The weighted average Australian sale-yard price of pigs is forecast to be 317 cents a kilogram in 2010-11. While this represents a decline of one per cent from the average price achieved in the previous year, this forecast remains around 33 per cent higher in real terms than the average price over the five years to 2008-09.

Over the medium term, the weighted average sale-yard price of pigs (in 2009-10 dollars) is projected to fall gradually to 297 cents a kilogram in 2014-15, which reflects increases in both domestic pig meat production and imports. Under the assumption of a gradual depreciation of the Australian exchange rate toward 2015, growth in import demand could ease marginally over the outlook period.

Domestic Production to Increase

Domestic pig meat production is forecast to remain largely unchanged at 329,000 tonnes in 2010-11. Production is projected to increase to 338,000 tonnes by 2014-15 as producers respond to relatively high real prices projected over the medium term and more favourable feed grain costs. Feed costs account for approximately 55 per cent of total production costs. Over the outlook period, the pig to feed grain price ratio, which is an indicator of returns from pig production, is expected to remain largely unchanged from current levels.

Imports to Rise Slightly over the Medium Term

In 2010-11, pig meat imports are forecast to increase by four per cent to 148,000 tonnes as a result of the relatively high value of the Australian dollar. Australian Pork Limited estimates that around 70 per cent of processed pig meat consumed in Australia is currently sourced from imports. The processed pig meat sector accounts for around 60 per cent of total pig meat sales. As the domestic pig meat industry increasingly focuses on the fresh pig meat market, the scope to which imports can substitute domestic production or maintain downward pressure on domestic sale-yard prices will depend on the extent to which consumers will accept processed pig meat as a substitute to fresh pig meat. Australian pig meat imports are projected to increase only slightly over the medium term, to reach 151,000 tonnes by 2014-15.

Given that approximately 50 per cent of Australian pig meat consumption was sourced from imports, market developments in major exporting countries can affect the Australian pig meat market. Over the past five years, pig meat imported by Australia has mostly originated in Denmark, Canada and the United States. In Canada, the breeding pig herd has been declining, with a fall of five per cent in the 12 months to October 2009. A similar trend has also occurred in the United States since 2007, with the breeding herd down by three per cent in 2009. In contrast, sow numbers in Denmark increased by one per cent in the 12 months to October 2009. Despite the reduction in the breeding herd in the United States, lower US feed grain prices and an improved US pig to corn price ratio (an indicator of returns to US pig farmers) are expected to encourage pig production in that country.

Exports to Rise Slightly

Australian pig meat export volumes consist of around 55 per cent fresh pork, with exports to Singapore and New Zealand accounting for approximately 78 per cent of all pig meat exports by volume. Exports are forecast to remain stable at 27,500 tonnes in 2010-11. Toward 2014-15, exports are projected to increase to 29,500 tonnes, being supported by an assumed depreciation of the Australian dollar.

Further Reading

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March 2010