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AHDB Pig Market Weekly

06 March 2014

AHDB Pig Market Weekly - 6 March 2014AHDB Pig Market Weekly - 6 March 2014

Following the discovery of two cases of African Swine Fever in Poland, China and Japan have announced a ban on imports of pig meat from the country.


China and Japan ban Polish pork

This follows the blocking of all EU pork shipments by Russia which was imposed immediately after the outbreak. Between them, these countries, along with Belarus and Kazakhstan which are part of the customs union with Russia, took over a third of all Polish pork exports between January and November 2013.

The volume of pork exported to the countries which have banned Polish shipments is equivalent to around 10% of Polish production. This will clearly have a major impact on the Polish market; the reference price had already fallen by €17 in the three weeks before the announcements were made. The impact on the wider EU market is less clear. Some of the additional Polish product will find a home elsewhere in the EU, suppressing prices to some extent. However, the shortfall in supplies to China and Japan may be filled by other EU exporters, potentially limiting the increase in supplies and mitigating any fall in prices.

Lower production costs in EU but margins still tight

Latest figures from members of InterPIG, an international group of pig economists, show that, based on movements in pig feed prices, production costs at the end of 2013 were generally lower than average costs in 2012. In most cases where prices were reported, the falls were between 8 and 11 cents per kg. The lowest costs were in Spain at €1.55 per kg, two cents lower than the Dutch and Danish figures. This compared with an estimate of €1.76 per kg for costs in GB, although this was 15 cents lower than in 2012, partly because the pound was weaker.

Although costs have fallen since 2012, this hasn’t necessarily translated into positive margins for producers. The EU average pig reference price in December 2013 was just over €1.70 per kg but prices in several Member States were lower (although the reference price does exclude annual bonus payments). Other than in GB, across the major countries involved, these estimates suggest that producers were only making money in Spain. Danish, German and Dutch producers were roughly breaking even, while their Belgian counterparts were losing money. This situation is supported by recent figures from German market information organisation AMI, which show both pig breeders and finishers close to the break-even point. Pig prices have generally fallen since December, suggesting the financial position of producers may have worsened further.

UK pig prices

The fall in the EU-spec DAPP since Christmas continued in the week ended 1 March, with prices currently at 163.08p per kg. Prices normally start to pick up at around this time of year, as supplies tighten and demand starts to pick up. However, the latest quote showed another week-on-week decline of just under a penny. Estimated weekly slaughterings suggest that supplies have not yet begun to tighten markedly this year, while low EU prices continue to apply downward pressure to the GB market. Nevertheless, pig prices are still around 8p per kg above last year’s level for the same week. The average weight of the pigs during the same week remained high at 80.56kg, marginally down on the previous week but over half a kilo heavier than this time last year.

In contrast, the 30kg weaner market jumped almost £3 per head to £57.44 per head for the week ended 1 March. This was partly due to a large number of weaners traded on a contract with an above average price and the underlying price trend probably remains steady. This brings the annual increase in the price of 30kg weaners to £11 per head. For the same week, the price of an average 7kg weaner edged down to £41.47 per head, with this market also broadly stable.

USDA forecasts stable meat production

At its Agricultural Outlook Forum in late February, the US Department of Agriculture forecast that the country’s meat production would be virtually unchanged in 2014. This comes as a 5% fall in beef production is set to offset higher broiler meat and pork output. However, the latest pork estimate of 23.4 billion pounds (10.6 million tonnes) is nearly 500 million pounds lower than USDA’s December forecast. This is the result of the PEDv outbreak, which has gathered pace throughout the winter, with some commentators expecting the impact to be greater still. USDA still forecasts a small increase in pork exports during 2014 but suggests that they will remain well below 2012 levels. Much will depend on the extent of US shipments to Russia, which are set to resume this month. Nevertheless, the modest overall growth in US exports potentially creates opportunities for EU traders, given that the US is the EU’s main competitor in the global market.

