Pig prices have fallen from 169p/kg deadweight at the start of the year to 164.5p/kg in the second week of February. However, according to Iain Macdonald, QMS Economics Analyst, this year it is likely there have been more than seasonal demand factors at play.

"With UK pigmeat production amounting to only around 60 per cent of domestic consumption - before even factoring in the 25 per cent of UK pigmeat which is exported - imports are needed to cover the remaining domestic requirement," said Mr Macdonald.

"This results in approximately 55 per cent of the total available supply coming in from overseas. Since the UK market is highly open to trade, it is clear that trade flows can have a significant impact on domestic producer prices. Unfortunately for the Scottish producer, in recent months most of these pressures from overseas have been negative for the price they receive."

After surging last summer, the average EU producer price for a grade E pig has fallen sharply, slipping from an average of £1.67/kg dwt at the end of August to £1.34/kg in early February, he observed.

"By contrast, the UK price movement has been much more modest and, since December 2013, the UK premium over the EU average has been hovering between 18 per cent and 22 per cent. Back in the final week of August the EU average was two per cent higher than the UK average," said Mr Macdonald.

"Currency movements have played a part too, with sterling strengthening by three to four per cent against the euro since the summer of 2013. The implication of the significant price differential is that UK pigmeat looks expensive to buyers in both the UK and on the continent."

The latest trade data for December points in this direction. Indeed, although UK pigmeat exports were 3.5 per cent higher than a year earlier, the growth rate slipped markedly compared to the annual increase of 13 per cent. On the import side, a 9.5 per cent greater volume of pigmeat arrived at UK ports than in December 2012 versus a one per cent annual decline.

"Moving into 2014, a significant event has impacted the EU pigmeat trade. Towards the end of January, two wild boars in Lithuania were found with African Swine Fever (ASF), a disease that has been affecting farms in Belarus and Russia in recent years.

"As a consequence, the Russian authorities banned imports of pigmeat products from the entire EU. This was despite Lithuania putting in place regional control measures and it seems likely that politics are at play here.

"With the Russian market accounting for around a quarter of EU exports in 2013, this is likely to have had a significant downwards demand impact on the EU pigmeat market in recent weeks."

Since the market closure at the end of January, clean pig producer prices have fallen in Belgium, Germany, Holland, Poland and Sweden, a likely reflection of the higher level of supply remaining on the EU market. Given the openness of the UK market to trade, the change in supply and demand dynamics on the continent is likely to have had some impact in the UK, observed Mr Macdonald.

"However, while UK prices may have eased back in recent weeks, they remain five to six per cent above year earlier levels despite UK production being at its highest level for 12 years, indicating a real strength in the market.

"Meanwhile, input costs have fallen sharply compared to this time last year. After significant pressure on margins in recent years those currently producing pigs in Scotland are achieving high levels of technical performance.

"As a consequence, they have positioned themselves to benefit from the favourable shift in the input-output price balance of the past year."

Adding to the positivity, he said, has been the recent announcement of a £6.7m investment to expand capacity at Brechin abattoir, 40 per cent of which has been financed under the Scottish Government’s Food Processing, Marketing and Co-operation Grants scheme.

"This is likely to reduce the need for Scottish producers to sell pigs to abattoirs in the rest of the UK and will increase the level of product qualifying for the Specially Selected Pork brand. There has also been encouraging commitment shown by some of the major retailers to selling Specially Selected Pork.

"Though it remains to be seen whether renewed producer confidence will translate into herd expansion, Scottish pig producers are likely to have entered 2014 more optimistic than they have been for a number of years."