November 29, 2010

 

Europe's pig herd declines as feed costs soar

 

 

Increasing feed grain costs have started to decrease the volumes of Europe's pig herd and an expected tightening in supplies should cause pork prices to rise.

 

Feed takes up about 60% of the cost of bringing up a pig and prices have been increasing drastically since late June due to a drought in Russia which removed it as a key grain exporter from the market.

 

"Looking ahead, particularly with the Russia export door still shut, raw material prices are likely to stay high for some time," Barney Kay, general manager of the Britain's National Pig Association, said.

 

"We are not getting anywhere near the price we need to cover this unprecedented rise in feed costs. A lot (of producers) are in decision mode at the moment," he added.

 

Feed wheat futures on Liffe set a 2.5 year high earlier this month and have risen about 70% since late June.

 

In key pork exporter Denmark, figures show that pig herds have already started to decrease. The first census taken as of October 1, which reflected higher feed costs, showed a 5% decline.

 

An analyst said smaller and less profitable producers were leaving the industry and it would be tougher this time for the bigger producers to expand to cover the shortfall.

 

"There is a more difficult environment this time. We do not have the same financial situation today with the same back-up from banks and credit," he said.

 

The trend in Denmark has been accelerated by new EU rules which will take effect at the beginning of 2013. The rules are designed to improve animal welfare.

 

The rules will increase costs in most EU countries with the exception of Britain and Sweden where higher animal welfare standards are already in place due to government legislation.

 

"Some producers are stopping now rather than waiting until the end of 2012 as they predict that they cannot make any money at the moment," Flemin said.

 

Flemin said the downturn in production should accelerate a seasonal rise in pork prices in the spring and summer of 2011.

 

"If feed costs are going to be at a higher level, we must have pig production a bit lower so we can deal with the higher feed costs through higher prices," Flemin said.

 

"Pork prices always go up in the spring and summer but we hope it will be better (a bigger rise) next year so we can deal with the higher feed costs," he added.

 

Spain, which has one of the largest pig herds in the EU, has gathered pace for the slaughtering of pigs since October and market sources say farmers are in no hurry to buy suckling pigs to replace them.

 

Feed makers managed to import a substantial amount of grain before prices increased to recent levels but dealers say few have placed orders for the New Year.

 

"It takes four months to fatten a suckling pig until it is ready for slaughter and this entails very high costs for fatteners as of January," said a report from the Mercolleida agricultural exchange.

 

"Until December, expensive cereal can be offset with cheaper cereal but when January comes there will be no worthwhile offsetting because nobody has bought cheap cereal," the report said.

 

In France, pork prices have lagged recent rises for beef and poultry, preventing producers from passing on increased costs.

 

"We are being paid EUR1.22-EUR1.23 (US$1.61-US1.63) a kilogramme on average whereas we need EUR1.45-EUR1.50 (US$1.92-US$1.99) given our costs," said Paul Auffray, secretary general of pork producers union. "The main cause is higher commodity prices and it is our inability to pass on these costs after that."

 

European Commission representative for agriculture, Roger Waite, said the pork sector was likely to be worst hit by the present expensive costs of feed grains.

"Past experience shows that if there is a strong increase in grain prices, then there is the potential for difficulties in the pig meat sector a few months later," he said.

 

The Belgian EU presidency has organised a meeting of stakeholders on December 3 to discuss the situation in the EU pig meat sector. The European Commission has the option of offering export refunds or private storage aid.