'Piglet market will be attractive in 2023'

Robert Hoste, pig production economist at Wageningen Economic Research (WUR), has been involved in the sector for a while. But 2022 was not an average year. Far from that, in fact. Despite the apparently good pig and piglet prices, the financial performance is disappointing due to the sharp rise in costs, although Hoste is optimistic for the new year. According to him, a further increase in the pig price is necessary and also one of the possibilities. "The pig market is at a tipping point. I also expect a relatively attractive piglet market in the coming years."

Rarely has the contrast between the income of sow farmers and fattening pigs been so great like this year. Where sow farmers had to pay almost €50.000, the income of fattening pig farmers rose to more than a ton. These figures deserve a nuance, says Hoste. The income of fattening pig farmers seems higher than it is. Due to the increased pig prices, fattening pigs are valued much higher on the final balance.

"That is income that will only be realized in 2023 and therefore no liquidity yet." In fact, the income of meat trade holders is €7.000 positive this year. That makes 2022 a meager year from a financial point of view. For the sow farmers, the losses are greater than the figures indicate. In addition, 43% of sow farmers currently have a negative cash flow. "These are companies that now have to take measures to survive. In general, pig farming was disappointing, including the closed companies."

Where does the shoe pinch: are the returns too low, or the costs too high?  
"Both are true. An average pig price of €1,71 per kilo and piglet price of €50 is not bad historically, but the costs weigh heavily. Feed costs are the bottleneck. In 2021 feed had already become expensive, but due to the war in Ukraine there was a panic on the raw materials market and feed prices rose to unprecedented heights. On average, pig farmers paid €420 per ton of feed supplied, which is 37% more than last year. Energy has also become considerably more expensive and the corona support of the government away."

Do you expect market recovery in 2023?
"Yes, there is reason to be optimistic. This has to do with the shrinking pig herd in Europe, especially the decline in the number of pigs in Germany weighs heavily. In the second quarter of 2023, the pig supply in Europe is forecast to fall 6% lower than the same period this year, a contraction that is already underway. This should be enough to tip the market. You can already see it reflected in the piglet market, where scarcity has arisen. In the coming years, I expect a relatively attractive piglet market. Due to the contraction of sow production, the German import demand for piglets will increase relatively. This is also necessary because Spanish sales are likely to stagnate. Spain is struggling with the 'Rosalie variant' of the PRRS virus. The heyday of the Spanish pig sector are coming to an end anyway: labor is scarce, building stables is becoming more expensive and social resistance is also increasing there."

The price increases that are now visible on the piglet market are greater than you would expect on the basis of the seasonal pattern. The contraction has structural causes, such as stoppages and environmental measures. In addition, the pig cycle still works, the last few years have not encouraged expansion. This gives me courage to say that pig farming can break even in 2023."

Break-even you say, that doesn't sound very optimistic yet.
"Don't forget that the costs are high. Also in 2023, because I don't foresee a rapid fall in feed prices, despite the fact that the raw material prices of wheat and grain maize are now moving down. The calculated cost price in the Netherlands for fattening pigs is €2,20 and "Euro 70 big. In other words: a pig price of € 2 is not high enough. The price has to reach and over that limit. In principle, the pig price has to rise another 20 cents to cover the costs."

Will that already be possible in the first quarter of 2023?
"Probably not. The pig market benefited in the fourth quarter from the Christmas demand and extra exports due to the Chinese New Year. That demand has now disappeared, and the first quarter is traditionally weak in terms of sales. During the spring upswing in the second quarter, there are opportunities for an increase, due to the shrinkage in the pig supply. The entire pig production will have to take place at a structurally higher price level."

Does this also increase the risks for entrepreneurs?
"In recent years, sow farmers sometimes suffered financial blows, but they also had to be able to collect. Like this year. The more violent the price movements, the greater the effects below or above the line. The pig sector needs peace and moderation. This means that we should not be dependent on Chinese demand, because that is much too erratic. Only the slaughter by-products should go to China. Europe should not want to fill the gaps in Chinese pig production, let other countries do it. Simply because Europe is not is competitive and we should not want price fluctuations. Despite the contraction, self-sufficiency in Europe is still too high. The trend is declining, from 125% in 2021 to 122% this year. A further contraction of pig production is therefore still necessary. "

Do you assume that meat consumption will remain the same in the coming years, despite the high inflation in the meat sector?
"Pork has become unprecedentedly expensive, as shown by the Food Prices Monitor that we publish every two months at WUR. We also monitor consumption. Last year, consumption in the Netherlands unexpectedly showed a slight increase. However, there has been a long-term downward trend in household consumption, not yet elsewhere. It is likely that meat consumption will fall further in the coming years. Remarkably enough, consumption in Germany is declining faster, although it comes from a higher level of consumption. resistance there is greater than here, but that is an assumption that is worth investigating."

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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