Turning to the outlook for grains and oilseeds, USDA forecast that US stocks of maize and soyabeans will be higher at the end of 2013/14 than they were at the start of the season but wheat stocks will be lower. However, wheat stocks in the other major exporters are set to be higher. Looking ahead, US stock levels for all three commodities are forecast to be higher at the end of the 2014/15 season. With the country being a major driver of global price levels, this suggests some room for downward pressure on prices, although weather could still have a big impact on production levels for the coming season.

Spanish export sales weakened in 2013

Spain is a net exporter of pork and in the year 2013, shipments fell to 972,600 tonnes, down 6% compared with a year earlier. Lower exports were mainly evident in the first half of the year (down 13%), with domestic production down during the same period. However, last year, exports were particularly high and, in fact, total supplies in 2013 were only marginally lower compared with 2011. With just over a quarter of pork going to France, lower demand from the country meant Spanish exports were down 2% compared with 2012. Exports to Italy fell even more sharply, by 6% year on year. Deliveries to the UK also came down by 2% but it is a much smaller market, accounting for only 4% of total volumes.

Exports to non-EU markets declined, largely a result of a significant drop in supplies destined for Russia, down by almost a half following restrictions imposed on Spanish exporters since the spring. However, as has been the case generally, import requirements from China/Hong Kong and Japan increased, by 12% and 31% respectively. The value of exports in 2013 totalled €2.32 billion, only marginally lower than in 2012, given a 5% rise in the unit price of exports.

Feed market update

The uncertainty surrounding the situation in Ukraine and its impact on exports was the main factor behind the UK feed wheat futures price breaking through the £160/t level for the first time since early January on Monday. Grain has been moving out of Ukraine on the back of previous trades and supplies from close to ports. However, further movement in the market will depend on the extent to which Ukraine can get supplies to ports and whether external shippers are prepared to take the risk of shipping Ukrainian cargoes. It is likely that the market will switch maize demand from Ukraine to the US and South America and this possibility has provided support to Chicago maize prices.

Results of the AHDB/HGCA winter planting survey indicate a return to a more ‘normal’ cropping mix for harvest 2014, with planted wheat area in England and Wales estimated to be 19% higher than the wheat harvest area in 2013. The latest crop development report from ADAS indicates good progress for most crops, including wheat.

Soyabean futures prices have continued to rise over the week, with the nearby Chicago contract reaching $521/t, the highest value since mid-September. UK soyameal values broke through £400/t last week, while rapemeal prices were at their highest level since June. Concerns for the South American soyabean crop remain, due to unfavourable weather, but despite this the crop is still expected to be higher than in 2012/13.

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

Breeding herd expansion in Northern Ireland

The December pig census figures published by the Department of Agriculture and Rural Development indicate a 1% year-on-year increase in total pig numbers in Northern Ireland, to 455,300 head. The increase was largely a result of a notable 10% rise in the female breeding herd, of which sows in-pig rose by 21% while in-pig gilts fell by 5% on the year. However, it is worth noting that a change in methodology for the June survey was behind an increase in the figure for the Northern Ireland breeding pig population and it is possible that this may be the case again. In addition, maiden gilt numbers also increased by 31% compared with December 2012. This could indicate some improving producer confidence, although these figures tend to be volatile. In contrast, numbers recorded in the ‘other pigs’ category, which includes piglets, weaners and finishers, remained almost unchanged.

Irish exports steady despite lower output

In 2013, Ireland exported 132,300 tonnes of pork; this was almost unchanged from a year earlier. The balanced export market last year was a result of lower production, which encouraged imports into the country but limited volumes shipped out. However, it should be noted that last year, Irish exports reached a record level and, with volumes almost unchanged this year, Ireland has maintained its strong position. With the average export price up 7%, the total value of exports in 2013 amounted to €317.7 million, 7% higher than the previous year.

The EU’s importance to Irish exporters was reduced in 2013, accounting for only 59% of total trade compared with 63% in 2012. Overall exports to the EU were down by 7% on the year, although supplies to the two main markets, the UK and Germany, fell by only 1% compared with the previous year. This means over 40% of Irish pork exports were supplied to non-EU markets, the primary one being Russia, where the market recorded strong growth (up by 41%). Exports to China increased by a smaller 5% on the previous year.

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