Pork market outlook

January 2022

  • A contraction in the breeding herd is expected, leading to a 2% fall in UK pig meat production, weighted towards the second half of 2022
  • Export markets remain challenging, with Chinese demand slowing and a weak EU market. However, trade may increase again year-on-year as new trading conditions with the EU become the norm for UK exporters
  • UK demand is expected to weaken slightly, although falling production, recovering foodservice demand, and increased exports could all support import levels, particularly in the second half of 2022
Image of staff member Duncan Wyatt

Duncan Wyatt

Lead Analyst - Red Meat

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The UK pork sector begins 2022 facing some severe headwinds. Profitability for many is likely to have been negative for five consecutive quarters; production costs have risen while pig prices are falling. Although slaughter capacity allowed annual production to increase in 2021 compared to a year earlier, it has not kept pace with the number of pigs available. Many farmers face a backlog of pigs on farm, increasing carcase weights and feed bills.

While domestic demand has proven relatively robust, export market conditions continue to bring challenges. Weak Chinese import demand, and a very well-supplied European market are both weighing on prices here and will continue to do so. The UK breeding herd is now in contraction, as some farmers reduce their numbers and others exit production altogether. It is against this background that we make this UK pork sector outlook.

The EU-Spec APP averaged 148.36p/kg in December 2021, more than 5.5p lower than the same month a year before. This is only half the story however, as the cost of production has been increasing since the beginning of 2020, largely driven by rises in feed prices. Producers’ margins were last positive in the third quarter of 2020, and feed costs now constitute around 67% of the cost of pig production. At times during 2021, farmers were losing on average £26/head for every pig that left the farm.

Prices have been under severe pressure in the EU. Increased production and lower demand from China, Coronavirus and African Swine Fever (ASF) in Germany have combined to test the market. The UK price premium is generally elevated, reducing the competitiveness of UK product in the EU.

UK clean pig supplies

Pig production in the UK rose in 2021, 4% higher compared to a year earlier at 1.02 million tonnes. Around half of this increase was due to a higher number of pigs slaughtered, and the other half due to heavier carcase weights. Weights would have been expected to increase in any case, as farmers maximise performance against contract terms (which in many cases allow heavier weights). But the backlog of pigs that has developed on farms, despite increased slaughter, has pushed weights higher still. In December 2021 the average weight in the APP sample on an EU dressed basis, was 92kg, almost 4.5kg heavier than a year earlier.

Given the number of pigs thought to be held on farm at the moment, it is assumed that the processing sector will not be in a position to make meaningful progress on the backlog until the spring. This is despite government intervention in the form of a Slaughter Incentive Payment Scheme, Private Storage Aid, and the provision of additional visas for migrant butchers. It will take some time before a reduction in sow numbers takes effect, so supplies will therefore be maintained in the first half of the year, before falling in the second. Clean pig slaughter is expected to fall by 2% in 2022 overall, back to below 11 million head.

Sow numbers and clean pig production

Accurately establishing historic sow numbers, and productivity per sow, is hard enough at the best of times. When slaughter has been capped by processing capacity, and additional “unslaughtered” pigs exist, it becomes even more challenging. However, based on historic productivity figures, actual slaughter and an allowance for a backlog, it is likely that the UK sow herd was close to 415,000 head during 2020 and the first half of 2021.

Poor profitability and logistical difficulties lead to a forecast decline in the size of the UK sow herd, to around 385,000 head by the middle of 2022, as the base case for this outlook. Defra data released on 20th January shows that the English breeding herd had declined by 6% as at 1 Dec 2021, compared with 1 June.

The exact size and timing of any reduction and any subsequent recovery are hard to judge and will depend on the developing financial fortunes of the sector. A risk to this forecast is clearly that the situation remains depressed for longer. The price of feed and other inputs are expected to remain elevated for some time. Due to the lead time of piglet production, clean pig slaughter in the first quarter of 2022 is expected to be similar or greater than that in Q1 2021.

This outlook imposes a maximum weekly slaughter capacity of around 220,000 head, based on averages observed in the latter part of 2021. As such, as it is not until Q2 2022 that the number of “new” market-ready pigs starts to decline, only then might real progress on the backlog begin. (In reality, pigs are being rolled and replaced all the time).

Carcase weights are expected to be heavier for the first quarter of 2022, as the backlog is cleared (there was also a backlog at the beginning of 2021). They might however decline in the final quarter as clean pig numbers decline, and a return to more typical market conditions is expected. Production is expected to fall during the second half of the year. Pig meat production in 2022 is expected to fall by 2% compared to 2021, to around 1 million tonnes.

UK pig meat trade

Developments in UK trade during 2021 can be separated into two phases. At first export volumes (and to a lesser extent imports) were severely affected by Brexit, then Chinese import demand cooled for both UK and EU product. All this was against a background of uncertainty due to coronavirus that affected foodservice market in particular, in the UK and elsewhere. This led to an oversupply of pigs in the EU market, and demand for UK product there fell too. The marked growing premium of UK over EU pig prices contributed to reducing UK export volumes. This situation is expected to remain in the short-term. However, having grown year on year in 2021, there are signs that the important German herd in particular is now in decline, which could stem EU production in 2022.

Although import demand from the Chinese market is not expected to recover dramatically in 2022, and indeed the USDA is forecasting further contraction, that market will remain a crucial outlet for UK product. UK pig meat exports are expected to increase in 2022, by 9% over 2021 levels. This is largely because Brexit reduced trade so much at the beginning of the 2021, but also because EU production growth in 2022 is expected to fall (and may even contract). Exports would still be below 2020 levels. As the base case for this outlook, UK pig meat exports as a share of production are expected to recover over the next 18 months, back to levels that existed before the outbreak of ASF in China. This development is not likely to be supportive of pig prices as these exports will need to compete on price.

