Interview Robert Hoste (WUR)
'Holding pigs for the world market takes courage'
Pig farmers face extremely volatile market conditions. Although there was some optimism about the market development in the past period, this has now given way again to concern. Costs are rising even faster and the advance of selling prices is coming to a halt. In conversation with Boerenbusiness pig economist Robert Hoste of Wageningen University & Research (WUR) indicates that producing pigs for the world market in 2022 'really takes a lot of courage' and that the cost price of pork is now around €2 per kilo slaughtered weight.
Pig farming has been hit by steadily rising prices since last summer. Although the sector was already suffering from high costs, the escalated situation in Ukraine has caused a real cost explosion. The price increases of feed and energy in particular affect the sector considerably. However, rising construction costs also have a significant impact on costs in the future. With pig economist Hoste, we walk through the most important cost items for pig farming and we estimate the concrete influence on the cost price. "The yield of fattening pigs must be about €2 per kilo in order to be able to operate cost-effectively this summer. This includes a piglet price of between €60 and €65."
The conflict in Ukraine has had a significant impact on the agricultural and pig sectors, especially for the availability and prices of raw materials. How big is the impact?
"The main effect is in the price of raw materials. There has been concern about availability, but for the time being there is enough product available to feed humans and animals. We need to see Ukraine's production in perspective. Although this country can export less the world market share in the production for a large part of the crops is not so great that real shortages will arise. Trade flows will shift, which takes time and creates uncertainty. The high prices in particular are hurting the sector. This is an issue for specific subgroups such as non-GMO and organic feed. Shortages are expected within a few weeks, especially for organic feed. It is difficult for the sector, the addition of regular raw materials affects the image of organic."
Are there any other side effects that could have an impact?
"Most eye-catching are of course the sharp rise in energy costs. Although the worst volatility seems to have ebbed somewhat, prices for gas and electricity are at a high level. This certainly affects sow farmers. Furthermore, the fertilizer market is quite overheated and prices are at a high level. record levels. This could have an impact on the harvests of the new season. Further down the chain, parties are also affected by the impact on the logistics sector. The limited availability of drivers, for example, has not improved. Many Ukrainian men have returned to to serve the country at the front, but we also hear rumors of Polish drivers left and right returning to their own country to stand by in the event of a raid. While this may not be a large-scale move, it could have a significant impact at a company level if your staff also for pig farmers employing Poles."
The cost impact on pig farming is clear, what is the concrete influence of the increased feed price on the cost price of pork?
"For the feed costs, we determine a feed package price for a closed pig farm (sow + fattening pigs). We then determine the feed costs per kilogram slaughtered weight on the basis of feed consumption. The feed package price in 2020 was on average €26,70 per 100 kilos. That is now €37,70 per 100 kilos. The expectation is that there will certainly still be a after-effect of the raw material prices in the compound feed prices. An increase to € 40 per 100 kilos is conceivable. We will then talk to a average feed consumption over a cost increase of about €2020 per kilo slaughtered weight compared to 0,40. We are of course not sure whether this price level will be maintained or whether prices may rise even further. The cost price for pork was already on average in 2020 at about $1,50 per kilo of slaughtered weight (source: Interpig)."
Then there are the increased energy prices. What is the effect of this on the cost price for pork?
"First of all, the starting situations here are very different. Do you generate energy yourself? Have you covered risks with contracts? This results in very different cost figures. If we assume that an entrepreneur now has to settle his energy needs at current market prices, we arrive at a cost increase of approximately €0,035 per kilo slaughtered weight Although this is dwarfed by the increase in feed costs, we are still talking about large amounts at company level An average (partially) closed farm with 500 sows and 4.000 fattening pigs delivers 12.000 fattening pigs from 100 kilos slaughtered. That means a cost increase of 1.200.000 * 0,035 = €42.000. A family income."
The other costs have of course also increased?
"Indeed. Let's look at the housing costs (construction) for a moment: in 2020 these were €0,27 per kilo slaughtered weight. If we were to calculate an increase of 10% here, this would mean a cost price increase of almost €0,03 cent per kilo slaughtered weight. For entrepreneurs with new construction plans, this is a significant impact on the budgeted return. In addition, the sector is of course also struggling with increased costs for all kinds of other things such as labor and animal health costs."
In summary: the cost price is approaching €2 per kilo slaughtered weight and the costs are therefore not covered…
"If we take the €1,50 for 2020 as a starting point, then there is an increase of €0,40 per kilo for feed and extra costs for energy of €0,035, we indeed arrive at a total cost of around the €2 per kilo slaughtered weight. This includes a piglet price between €60 and €65. The sharply increased costs are really putting pressure on the sector. Despite the increased selling prices, we have not yet reached this level. In March, the cost recovery was in sow farming around 100%. For fattening pig farmers this was around 85%. Although sow farmers have really suffered a lot, fattening pig farmers have now been operating with insufficient margin on average for almost 1,5 years. It is a field of tension in which the piglets continue to stoppers and purchase arrangements have become somewhat tighter, which leads to rising prices for piglets, but fattening pig farmers are insufficiently reimbursed for these costs with the current high feed prices. An insufficient view of improvement translates into pressure on piglet prices, something sow farmers absolutely cannot suffer after a very difficult period."
What is the market prospects for the coming years?
"Supply in Germany in particular is shrinking. In addition, stricter requirements will be imposed around 2030 for the housing of fermented and farrowing sows, which will lead to a further reduction of the sow herd in Germany. This should have a positive impact on the piglet market, which would naturally many fattening pig companies do not want to take on the risk of the substantial investment in piglet and feed. This could lead to a further contraction in European production. Something that may be a good development given the negative development of our export position We can no longer afford a degree of self-sufficiency at European level of around 130%. We saw that last year. In summary: due to all these developments, it is actually increasingly difficult for us to estimate market developments in advance. Volatility is high. As a pig farmer, you have to have a lot of courage to produce for the spot market.Over the past year, the sector has seen d that companies are vulnerable to both yield and cost fluctuations. Many entrepreneurs will have to look at how they can reduce risks in certain chains through cooperation. That is also in the interest of retail if they want to maintain a sector in their own country for the future."
Steve Wissink
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