October 10, 2008

Pork Producers Warily Optimistic


Pork producers are relying on softening grain prices to make pig farming more profitable.

High grain prices have meant many producers only broke even last season, and the national sow herd fell 10 per cent in line with international losses.

New Zealand Pork's chief executive, Sam McIvor, said fresh- pork prices had to improve to prevent producers going out of business.

Pork's cheaper price, compared with other protein, was placing in it a good retailing position, he said. "Pork producers are reliant on turnover and the (profit after costs) margin. They have small landholdings with specialised buildings which start to depreciate once they are up, compared with sheep and dairy farmers who have land assets that gain in value. Breaking even is not good enough for them."

Lower sow numbers have stemmed from exiting producers, summer infertility and piggeries reducing herds during low-price conditions enabling them to improve genetics and disinfect housing so herds can be rebuilt when returns rise.

McIvor said sow losses would be regained reasonably quickly if prices improved, possibly by 20c-40c/kg before the end of the year. Consents for developing big piggeries were also in the waiting, he said.

The meat schedule for pork has risen by $1/kg the last two months to between about $3.80/kg and $4/kg.

Pork, however, is still well placed on shopping shelves as a cheaper option than chicken, beef or lamb, which have "rocketed" the last year. By the end of April, analysts estimated pork was between $2/kg and $6/kg cheaper than other proteins.

McIvor said there was room for fresh pork returns to improve, but the question remained whether prices for protein as a food group had reached a ceiling for shoppers.

Retailers report sales of pork have increased the last few weeks because of its price advantage. Grain prices, which have been swinging weekly, appear to be reducing.

New Zealand Pork has tracked barley at $360-$380/tonne, back $60- $70/t from three weeks ago. Barley supplies are up from farmers putting more crops in the ground during higher prices last season.

Pork producers are feeling less pressure on grain availability since chicken producers have brought in Australian sorghum at $50- $60/t less than barley and with increased palm kernel in cow diets in the dairy industry.

New Zealand producers supply about 95 per cent of fresh pork for butchers and the supermarkets, with the rest from Australia. However, 75% of the processed market, such as ham, bacon and other smallgoods, is imported. European producers are optimistic that world prices will increase by between 20% and 30% over the next year because demand is strong and supplies are low.

China and Russia remain strong buyers, particularly of United States product.


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