The GB Standard Pig Price (SPP) began the year by sliding slightly in seven out of the first eight weeks and, as a result, prices slipped from 151.9p/kg dwt at the end of 2016 to 149.6p/kg in the week ending 25 February.

However, three consecutive weekly gains raised prices to a nine-week high of 151p/kg in the third week of March. Compared to a year earlier, this represented an increase of 35 per cent.

“While this impressive year-on-year increase will be of comfort to producers, it should be noted that the market remains below the levels of March 2014, while feed prices have also risen sharply over the past year,” said Iain Macdonald, QMS Senior Economics Analyst.

The combination of firm home and global demand for wheat, lower EU production in 2016 and currency movements have seen feed wheat trading 40-50 per cent more expensive than last spring, said Mr Macdonald. Soyameal is also up, by more than a fifth, mainly down to a weaker sterling against the US dollar.

“A key barometer of the prevailing market conditions is the spot price available to producers for pigs outwith regular contractual deliveries.

Whenever spot prices fall below contract levels it points to a well-supplied market. However, at times when processors are having to seek supplies from outside their regular scheduled deliveries, the spot market will firm,” added Mr Macdonald.

Industry sources suggest, he said, that spot prices were falling until early February, but by the beginning of March had risen above contract levels, indicating tight supply relative to demand. Therefore, Mr Macdonald observed, the recent lift in the SPP has come of little surprise.

A closer look at the weekly deadweight price reports reveals some of the key drivers of the recent upturn. Taking slaughterings first, the price reporting sample of prime pigs has been falling seasonally. The three-week rolling average number of pigs in the SPP was 5 per cent lower in the third week of March than it had been at the end of January, said Mr Macdonald.

“Furthermore, carcase weights have been following a seasonal downturn over the same period, with the three-week average slipping from 84.4kg to 84.1kg - adding to the fall in pigmeat supply. Lower carcase weights mean that, at £126.75, the average price per carcase remained 0.5 per cent below its year-opening level, whereas the price per kilo was down by only 0.1 per cent,” said Mr Macdonald.

On the demand-side, there is limited evidence of any significant upturn. Household purchase data from Kantar Worldpanel for the past few years indicates that pork sales tend to be lower in February and March than they were in January. Unlike lamb, pork does not show a spike in volumes around Easter.

“The latest figures, for the 12 weeks to the end of January, continue to signal a fall in pork sales volumes relative to 12 months earlier, despite lower retail prices,” said Mr Macdonald.

“However, bacon, sausages, sliced-cooked meats and pork-based ready meals did show some growth. Perhaps it is demand for these processed products that has been underpinning the farmgate price in recent weeks.”

On the continent, similar price trends have been observed in in the first quarter of 2017 with a sluggish start to the year followed by a March upswing. Industry reports, he said, suggest that the supply and demand balance is favouring producers, and is likely to continue to in the coming weeks.

The strongest increases in late February/early March have been in France, Spain and Holland, pushing prices 6-9 per cent ahead of their 2016-ending levels. More muted increases of 3-4 per cent have occurred in Germany and Poland. However, producer prices in Denmark and Italy are yet to fully recover after falling in January.

“Across the continent, producer prices are well above March 2016 levels, averaging 23 per cent higher in euro terms at €1.54/kg dwt (134p/kg). This is around 10 per cent below the UK average.

“Driving the EU market has been tight supplies after the consolidation of the sow herd in response to the challenging market conditions of the past couple of years, coupled with firm export demand from Asia, most notably China,” observed Mr Macdonald.

Eurostat data indicates that the sow herd across the five largest EU pig producing nations contracted by 2 per cent in the year to December 2016. Meanwhile, EU export volumes rose by nearly one-third in 2016, to 2.3m tonnes.

“Within this total, shipments to China expanded by 86 per cent to 986,500t. They followed a seasonal profile, rising through the spring and peaking in the summer before falling back again, helping to stabilise wholesale pork prices in China, which had been running nearly 50 per cent above 2015 levels during the spring of 2016,” he said.

Closer to home, the Scottish Government published its December Survey of Agriculture results in March. The Scottish sow herd is estimated to have expanded by 1.5 per cent to a six-year high of 37,800 head. However, gilts retained for future breeding fell by nearly 30 per cent.

Fattening pig numbers showed a strong increase of more than 13 per cent. This meant that there were 9.7 for each sow, up from 8.9 in December 2015 and matching 2014 levels. One possible explanation for this is, added Mr Macdonald, that fewer weaner pigs were exported for finishing on farms in northern England during 2016.