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AHDB Pig Market Weekly

28 June 2013

AHDB Pig Market Weekly - 27 June 2013AHDB Pig Market Weekly - 27 June 2013


Lower Costs Put Producers Back in the Black

Pig producers are back in the black for the first time in nearly three years, according to latest AHDB provisional estimates of the cost of pig production. Estimates for recent months have been revised upwards following the receipt of updated physical performance data which show the impact that the adverse weather earlier in the year on herd productivity. Allowing for this, average costs in June were estimated to be around three pence lower than revised estimates for the month before, standing at just over 164p per kg. With the DAPP passing this level at the end of May and heading higher still in June, producers stand to make a significant positive margin for the first time since the autumn of 2010.

Total Cost of Pig Production Compared with the DAPP

Source: AHDB Market Intelligence

Despite the recent falls, costs are still more than 6p per kg higher than they were in June 2012. They have declined significantly since the start of the year as global cereal and oilseed prices have eased back as prospects for the 2013/14 season have improved. Nevertheless, costs will need to remain low relative to prices for a sustained period if producers are to recover the losses made in recent years.

China Continues to Drive Strong UK Pork Exports

UK pork exports continued to strengthen in April, as shipments were up 22% on the year. For the first time, China became the leading destination for UK exports, taking 16% of the total. Reports suggest these included increasing volumes of primal cuts as well as fifth quarter products. Among EU markets, Germany and Ireland purchased less UK pork but exports to Denmark doubled. Volumes of cured pig meat in April were only marginally down on the year but sausage and other processed shipments fell. Pig offal exports slowed, with only 9% growth on the year, held down by lower demand from Belgium and the Netherlands.

UK Pig Meat Trade

Source: HMRC

UK pork imports bounced back slightly in April as frozen imports were up by more than a quarter, offsetting a small fall in fresh/chilled shipments. The figures suggest some recovery in demand for European products, although the later Easter may have reduced volumes last year. While Denmark maintained its position as primary supplier, imports from the country were down 10%. However, the decline was mitigated by rises in German, Dutch and Irish shipments. Cured meat imports were little changed from last April, despite both Denmark and the Netherlands sending less. Sausages showed a similar trend with only a marginal increase in supplies while other processed shipments recorded a 14% decline.

CAP Reform Political Agreement Reached

The European Parliament, Commission and Council reached a political agreement on CAP reform yesterday. Full details of the deal are yet to emerge on all points, and some elements remain to be agreed.

Key aspects of the deal include that 30% of direct payments will be conditional on farmers undertaking greening measures. These include crop diversification measures, permanent pasture maintenance and leaving an ecological focus area of (initially) 5% for farms with at least 15ha of arable land. Farmers who do not comply with these will lose their greening payments and (from 2018) further sanctions. Some farmers (including organic farmers and those in agri-environmental or similar schemes) will be exempt as they are considered to be delivering ‘greening equivalency’.

In addition, there will be a gradual convergence in the level of payments across and within member states. However, member states will be able to continue to couple some payments (8%-13%). There are still some points outstanding relating to the EU budget (the Multi-annual Financial Framework). These include the rate of convergence of payments between member states, capping of payments for large farms and the movement of money between the pillars of the CAP. AHDB will release more detailed analysis on the reform and its likely impact next week.

UK Pig Prices

The EU-spec DAPP continued to strengthen as the price for the week ended 22 June reached 167.44p per kg. This was again a penny higher compared with the week earlier and the annual difference remained over 17p. The firm DAPP was mainly a result of strong demand for British pig meat coupled with tightening pig numbers across Europe. However, during the week, GB pig slaughterings were estimated to be 2% up on a year earlier at 155,600 head. The average carcase weight was marginally up on the previous week at 78.78kg. This was just under a 1kg more than the previous year, which suggests that finishers are taking advantage of the fall in feed prices as of late to add some extra weight.

GB 30kg Weaner Prices

Source: AHDB Market Intelligence

For the week ending 29 June, the weaner market followed the trend in finished pig prices. The price of an average 30kg weaner increased by over 50p to £52.50 per head. The evident confidence among finishers contrasts with the situation a year ago, when rising feed prices pushed weaner prices lower; the annual difference is now over £10 per head. The prospects of an improving feed market along with better producer returns is likely to be the main driver of the recent developments in the weaner market.

In recent weeks, sow prices have shown some positive movement and the trend carried on again in the week ended 15 June as prices moved back above a pound at 101.23p per kg. This was a penny higher than the previous week and the push came from some improvement in the export market as tightening supplies in the EU contributed to price rises. The yearly price gap fell slightly but prices are still 15p below year earlier levels. The number of sows culled during the week was estimated at 5,400 head.

