abare.gov.au - Australian commodities – March quarter . volume 16 . number 1 2009

Pig meat

Outlook to 2013-14

Sally Fletcher and James Fell

In 2007-08, high feed grain prices combined with a strong Australian dollar placed the pig meat industry under pressure. Higher feed costs and the loss of competitiveness on the world market led many producers to leave the industry or to sell off stock. The subsequent reduction in the breeding herd has placed upward pressure on pig prices in 2008-09, providing respite for producers. The recent decline in feed grain prices and the depreciation of the Australian dollar have further improved prospects for the industry. Largely reflecting lower supply of pig meat, pig prices are estimated to be 31 per cent higher in 2008-09 than in 2007-08.

Australian pig prices are forecast to fall by 5 per cent in 2009-10, to average 300 cents a kilogram, as a consequence of an increase in the supply of pig meat and lower feed grain prices.

Pig prices (in 2008-09 dollars) are projected to decrease to around 276 cents a kilogram by 2013-14. This is a result of a projected increase in production and an assumed appreciation of the Australian dollar over the medium term that will lead to cheaper imports. Despite the forecast decline in prices, lower domestic production compared with recent years will keep prices relatively high.

Decline in feed grain prices helps producers

Improvements in the supply of feed grain in 2008-09 has resulted in a decline in prices. This is reflected in the increase in the pig to feed grain price ratio between June and December 2008. The pig to feed grain price ratio is an indicator of the returns from pig production. The recent improvement in the pig to feed grain ratio indicates a favourable market environment for producers. Over the next few years, the ratio is projected to fall slightly given the projected decline in pig prices.

Domestic production declined by 9 per cent between 2002-03 and 2006-07. In response to lower domestic production, import volumes have been increasing to satisfy strong demand for pig meat. The supply of pig meat, which includes production and imports, reached a peak in 2006-07 at 533 000 tonnes (carcass weight equivalent).

In 2009-10 production is forecast to increase by 6 per cent relative to 2008-09, to 340 000 tonnes. The forecast increase reflects the response by producers to the high returns achieved in 2008-09. Over the medium term, production is projected to increase to 350 000 tonnes by 2013-14, as a result of the expectation that feed grain prices will remain below 2007-08 levels. Despite the increase in production, projected total supply remains 4 per cent below that of 2006-07.

Imports to rise

Increasing import volumes have concerned the industry in recent years. The increase in feed grain prices globally appears to have had a greater effect on production costs in Australia than in major exporting countries, in particular Canada and the United States. As a result, Australian pig meat was less competitive than imported meat from such countries. In addition, the strong Australian dollar made imported products more affordable to Australian consumers. Consequently, imports in 2006-07 and 2007-08 accounted for around 40 per cent of total domestic supply. Import volumes continued to grow in the six months to December 2008, increasing by 30 per cent relative to the same period in 2007-08. However, import volumes are forecast to decline over the remainder of 2008-09 as a result of the assumed depreciation of the Australian dollar.

The extent to which imports can increase and displace domestic production in Australia is limited by quarantine measures, which require all imported products to be boneless and processed before being sold at retail. In recent years, the proportion of domestic production destined for the fresh pig meat market has grown from approximately 58 per cent in 2002-03 to 75 per cent in 2006-07. However, in terms of volume, it has only increased by 16 per cent or approximately 40 000 tonnes.

In 2009-10, the effect of the lower Australian dollar on the price of imported product is forecast to lead to a 3 per cent decline in imports to be 102 000 tonnes. In Canada, Denmark and the United States, which together account for approximately 97 per cent of Australia’s pig meat imports, sow numbers have declined. This is likely to constrain production, placing further upward pressure on the price of imports. In the 12 months to October 2008, Canadian sow numbers were down by 8 per cent while Danish sow numbers fell by 5 per cent in the 12 months to December 2008. US breeding sow numbers were also down, falling by 3 per cent in the 12 months to September 2008. Lower sow numbers are expected to result in a lower supply of pig meat in these major exporting countries.

From 2010-11 to the end of the outlook period, imports are projected to rise to 115 400 tonnes by 2013-14. This is expected to occur as a result of an assumed strengthening of the Australian dollar (making imports relatively cheaper) and continued strong domestic demand for processed pig meat.

Exports

Australia’s main export markets for pig meat are Singapore and New Zealand, comprising approximately 50 per cent and 25 per cent of annual export volumes respectively. In recent years, exports have accounted for around 17 per cent of total production. In 2009-10, export volumes are forecast to rise by 3 per cent above the previous year to be 40 000 tonnes. This forecast reflects an increase in production and a lower Australian dollar, relative to 2007-08, which will make Australian products relatively more competitive in these markets. However, with prices projected to be lower in 2009-10, export earnings are forecast to fall by 2 per cent to $145 million.

In the medium term, exports of Australian pig meat are projected to fall to 39 000 tonnes by 2013-14, as a result of an assumed appreciation of the Australian dollar. Similarly, export earnings are projected to decline to $130 million (in 2008-09 dollars) by 2013-14.

Pig meat and poultry outlook

unit

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

Pig meat

Breeding sows a

’000

340

288

299

302

306

307

308

309

Saleyard price

– nominal

Ac/kg

255

240

315

300

297

300

305

310

– real b

Ac/kg

269

244

315

294

284

280

278

276

Slaughterings

’000

5 322

5 217

4 464

4 724

4 772

4 835

4 851

4 866

Production

382

377

321

340

344

348

349

350

Consumption

per person

25.4

24.7

21.9

22.1

22.3

22.4

22.2

22.0

Imports c

– fresh

104.3

100.2

102.4

100.0

104.0

107.0

110.0

112.9

– preserved

2.3

2.8

2.9

2.4

2.5

– total

106.6

103.0

105.3

102.4

106.4

109.4

112.5

115.4

Export volume cd

41.3

39.1

39.0

40.0

39.5

39.2

39.0

Export value

– nominal

142.4

128.1

147.6

144.8

141.6

141.9

143.5

145.9

– real b

150.2

130.7

147.6

142.1

135.5

132.5

130.8

129.7

Retail price

– nominal

Ac/kg

1 187

1 220

1 290

1 320

1 360

1 400

1 435

1 475

– real b

Ac/kg

1 252

1 245

1 290

1 295

1 302

1 307

1 311

Poultry meat

Production

855

840

870

890

920

940

960

980

Consumption

per person

39.1

37.8

38.0

38.3

38.9

39.1

39.4

39.7

Export volume

28.5

30.2

36.0

38.1

39.6

40.6

41.5

42.4

Retail price

– nominal

Ac/kg

490

534

540

530

532

535

542

550

– real b

Ac/kg

517

544

540

520

509

500

494

489

a numbers at 30 June. b In 2008-09 Australian dollars. c Shipped weight. d Excludes preserved pig meat. f ABARE forecast. z ABARE projection.
Sources:Australian Bureau of Statistics; ABARE.