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AHDB Pig Market Weekly

19 April 2013

AHDB Pig Market Weekly - 18 April 2013AHDB Pig Market Weekly - 18 April 2013

The UK imported 10% less pork in February compared with the corresponding month of 2012, the largest annual fall in more than six months.


Export Market Continues to Strengthen While Imports Lower

The easing in import volumes is partially the result of a drop in EU production for the month but demand in the UK has also been relatively weak, with the latest retail figures showing a decline in purchases. In addition, the average import price increased by 7% so the total value of pork imports was down by 4% to £43.8m. Volumes from Denmark were down by nearly 30% and large falls were also recorded in its shipments of cured and processed products. Overall, bacon and ham imports were again lower while processed imports, including sausages, were also lower, in a reversal of the rising trend of recent years.

UK Pig Meat Trade

Source: HMRC

In contrast, the UK export market performed better in February, with an 18% year-on-year increase in pork shipments. There were considerable increases in exports to Denmark, likely for re-export, and China (which took 2,200 tonnes). Shipments of cured pig meat followed a similar downward trend to recent months but the fall failed to offset the rise in pork shipments. However, as has been the case since September last year, offal exports were much higher, almost doubling with the majority of the increases coming from shipments to Belgium, Germany and China.

Positive Signs of Economic Recovery?

The state of the economy has been getting a lot of attention lately with everyone nervously awaiting the first GDP figures of 2013. These figures, due for release on 25 April, will tell us whether the British economy has managed to avoid an unprecedented triple-dip recession. With the UK economy contracting by 0.3% in the final quarter of 2012, alongside a drop of 0.5% for the EU as a whole, the outlook appears bleak.

Despite these figures and the depressing news from Europe, the financial markets suggest that confidence is rising. Global stock prices have increased strongly since the start of 2013 with the FTSE 100 rising by over 8%. Even in the Eurozone, prices have risen with the German DAX index growing by 0.8% and the French CAC 40 increasing by 1.6%. A rise in share prices indicates a belief among investors that the UK economy will begin to grow soon. Various independent forecasts hold the same view, with GDP growth predicted to accelerate through 2013 and 2014.

Other indicators also suggest that the UK appears to be well placed for a recovery; the number of unemployed people has fallen by 6% during the past 12 months and a devalued pound should help to boost exports. With so much dependence on trade with Europe, however, a meaningful British recovery is likely to prove difficult until the Eurozone debt crisis is resolved.

As prices rise, the continuing economic problems across Europe are now hitting demand for pig meat, which had held up well in the early stages of the economic downturn. This may limit any further price increases as a result of the tighter supply situation expected later in the year.

Sow Prices Drop for the First Time Since January

The EU-spec DAPP edged up again for the week ended 13 April, reaching 159.19p per kg. This was marginally up on the week and the annual difference remained at 14p. Increases are normal at this time of the year but the growth is being constrained somewhat as a result of unfavourable weather suppressing consumer demand across the EU. Firm prices may also be a result of tightening supplies as the number of pigs slaughtered was down on the week and was lower than last year. The average weekly carcase weight came down slightly to 79.45kg. Although there was a similar trend during the same period last year, carcase weights remained higher for the latest week.

Estimated Weekly GB Clean Pig Slaughterings

Source: AHDB market intelligence

The weaner market also moved up again for the week ending 20 April with prices averaging, £48.97 per head and the annual increase is now £3. The market remains well balanced, with tight supplies supporting prices but high feed prices continuing to keep a lid on rises.

Increases in the sow price came to a halt for the week ended 6 April when the average price fell to 103.88p per kg. The week-on-week change was a drop of almost 4p but even more so, the sow price was 20p higher during the same week in 2012. The exchange rate movement is the main reason for the latest price drop, the first recorded since January. With the pound strengthening as it has in recent weeks, UK sows have become less popular on export markets in the EU. However, the short week following the Easter holiday also had a part to play and also meant that estimated sow slaughterings fell to 4,400 head, their lowest level since late January.

Producer Share of Retail Price up on the Year

Pig prices in March increased marginally on the month, while the rate of retail pork price increase was slightly higher at 2 %. As a result, producers received 40% of the retail price; this was 1% lower than their share in February. Nevertheless, at the latest average, producers were better off this year since their return was 2 percentage points higher compared with the same month in 2012. An 11% annual rise in the DAPP was the main factor, with retail prices rising by only 4%. Retail bacon prices for March are not yet available but the gap between the average farmgate and retail price for bacon increased in February. This meant producers received 35% of the retail price, although this was up from 32% in February 2012.

