Strong finished pig prices support producer margins in Q4
Finished pig prices continued to rise in the final quarter of the 2019, returning producers to the largest positive margin since Q3 2017.
The EU-spec APP averaged 161p/kg in the final three months of last year. Meanwhile, the average cost of pig production in GB during Q4 2019 was 146p/kg, according to the latest AHDB estimates. Therefore, the estimated net margin was 15p/kg or £12/head.
On a per kg basis, production costs were 1p lower than the estimate for the previous quarter. This was driven by a slight decline in building and financial costs, as well as a reduction in other variable costs. However, a marginal increase in feed costs eroded away some of these gains.
Finished pig prices have unusually remained stable in early 2020, not showing a typical seasonal decline. So, assuming production costs have remained similar, margins should still be positive.
Despite difficulties with supplying the Chinese market early this year, due to the coronavirus (COVID-19) outbreak, markets have generally been optimistic that strong import demand will return. The latest reports do suggest that businesses in China is starting to return to “normal”, which if realised, would be price supportive.
However, uncertainty remains over how the escalating situation in Europe will affect the market. Maintaining food supply chains will be a priority, but risks around labour supply and logistics both here and in our EU trading partners remain. How these challenges interlink with changing demand patterns will be influential for pig prices in the coming months.