UK Slaughterings Lower in May

UK clean pig slaughtering in May totalled 739,600 head, 2%, or 14,700 head, down on a year earlier. This was the largest year-on-year fall in nearly three years. Throughputs were up 2% in England and Wales but this failed to offset the decline in other regions, with Scottish throughputs continuing at the lower level seen since the closure of the leading Scottish abattoir last year. The kill in Northern Ireland was down 9% due to lower production and imports of live pigs. The number of sows and boars culled during May totalled 19,000 head, marginally above the level a year earlier.

Annual Change in UK Clean Pig Slaughterings

Source: DEFRA

The average carcase weight in May reached 78.4kg, around 400g higher compared with the same month in 2013. With the seasonal decline in weights less pronounced than in recent years, this was the second heaviest average weight recorded for May. With feed prices having come down slightly, producers were happier to add some extra weight on their animals, with processors also looking for heavier pigs to offset tightening supplies. Despite the small increase in the average carcase weight, lower throughputs meant that the total pig meat production was almost 2% below the level a year earlier at 60,700 tonnes.

Feed Market Update

UK LIFFE wheat November 2013 futures contracts were worth £167.50/t at close on Tuesday, up by 50p on the week. December CBOT maize futures fell by just over $2 to $214.37/t (£139/t). Nearby LIFFE prices fell to their lowest level in 18 months, closing at £158.50/t. Traders have been assuming positions ahead of the USDA quarterly stocks and acreage report to be published on 28 June. Thus, markets are expected to be quiet ahead of potential volatility once the report is published. US maize and wheat conditions improved last week while forecasts for 2013 harvest across the EU were increased by analysts Strategie Grains last week.

The CBOT (July 2013) soyameal price also closed higher on Tuesday at $505.60/t, up $6 on the previous week. Hi-Pro soyameal (ex-store East Coast) as at last Friday was £400/t for July movement, down £3 on the previous week.

EU-US Trade Agreement Negotiations Launched

The EU and US have launched negotiations on a free-trade agreement, aimed to liberalise trade and investment between the two blocks. The first round of negotiations is due to take place in Washington on 8 July. An agreement could see cost savings and increased exports from both trading partners. At present, the EU and the US make up 40% of global economic output and their economic relationship is already the world’s largest. Most gains would come from cutting costs imposed by bureaucracy and regulations as tariffs between the EU and US are already low.

Agriculture is likely to be a key stumbling block. Issues such as EU bans on ractopamine-fed pork, hormone-use in beef production and GM crops are likely to be at the heart of the negotiations. The EU is also likely to insist on the inclusion of its Geographical Indication (GI) scheme in the negotiations.

In 2012, the EU exported over 42,000 tonnes of pork to the US, equivalent to approximately 3% of total EU pigmeat exports. US tariffs are already low so any benefits to European pork exporters will likely be limited to small cost savings from reduced bureaucracy. In comparison, US shipments of pig meat to the EU were little over 2,000 tonnes last year as EU import tariffs are more restrictive. The agreement could potentially open the EU market to more US pork, providing increased competition for European producers since production costs and pork prices tend to be lower in the US.

Small Rise in Italian Imports

Following last years’ falls, the Italian import market strengthened slightly between January and March as pork supplies this year were 2% higher than the same period last year. While the majority of markets continued to deliver lower volumes, there was a 13% rise in product from Germany. As the primary supplier, the country strengthened its position and supplied over a third of total imports during the first three months of this year. The bulk of the increase stemmed from the first month before supplies reverted back to the declining trend by March. During the first quarter, the unit price of imports came up 6%, which led to an 8% rise in the total value to €489m.

Italian Pork Imports, January - March

Ssource: Istat, GTIS

Pork exports, on the other hand, came down by 17%, as shipments amounted to 17,100 tonnes in the first quarter. There were double digit declines in volumes sent to each of the five largest markets last year, with exports to Hungary down by more than half. This was only partly offset by increased shipments to some smaller markets, including the UK. Exports of ham were down by just 1% at 14,300 tonnes, although some non-EU markets performed well, including the US, Japan and Australia.

June Pig Market Trends out now

The June edition of Pig Market Trends (PMT) was published on Tuesday. As well as the usual coverage of producer prices, slaughterings and production, trade, retail sales and prices, costs of production and other industry news, this month’s edition focuses on the outlook for the global pig market.

Key messages this month include:

  • Global pig production expected to reach new record in 2013 but growth slower than in 2012
  • Faster production growth in major importers than exporters means global trade growth set to stall in 2013
  • Tighter supplies forecast for EU later in 2013 leading to lower exports and firm prices
  • Average GB pig prices in May highest on record and increasing further into June
  • EU pig prices subdued during May on lacklustre demand but starting to pick up in June
  • Pork purchases up for the first time in nine months in the four weeks ending 12 May 2013
  • Foodservice market stabilising after years of falls with strong breakfast growth contributing.

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