Defra’s June census figures, most of this drop is thought to have come in the latter part of the year, which would start to influence slaughter pig availability next summer. Some tightening up of numbers around the spring may also be possible, depending on how many producers have taken out younger pigs.
Sow and boar slaughter
The Defra figures suggest that only 58,000 adult pigs were killed in Q3, 6% less than last year. However, we believe some sow slaughter is missing from this total and the actual number should be closer to 64,000. This would be about 3.5% higher than last year, in line with expectations following the relatively low culling levels in 2020.
While sow slaughter does not appear to be elevated, this does not necessarily mean that there aren’t some producers exiting the sector. It is thought that herd reduction is being achieved by not replacing sows when they are culled, rather than culling sows early.
Pig meat production
Pig meat production in Q3 totalled 249,000 tonnes, 2% higher than last year. There has so far been no sign of carcase weights easing, with weights in the SPP sample now averaging over 92kg. It seems unlikely that these levels will ease until the backlog is under control, which with Christmas approaching, may be difficult to achieve before the spring. So, it looks like high carcase weights will continue to boost pig meat availability in the coming weeks.
The volume of pig meat imported into the UK has continued to be below last year’s levels, although the extent of the decline has reduced. In Q3, pig meat imports totalled 204,000 tonnes (carcase weight equivalent), 4% below last year. This compares to a 25% annual decline in Q1 and an 8% annual decline in Q2.
The trend has been relatively similar to expectations, with disruptions related to Brexit easing as the year progresses. Also, while increased availability of British meat has limited import requirements, with foodservice reopening, scope for competition from European meat has increased as the year progressed. EU prices are very competitive at the moment, so imported volumes may be similar to last year for the remainder of 2021.
With the EU average pig reference price currently around 35p/kg lower than its UK equivalent, further downward price pressure in Britain can be expected. Large volumes of EU meat don’t necessarily need to be actually imported in order to exert this downward pressure, there simply needs to be the potential to buy this cheaper product.
Exports have struggled this year. Any improvement in logistics supplying the EU has been eclipsed by struggling demand on the Chinese market. The EU market is also oversupplied with pork produced domestically and recent British prices there will struggle to compete. With this in mind, export levels in Q3 only totalled 52,000 tonnes (carcase weight equivalent), a 35% decline compared to last year.
Although Chinese export prospects were expected to drop back in the latter part of this year, the market has fallen more significantly than many expected. Prospects continue to look difficult in the short term, with Chinese pork prices still low. There are some expectations of a period of stronger Chinese import demand next year, as recovery in their pork production is likely to be somewhat turbulent.
Falling import levels have been counteracted by increased utilisation of British pig meat this year, due to a combination of higher production and lower exports. New supplies of British pig meat available for consumption in the UK have been about 2% higher than year earlier levels across the year to September overall.
Pork demand in Britain had been expected to show another small level of growth this year due to ongoing strong retail sales, and this trend aligns with this expectation. As volumes moving through foodservice and retail start to shift back towards pre-pandemic patterns though, the situation may become increasingly less favourable for British meat. To some extent this has already begun, and retail sales have already dropped below year earlier levels. However, pig meat remains the only red meat where retail sales continue to hold up above 2019, perhaps helped by its lower price-point compared with beef and lamb.
While domestic consumption remains a brighter area of the British pork market, logistical difficulties converting pigs into saleable pork products limit the ability to capitalise on this trend. Low prices in Europe also inevitably mean the outlook for prices here remains weak, as long as oversupply and weak export prospects keep prices depressed there. A reduction in domestic pig supplies and/or material increase in Chinese import demand are the key factors that could signal when a change to market prospects materialises, but it looks like it could be several months before either of these developments set in.
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