Current profitability of pig production in Poland

December is upon us, which is a time to take stock of the passing year. To do so it is good to start by determining how the current profitability of pig production in Poland is shaping up. Undoubtedly, over the past months not only have prices been decreasing but especially so have costs, which allows us producers to look optimistically at the financial balance of our business. For example, over the past three to four months (comparing the beginning of August with the beginning of December), the price of the basic feed grain, barley, fell by about 110 zł per ton, or 13.75%. At the same time, the hog price fell by 1.35 zł, or 12.46%. Looking at this relationship alone, we can see that, despite the decreases at the buying stations, production should now be more profitable (we're talking about a farrow-to-finish operation, where the cost incurred to obtain a piglet is not dependent on the purchase price of the animal). Now to see if we are earning more or less than we were at the beginning of August 2023 I will present an analysis of the cost of production and compare it to the one I did at the beginning of August 2023.

Currently, the cost of feed used on my farm for gestating sows is around 1,219.07 zł, while for lactating sows it is 1,470.22 zł. How these prices are calculated, and the share of each component in the ration is shown in the table below:

Taking the above data and calculating the number of reared piglets at slightly more than 11 piglets per sow per litter, the cost of obtaining a piglet is 165.09 zł. It is worth noting here that with better-managed production, this value will be lower.

In my analysis this time, I will skip the costs of producing breeding animals, and focus only on fattening pigs as the final product. Currently, the costs of producing feed for starter, grower, and finisher pigs are as follows:

Taking into account the average feed consumption, the period in which these pigs should gain weight, we get the following cost values:

Finally, let's check what price we are currently getting for fattening pigs at purchase. At the time of writing this article, the class E price is about 9.80 zł per kg. With a dressing percentage of 80, we get a price of 7.84 zł per kg live weight. The above calculations were for pigs fattened to a weight of 110 kg, so the value we will get for such an animal is 862.40 zł. That means the profit, without taking into account indirect costs, will be: 862.40 zł - 659.71 zł = 202.69 zł. Now let's compare this to the amount of profit (without indirect costs) we received in August, which was 280.03 zł. We can now see in black and white that the current prices we receive for pigs, unfortunately, give us a worse financial result than at the beginning of August. I'll admit frankly that when I sat down to prepare this report, I was convinced that production costs had fallen so much that the profit would be better. As you can see, as in any business, we can not rely solely on hunches, but first and foremost on facts, and the above calculations show clearly - it is slightly worse than in the summer - however, in my opinion - it is still good... and what will the future bring?

Currently, Europe still has the most expensive pork in the world. This is not conducive to international trade, so commodities that were supposed to go to third markets are increasingly landing within the intra-EU market - and this is starting to affect prices, which will start decreasing after the period around Christmas. However, we still have a safety buffer in profitability, which means that for the time being we can look at these changes calmly, but with a strong eye - the idea is to hedge for a period of lower prices. Is the world headed for even lower prices? In the short term yes, but in the long term? Here are some factors that could change this trend. First of all, will Brazil, which currently has a very low breakeven point, continue to grow its production and thus push prices lower worldwide? How will U.S. production behave, which is trying to compete with Brazil in terms of price, but their prices are far from satisfying to U.S. farmers, who no longer have anything to add to production? How will Europe, which in recent years has been focusing on improving welfare and the environment, and as a result, is increasing production costs and producing increasingly more "elite" goods, find itself in all this? Will it be able to maintain exports at such a level as not to collapse production on the old continent? Will production in China remain as high as it is today, despite high production costs and the ever-increasing problems faced by pig farmers there due to the concentration of production? Much depends not only on the market but also on politicians...

Bartosz Czarniak