'2019 will be a turbulent year for the pig sector'

In view of the stopper regulation in pig farming, a decrease in production is to be expected. In addition, the outbreak of African swine fever in China has started a development that may (strongly) influence European pig prices.

Speaking of Robert Hoste, pig production economist at Wageningen Economic Research (WUR). He looks back on 2018 and looks ahead to what is to come.

What is your summary of the developments in the pig market in the past year? About 1 year ago you said that 2018 would not be a good year. 
"The expectation that I 1 years ago had, has come true. You can talk about a sinkhole for the margins, compared to 2016 and 2017. The falling prices were due to a growing sow herd, which meant that more fattening pigs came onto the market. The sale of pork to China also stagnated. In 2017, exports were still supported by a relatively weak euro, but that was less the case in 2018. Apart from that, a price decrease was to be expected, based on the natural course of the pig cycle. Pork exports have increasingly relied on China in recent years. That makes the peaks and troughs of the cycle more intense."

"2018 was a particularly bad year for sow farmers, as is also apparent from the WUR income estimate. Fattening pig farmers have the advantage that they can pass on some of their losses through the piglet price to sow farmers. The reason for the low piglet price is the European pricing. This means that the level of the price depends on the willingness to purchase of fattening pig farmers in, for example, Germany or Eastern Europe, where there are many 'occasional farmers' who do not impose if the prospects on the pig market are not good, which was the case in 2018. "

InterPIG recently published a report with an overview of the cost prices of the main pig producing countries. This shows that the Dutch cost price last year was €0,20 per kilo higher than in Denmark, for example. Can you explain that difference?
"The cost price of Dutch pig farming is indeed lagging behind other (European) countries. This is mainly due to the manure disposal costs, but also to the feed price. In a country like Denmark, pig farms usually also have an arable branch, or vice versa. produce feed crops cheaply and also sell the manure on their own land. The difference with Denmark can also be explained by technical performance. On average, 1 Danish sow last year produced 2,5 fattening pigs per year more than 1 Dutch sow. In 2011 the production per sow is still the same. This difference in cost quickly saves €5 per piglet."

"In a dry year like 2018, soil binding can also be a disadvantage. Due to the drought, arable yields are disappointing and Danish and German pig farmers are forced to buy feed. This consumes a large part of the liquidity and they are not used to that. An advantage with a disadvantage is that the soy price is relatively low, which means that the costs are still not that bad. This does not alter the fact that Danish pig farmers are in a difficult position. About 1 in 5 pig farmers in Denmark would be on the verge of bankruptcy. Danish pig farms are often financed on the basis of the land value. A few years ago the land price plummeted, as a result of which many (pig) farms are under water. This does not benefit resilience."

"It turns out that a significant cost difference alone does not say everything. There are also large differences between companies. In very bad years there are still companies in the Netherlands that earn money, and vice versa, in good years there are companies that still lose money. is still a good way to earn a living for good entrepreneurs in the pig sector."

And if we look at 2019, what do you expect from pig prices?
"That can go in two directions. In the worst-case scenario, the yields are in line with last year. In a more favorable case, yields can be realized as in 2. An important factor that will influence the market is whether the Chinese import of pork will increase. now that the country has been hit by African swine fever.Suppose 2016% of Chinese production is lost, that is 5% of world production. Then there will be imports from all over the world, including the European Union (EU), Brazil, the United States (US) and Russia."

"Sometime this spring it will become clear whether China will actually import more pork. By that time it will also be clear how large the pig supply is in Europe. Low prices often lead to a decrease in the number of sows, and therefore in a shrinkage of the European population. production of pork. I expect that the coming months will show which direction pig prices are going to take."

What can you say about the pig supply in the Netherlands, with a view to the stop scheme in pig farming?
"Relatively many companies will probably stop, as they must comply with the 'Low-Emission Housing Decree' before 1 January 2020. We estimate that 25% of the companies is a 'tolerance stopper'. These are mainly smaller companies, and in particular the farms with finishing pigs. A limited part may continue, because they meet the requirements. The pig rights of the stoppers will remain on the market, so that production may eventually be taken over by other companies. In addition to the stopper arrangement, the warm remediation on the schedule. As a result, 2019 will be a turbulent year for Dutch pig farming."

We have already briefly discussed China, where African swine fever is currently on the rise. What developments do you see in other important markets, such as South Korea?
"In a country like South Korea, the pig sector is heavily subsidized, which means that development is slow. You could compare it with the situation here in the 80s. At that time, a lot of money was being made in the Dutch pig sector, which meant that the need for innovation lagged behind. This changed as prices got worse."

"You can say that the entrepreneurial mentality in South Korea is lacking and this is reflected in the high cost price. In terms of meat consumption, a clear distinction is made between domestic and imported pork. American and European meat is often used for industrial purposes. The potential for additional exports is not very large, given that consumption will probably not increase much anymore. It is mainly a displacement market between foreign suppliers."

Wouter Job

Wouter Baan is editor-in-chief of Boerenbusiness. He also focuses on dairy, pig and meat markets. He also follows (business) developments within agribusiness and interviews CEOs and policymakers.

w.baan@boerenbusiness. Nl

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