UK demand is forecast to fall by 2% in 2022. In order to meet that demand, as production falls towards the end of the year, imports are expected to increase slightly, by 1%, but again, expected to remain below 2020 levels.

Pork consumption trends

Looking at the year as a whole, 2021 saw COVID-19 restrictions easing compared to 2020, which has meant a return to the eating-out market for some consumers. This means grocery sales have been unable to retain the volumes seen during the height of the pandemic. Retail volumes of pig meat have declined year-on-year -2.2% but when compared back to pre-pandemic levels (2019), they remain significantly elevated at +6.5%, the strongest performance of the red meats.

Pig meat will have benefitted from having one of the lowest average retail prices of the proteins, being 7% lower than total meat, fish and poultry (Kantar, 52 w/e 26 Dec 21). According to the AHDB/YouGov consumer tracker, 33% of consumers claim their household finances have been negatively impacted by the pandemic (Dec 21) and therefore value for money will be key for many. Pig meat is also seen as highly enjoyable and practical. This is particularly benefitting processed pig meat, which accounts for 59% of the volume gains versus pre pandemic. Primary pork is also up versus 2019 by +8.8% with roasting, steak and belly cuts contributing the most volumes. Pork roasting is actually up year-on-year through existing buyers purchasing more frequently.

Out-of-home (OOH) pig meat is highly reliant on processed cuts – top dishes include sausage rolls and sandwiches – meaning food-to-go (FTG) is particularly important for this protein. FTG has suffered with increased working from home, which we believe will be a legacy COVID behaviour and therefore see a slower recovery than total foodservice in 2022. Positively, many food-to-go establishments, such as quick-service retail, coffee shops and bakeries ramped up their takeaway and delivery capabilities during the pandemic resulting in pork’s presence in this market significantly increasing. AHDB estimates that for eating-out pork volumes were down 59% in the 52 w/e 26 Dec 2021 versus 2019. Pork takeaways and deliveries grew triple digit but, overall, for total pig meat in foodservice we believe volumes are just over a quarter lower than pre-pandemic. As restrictions eased in the second half of 2021, we started to see a recovery in the eating-out market, with pig meat occasions growing year-on-year 13% (24 w/e 26 Dec 21). As this market continues to recover it is important for pork to ensure primary cuts are utilised through innovative dishes on menus.

In the past year volume gains in retail and delivery/takeaway are enough to have balanced out eating-out losses for pig meat and that versus 2019, 2021 volumes are 1% higher.

What next?

We have entered 2022 with many strict COVID restrictions behind us but the pandemic is far from over. The omicron variant hitting in November 2021 has impacted foodservice recovery, with November and December seeing a reverse in footfall. The economic effect will be felt for many years, not only impacting consumer spending at a time when price inflation is high (ONS), but we also see the lasting impact on foodservice due to the number of outlets that have closed down as a result of the pandemic. Consumer confidence is going to take time to recover and how people shop and eat has been changed, with in-home occasions remaining elevated as many consumers appreciate working and socialising at home. We therefore anticipate the eating-out recovery will start again this year but the market will not fully recover to pre-COVID levels.

We must also consider the longer-term trend for pig meat seen before the pandemic, with volumes gradually declining. Shopper concerns around health and industry reputational factors such as the environment and animal welfare were increasing. With media noise surrounding COVID diminishing there may be a spotlight back on the food and farming industry.

Pig meat volumes via retail are predicted to continue to slow during 2022 as consumers venture out more and start to re-focus on their food choices. However, we do expect it to still track above levels seen in 2019 as it has proven to be a practical and enjoyable in-home meal during the pandemic, also meeting the needs of those who are more price conscious. OOH we predict the recovery will be slower than other red meats due to pig meat’s reliance on FTG but the takeaway and delivery market offers an opportunity as this will remain buoyant.

As a result, with eating-out not returning to pre-COVID levels this year and retail sales of red meat potentially starting to suffer again, overall pig meat volumes for 2022 are expected to be down -2% versus 2021 and down -1% versus 2019.

The pork outlook might be mitigated, if the industry:

  • Encourages consumers back out-of-home. Opportunities in the eating-out market include personalisation, indulgence, quality cues and pushing reputational factors such as health, sustainability and backing British.
  • Encourages shoppers in-store by improving the experience of the meat aisle, find out how here.
  • Plays on value for money for those whose financial situations have been negatively impacted by the pandemic.
  • Continues to innovate: in retail, tap into demand for big seasonal events such as BBQ’s and Christmas; out-of-home processed should capitalise on the takeaway/delivery trend; in foodservice, primary pork needs a greater share of dine-in menu space in establishments like pubs.
  • Addresses health concerns by communicating the health benefits of pork such as B12 and iron.
  • In the longer term, look to maintain and build consumer trust, demonstrating where farming values (animal welfare, environmental stewardship and expertise) are shared with consumers. See our consumer reputation landscape hub for more information.

Visit the retail and consumer page for more insight.

Price outlook

Until the supply/demand balance for pigs in the EU is redressed, prices are likely to remain weak. An increased need to export UK product would pressure product values, and the current price premium over Europe may not be sustainable. Contraction in the German herd suggests that shift in the supply/demand balance might already have begun. Profitability in Spanish production is also understood to be challenged, which may also lead to herd contraction. There is thought to be a lot of pork in Spanish cold stores however, which could weigh on prices for some time. The decline in Chinese import demand has somewhat derailed the global pork industry, but lower pig numbers in the US, and rising pig prices there offer some hope of recovery. Pork and live pig prices in China itself remain weak. Feed prices are not expected to retreat in the short-term, buoyed by lower global stock levels, although again increased crop forecasts also offer some hope that they may at least stabilise.

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