The desperate Position of the UK Pig Industry

Waiting for anything to turn up - By Dr John Strak - This month in his regular monthly report Dr John Strak focuses on the rather desperate position of the UK pig farmers and the allied industries. Sadly, he feels the indications are that things are more likely to turn down than go up.
calendar icon 12 September 2001
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Dr John Strak

Dr Strak's views on the UK and global pig markets are produced in Whole Hog every fortnight. For more details click the link at the foot of the article.

This month's Strak report turns to Charles Dickens for the expression that best suits the analysis (and the mood) of the UK pig industry. Dickens' character, Mr Micawber, was described as, "…..coming home with a flood of tears and a declaration that nothing was now left but a jail; and go to bed making a calculation of the expense of putting bow-windows to the house, in case anything turned up."

Don't rush to the Yellow Pages because I am not advising that you ring the double glazing salesman but I do think that UK pig farmers and the allied industries are in the rather desperate position of waiting for anything to turn up. Sadly, the indications are that things are more likely to turn down than go up.

Gloomy outlook
There are two sets of information that support this gloomy observation. The first set deals with the factors that are likely to influence prices and profits in the next six months.

Briefly, the UK pig farmer can expect; constant pressure on pig prices because sterling is unlikely to weaken significantly against the euro, and global pig supplies are on an upward trend whilst global demand is likely to falter as economic growth wobbles this year; feed costs are likely to rise as the northern hemisphere harvest looks tight; productivity and profits will be hit by the continuing impact of PWMS/PDNS and FMD-linked restrictions; at best, the sow market and UK pigmeat exports are not likely to be fully resumed until early in 2002.

This is not a very cheerful list of price "drivers" but try as I might I can't think of any positive factors to counter them. In the good old days, the marked contraction in the pig herd would have been seen as a positive factor because it would herald tighter supplies and higher prices.

Open market
But we don't live in the good old days any more - we live in an open market with supermarket buyers who would sell their own granny for pet food if they were offered a good deal.

Still, at least pig farmers don't have to endure endless offers of tea and sympathy from the Government so that's a relief. The message from Government now (especially after the failure of the Ongoers Scheme) can be paraphrased as, "Get your own cup of tea and don't expect sympathy from The Lords Whitty or Haskins."

My second set of factors that imply a gloomy outlook are illustrated by the technical analysis of UK pig prices. I have referred to the behaviour of the pig price series before in the Strak report. And in September 2000 (in my PigWorld article) I raised the question "Is this is as good as it gets?" when I examined the clean pig price and sow slaughter series (up until August 2000).

Prices unlikely to improve
My conclusion then was that prices were unlikely to improve for UK pig farmers before the Autumn of 2002 - and possibly not until 2003. One year later it would seem that this prediction is bang on target, as the accompanying charts show.

It isn't possible to repeat my September 2000 analysis today because we do not have a reliable sow slaughter series whilst FMD affects UK exports. But if we look at the long run and short run behaviour of the smoothed clean pig price series the indications are that we may be seeing a down turn in the underlying pig price cycle. As Chart 1 shows, this will be the first time the cycle has turned downwards since November 1997.

The last upturn was in September 1999. Certainly Chart 2 shows that the long run price series is very weak and has been flattening out since the turn of this year. If the 26 week moving average of clean pig prices doesn't break up through the longer run series in the next few months I would say that this will confirm all my worst fears about the prospects for price improvement. If the 26 week price series turns down again we will definitely see a down turn in the underlying price cycle.

Understanding the trends
Clearly, UK pig farmers are waiting for anything to turn up in more ways than one. Whilst waiting, I would strongly advise those who wish to understand the underlying trend in UK pig prices to regularly compare the behaviour of the short and long run price trends in the next 12 weeks. It will be more productive than counting the shopping days left to Christmas.

Constructive advice
What other constructive advice can I offer? Well; DON'T make major new capital investments, DO reduce feed price risks by getting the best deal on feed contracts, DON'T make production decisions that are not linked directly to commitments from customers, DO make new investments in marketing or re-direct your existing marketing levies into more productive marketing systems. And, whilst it may be amusing to quote Mr Micawber's favourite saying in the title to this piece remember that he is more famously quoted for a piece of sage advice, "Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness.

Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

See you next month.

Reproduced courtesy

Source: Whole Hog, September 2001
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