According to the latest data from the Polish National Statistical Office (GUS), in November 2008 the pig herd fell to its lowest level since 1970. By the end of November, there were 14.2 million pigs in Poland, 7.7 per cent down on July 2008 and 19.2 per cent down year-on-year. Some 4.6 million pigs have disappeared since the last peak of the 'pig cycle' in July 2006. The magnitude of the contraction is comparable to the size of the whole pig herd in the UK.

The magnitude of the fall in numbers is, however, surprising. Previous forecasts projected the herd to contract to 14.7 to 15.0 million head. The further fall in sow numbers is also surprising because profitability of pig farming has increased considerably since last summer due to diminishing feed prices and a strong increase in slaughter pig prices.

The fall in sow numbers (6.4 per cent down on July) means that the decreasing trend in herd size will now last longer, at least until July 2009. The next survey at the end of March 2009 may see as few as 13.5 to 13.7 million pigs. As far as pigs weighing over 50 kg intended for slaughter are concerned, their number will contract in March and then seasonally increase in July. Not until November 2009 is some rebound in the underlying trend expected.

As a result, pig meat production in Poland this year may be eight to ten per cent down on the previous year which in turn already had been ten per cent down on 2007. Many abattoirs will have enormous problems sourcing pigs. Meat processors will also face great problems. Due to recent strong depreciation of the Polish zloty against the Euro, imported raw meat from Denmark, Germany or Netherlands has become very expensive. The processors will have limited capability to pass through the cost increases as consumer confidence is dwindling and retailers are looking to keep the prices as low as possible. That will squeeze already insignificant margins in the meat industry. A record high number of bankruptcies is likely.

On the other hand the pig producers' situation will improve considerably. Although some increase in feed prices is expected, farm-gate prices of slaughter pigs will hit record high levels. Through most of the year prices will fluctuate at around 25 to 30 per cent above the five-year average price and in the third quarter may for the first time in history exceed 5 zloty (PLN) per kilogram liveweight.

Note: Michal Kolesnikow is Senior Agricultural Markets Analyst in the Macroeconomic and Sector Analyses Department of BGZ Bank. BGZ Bank is a leading bank in the Food and Agri Sector in Poland. Its main shareholders are Rabobank and State Treasury.