Friday, 4 January, 2002

By Peter Crichton

AT the start of 2002, the industry faces a series of challenges.

Following another year when most units lost money, producer returns desperately need to move into the black.

Production costs on units feeding compound rations and struggling with PMWS are in excess of 110p/kg deadweight, according to the Meat and Livestock Commissions Signet Farm Business Consultancy.

And although it is difficult to forecast what effect PMWS will have in the year ahead, it will be hard for many producers to operate at less than 105p/kg.

The UK June 2001 census shows continued falls in sow numbers, to 578,000 head, compared with 615,000 a year earlier.

And finished pig slaughterings are predicted to fall below 200,000 head a week as last summers infertility problems filter through.

If pig numbers continue to drop, more abattoir closures and mergers will be inevitable.

At the same time, forward pricing will become more of a lottery, with several of the bigger players reducing their linkage with the UK AESA as their main pricing mechanism.

The new Grampian/Malton plant has already started a weekly “self set” price, which opened the year at 102p/kg, compared with Glanbia at 100p/kg and Dalehead at 98p/kg.

Lower finished-pig prices and disease have also hit weaner returns, with 30kg values unlikely to rise above 30/head unless numbers tighten and abattoir prices pick up.

Breeding companies have reported much lower sales of replacement gilts and, once cull sow exports have returned to normal, producers will take out many of the older sows still in the system, which will lead to further falls in the UK herd size.

Export quotes are forecast to remain at around 50p/kg over the next few weeks, before staging a recovery towards EU levels.

Recent press announcements that 80% of England may be declared a “Nitrate Vulnerable Zone” (NVZ) could also add to producers costs.

Farmers would have to significantly cut and delay muck and slurry application, with additional storage facilities costing producers in existing NVZ areas up to 90,000, according to NFU figures.

But EU prices and the value of the Euro will continue to dominate trade in the year ahead.

Latest EU forecast prices average 80.5-84.4p/kg over the next nine months, and UK prices are expected to average 95.4p/kg over the same period.

But unless the Euro recovers from its current 61.9p, imports will carry on undercutting the domestic market.

Only those producers who have got on top of both disease and production costs will be able to end 2002 with smaller overdrafts.

The rest will be facing another challenging year, and more retirements seem likely.