Is a changing industry supply structure driving weaner prices?
Up until 2014, analysis suggested that weaner prices were determined by a combination of the finished pig price and feed prices. The ultimate value of the finished pig, plus the necessary feed costs in the final stage of production, together produced the value of a 30kg weaner. While trends in the weaner price and the finished pig price broadly followed each other, when the feed price rose, the value of the weaner as a share of the finished pig price fell, and vice versa. However, more recently, it would appear that this inverse relationship has broken down.
Since around the start of 2014 the weaner price as a share of the finished pig price has been moving in line with the feed price, rather than against it. This suggests costs further along the supply chain are no longer determining the price of 30kg weaners. Interestingly, AHDB cost of production estimates across the whole production cycle suggest that the rearing phase from 7kg to 30kg is the least profitable at the moment. It seems even though the 30kg weaner price has been increasing in relation to finished pig prices, the margins achievable by producing a 30kg weaner have been negative on average.
Poor profitability at the rearing stage might go some way to explain the move towards trading piglets at 7kg. The 7kg weaner price as a share of the finished pig price appears to be much more stable, and producing these piglets is still estimated to be profitable.
So, it may now be the case that finishing units sourcing pigs at 30kg from the market have been bidding up the price of weaners, in relative terms, as it is still profitable to do so. As long as this remains the case, this behaviour may continue. Therefore for the time being the 30kg weaner price could be determined more by the cost of producing these pigs, rather than the costs yet to be incurred taking the animal to a finished weight.
Of course, lots of pigs are born into fully integrated supply chains, and many finishers operate on a “bed and breakfast” basis, and so the price of a weaner is not always relevant to every finisher. In any case it is still reasonable to expect both 7 and 30kg weaners prices to follow the finished pig price overall. However, the way in which the price is determined may be an indicator of the relative amount of capacity, and how margins are distributed along the production process.
Duncan Wyatt, Lead Analyst
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