Percentage of Pork Retail Price Received by Producers

Retail prices were generally heading in an upward direction between February and March, with the largest increases in loin chops and steaks at 4%. In contrast, fillet of pork was the only cut which recorded a significant drop in price, falling by 5%. In comparison to values from March 2012, retail pork prices were higher this year, with increases as high as 9% for traditional pork sausages. Boneless leg and shoulder and loin steak retail prices were up 5%. Meanwhile fillet of pork and minced pork were 3% and 1% cheaper respectively.

No Increase in Brazilian Pork Exports

Brazil is the third largest pork exporter after the EU and US and it is also the first to publish its monthly trade figures. Therefore, its data can give us an early indication of global trading conditions. During the first three months of this year, Brazilian exports were almost unchanged compared with the same period last year. This was despite shipments to its primary market, Russia, almost doubling on the year; last year Russia’s ban on imports from three Brazilian states was still in place. Despite this, volumes sent to Russia were still a third lower than in the first quarter of 2011.

Brazilian Pork Exports, January-March

Source: Foreign Trade Secretariat, GTIS

Other than Russia, all of Brazil’s main markets took less pork than a year earlier, suggesting that global demand is subdued. This was despite prices being only 3% higher in US dollar terms, although the weakness of the Brazilian real meant that the value to exporters was up 16%. The overall weakness of export markets was emphasised by March figures which showed shipments down by 19%, with even Russia taking only 9% more than last year. In the previous two months, shipments were up 12% year on year.

Feed Market Update

Wheat prices declined over the week, with LIFFE May futures closing on Tuesday at £197.75, down £3.30 on the week but higher than Monday’s close. UK feed wheat is trading at an increasing discount to French milling wheat, indicating that old crop supply concerns are easing. New crop values remain at premium levels, reflecting uncertainty around the growing crop. There is also concern about the US weather and crop condition, with the winter crop struggling to recover from severe drought and extremely low temperatures. Soyabean futures increased slightly on the week, with logistics continuing to limit South American exports. This could lead to emergency purchases of US soyabeans, which would further tighten US old crop supplies. The South American harvest continues to progress well, however, and conditions remain favourable.

Russia Extends Import Restrictions

Russia’s state veterinary service is reportedly preparing to extend its ban on beef and pork imports, with Canada and Mexico likely to be the worst affected. The ban comes as part of an ongoing dispute over the use of the feed additive Ractopamine. In January, Russia asked the US, Mexico, Canada and Brazil to certify that all beef shipments were Ractopamine-free. The US’s inability to do so resulted in their total ban from the market as of 11 February, while the other countries agreed to cooperate with the Russian requests.

Since then, Russia’s state veterinary service has found Mexican laboratory tests and veterinary controls to be inadequate and has restricted Mexican supplies, mainly affecting beef. Reports suggest a similar ban will be extended to Canadian suppliers, which would be more significant for the pork trade. Last year, Russia imported 720,000 tonnes of pork, with Canada and the US accounting for 37% of the total. In the first two months of 2013, shipments from the US and Canada accounted for only 18% of Russian imports and were down 41% and 27% year on year respectively.

Promising Global Outlook for Second Half of 2013

In its latest Pork Quarterly report, Rabobank forecasts a promising outlook for the pig sector in the second half of 2013. Globally, the first quarter of 2013 was one of stability for the sector, with supply and demand more or less in balance. Increased availability in countries such as China, the US and Russia outstripped slow demand growth, leading to a drop in pork prices. The resulting fall in export demand contributed to keeping EU prices stable. Therefore, despite some fall in feed prices, the improvement in producer margins was lower than hoped for.

The report suggests that the growing importance of China and Russia as export markets for the US and EU means that seasonal trends in the Northern Hemisphere may be starting to change. As was the case last year, prices could be higher in the second half of the year with the first half more difficult. Carcase balance may also change, given different preferences in these markets. Lower production is expected in the second half of this year in the EU and possibly elsewhere, reinforcing this trend. With feed prices currently expected to be lower, this could mean that producer margins will look healthier than in recent years.

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