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AHDB Pig Market Weekly

19 December 2013

AHDB Pig Market Weekly - 19 December 2013AHDB Pig Market Weekly - 19 December 2013

The UK’s trading position with the EU appears to have changed as the British and Eurozone economies continue to take different paths.


British economic prospects improve while Eurozone struggles

So far, 2013 has been a more positive year for the British economy. The UK has seen a strong economic recovery during the first three quarters of the year with GDP growing by 1.8%. This expansion appears to be built on solid foundations with key economic figures improving across the board. Unemployment has fallen by 1.5% while the manufacturing, services and construction sectors are growing at their fastest pace since before the 2008 recession. These indicate an increase in consumer demand for goods and services and growing demand for housing and commercial property.

The same cannot be said for the Eurozone, however. GDP in the region has grown by only 0.2% since the end of 2012. Several nations within the bloc continue to struggle, with France and Italy being the largest economies to shrink during the third quarter of 2013. The foundations for a sustained recovery also appear to be weak. The job market has continued to worsen with unemployment rising by 2.3% so far in 2013, contributing to a retail sector that also continues to decline.

These issues have implications for the food and farming industry. An improving job market within the UK means that British consumers have more disposable income. This will mean that they are willing to spend more on products, potentially increasing the demand for higher quality food products. The opposite is happening within the Eurozone; a worsening economic position and growing unemployment has hit demand, impacting UK exports to the region. So far in 2013, 75% (7,760KT) of the UK’s exports of food and drink products have been sent to the EU, down from 81% (10,902KT) for the same period in 2012.

UK trade strengthened in October

According to the latest figures published by HMRC, UK pork imports strengthened slightly in October at 31,800 tonnes. This was a 2% rise from the same month last year. Trade was somewhat subdued by a 14% decrease in supplies from the primary market, Denmark, while imports from the Netherlands also came down by 4%. However, these falls were offset by growth of German shipments, which were up by a fifth compared with October 2012. The varying trends reflect the availability of supplies on the respective domestic markets. The 2% rise in imports of bacon was largely made up of higher Danish and German supplies. UK imports of processed products also increased, with a notable rise in supplies from Poland. However, there was lower availability of sausages from the continent as imports came down by 6% on the year.

At 17,100 tonnes, the UK exported 15% more pork in October compared with last year. Higher volumes were sent to all main markets but in particular Denmark purchased twice as much as in October 2012. This meant that it displaced China as the third largest market for the UK, with most shipments presumably intended for re-export. Exports destined for the two leading markets, Germany and Ireland, continued to grow but demand from China slowed with shipments little changed from last October. An increase was also evident in processed shipments and those of cured products, including bacon. In contrast, pig offal exports declined sharply for the fourth consecutive month. This was a result of a slowdown in demand from both the EU and third countries.

UK pig price

The EU-Spec DAPP edged down by a small 0.37p for the week ending 14 December. At 171.32p per kg, the finished pig price was just over 10p higher compared with the same week last year. The AHDB weekly slaughtering estimate was 183,200 head, its highest level since the equivalent week last year. Throughputs have increased in recent weeks as producers marketed their pigs early ahead of the Christmas period but supply has been down on last year’s level. The earlier marketing of pigs also led to a further fall in carcase weights to 79.04kg, although this was still a kilo heavier than the same week in 2012.

The 30kg weaner market strengthened for the week ended 14 December, with the average price at a record £57.79 per head. This meant breeders received almost £2 per head more compared with the week before. Industry reports suggest strong demand for 30kg weaners, coupled with tight supplies, partly due to some herd fertility issues. However, with volumes traded relatively low at this time of year, changes in the mix of pigs may also have influenced the price level. At the latest weekly price, weaners were almost £12 per head more expensive than the same period in 2012. In contrast, the average 7kg weaner price remained flat during the same week at £42.72 per head.

Little change in cost of pig production

With global cereals markets unusually stable of late, the average cost of pig production in December was little changed from the previous month at 146.6p/kg, according to provisional estimates. This is down just 0.2p compared with last month but is 22p lower than a year ago, when costs were close to their all-time high point. Previous estimates have been revised down slightly to take account of the latest physical performance data, which was covered in more detail in the last Pig Market Weekly.

At their current level, production costs are very similar to those in December 2011 but pig prices are around 24p higher than they were then. Therefore, while producers were breaking even two years ago, they are currently experiencing positive margins of about £20 per pig. Although this has allowed them to start paying back recent losses, the cumulative deficit over the last three years still stands at £95 million. Margins will need to stay at current levels until at least the middle of next year for producers to back in surplus.

Russia boosts EU exports again

EU-28 pork exports in October reached 152,600 tonnes, up 15% compared with the same month in 2012. This was the largest quantity exported from the EU in October in records back to 2002. Just over a quarter of the total trade was destined for the Russian market, with supplies to this country increasing by 51% on the year. While China accounted for a smaller share of shipments at 19%, exports to this market also increased by a fifth compared with October 2012. Other Asian countries including Japan and Hong Kong also continued to purchase more EU pork. As a result of a stronger export market, the pork trade generated a total of €367 million in October. This was 10% up on the year despite some easing in export prices.

Pig offal export growth slowed in October with a small 2% rise compared with the same month in 2012. This was largely a result of declining trade with the primary market China (down 10%) and Russia (down 22%). Together the two markets accounted for almost half of the total EU pig offal exports. However, higher demand from Hong Kong offset the fall, with some smaller markets also contributing.

Feed market update

No major threat has arrived so far to drastically reverse the downward trend in grain prices. Ample global grain supplies continue to result in relatively stable prices across the globe. The UK feed wheat futures price for Jan 2014 delivery increased by less than 1% over the week and settled at £164/t on Tuesday but this is compared with the lowest price since early October. The Chicago maize futures price for Mar 2014 delivery settled at $168.01/t on Tuesday, down from $171.65/t the week before. European wheat values, however, continue to hold up due to strong export demand.

EU feed barley prices have also been stable due to good demand within the region but the arrival of the Australian and Argentine crops will now bring tougher competition, particularly for third country exports.

The Chicago Jan-14 soyameal futures price settled at $493.80/t on 17 December, compared with $483.10/t the previous week. Production levels in South America continue to be on the higher side of expectations, due to generally good rainfall in the region. However, strong demand for soyameal has resulted in firm prices. In the UK, the Hi pro soyameal (Ex-store, East Coast) price for December delivery was £382/t as at 13 December, down by £2 on the previous week.

To read more about the latest developments in the feed market click here.

Season’s Greetings

Everyone involved with Pig Market Weekly would like to wish our readers a Happy Christmas and a prosperous New Year.

We will not be publishing Pig Market Weekly next week so this edition will be the last of 2013. The next edition will be published on Thursday 2 January 2014, although it may be out slightly later in the morning than normal.

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