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AHDB Pig Market Weekly

14 August 2014

AHDB Pig Market Weekly - 14 August 2014AHDB Pig Market Weekly - 14 August 2014

Shoppers’ spending on pork was down 2% year on year during May to July, according to the latest Kantar Worldpanel data.


Mince’s share of pork market rising

The drop was led by chops/steaks, where expenditure was down 8% against the corresponding period a year ago. A drop in promotional intensity, driven by a reduction in price promotions this year, meant that not only did fewer households buy this cut but those that did bought less often and purchased less. The one sector that continues to perform consistently well is pork mince, which enjoyed annual expenditure growth of 51% and the quantity bought was up 45%. Indeed, the latest 12 week period saw mince reach nearly 6% of total pork sales and in the month of July, the share reached 7%. The versatility of pork mince, coupled with its attractive price proposition, especially compared to lamb, given it is now over £2/kg cheaper, means that it is increasingly finding favour with consumers.

Spending on sausages was down 2% over the latest period, compared to a year ago. The growth in the standard sector was more than offset by declining expenditure on the premium tier, which was down 8%. Average prices rose by 6%, impacting the number of households purchasing and the amount being bought per shop. Shopper spend on ham was fairly static, despite continued strong growth from the discounters, whilst expenditure on bacon was up 2%, helped by a small increase in prices.

Russian food import ban will have limited impact

Last Thursday, Russia announced that it was banning imports of agricultural and food products from the EU and several other western countries, including the US and Canada, in response to sanctions imposed over the situation in Ukraine. However, with import restrictions already preventing EU and US pork from reaching the Russian market, the impact of the ban on the EU pork market may be limited. Since the ban on EU pork, the two main suppliers to Russia have been Brazil and Canada, accounting for over 90% of pork imports between them. Therefore, the biggest impact will be on Canadian exporters, who will have to find alternative markets. This will increase competition on global markets, which may have some knock-on effect on the EU and, hence, the UK. Russia has reportedly approved a large number of additional Brazilian meat export plants, suggesting that the country will be the main beneficiary of the ban.

The ban will also affect several other edible pig products. Some, such as offals and fats, were already covered by the previous ban on EU imports. However, sausages were not covered by the earlier ban. Imports of sausages amounted to 19,000 tonnes in 2013, with 76% sourced from the EU. These volumes are too small to have much effect on the EU market as a whole but could have some localised impacts. Russian imports of other meats from the EU are also limited and are unlikely to have a big effect on the European market.

UK pig prices

Finished pig prices in the UK continued to fall in the week ended 9 August, with the GB SPP reaching another new low point at 159.18p per kg. This was 0.46p lower than a week earlier, as subdued demand continued to add pressure to pig quotations. This, together with industry reports suggesting difficulties in moving some cuts, added to the market imbalance. The EU-spec DAPP for the same week fell by 0.28 to 159.28p per kg. This was 9p below the 2013 level for the same week. The AHDB/BPEX estimated weekly slaughterings totalled 167,000 head, up 4% from a year earlier. Carcase weights during the week averaged 79.12kg, up marginally from the previous week. With pigs heavier compared with a year earlier, the supply in the market has been boosted further.

The APP for the week ended 2 August fell further to 162.14p per kg, a week-on-week change of 0.82p. During the same week, the GB SPP stood at 159.64p per kg, meaning the APP was 2.5p higher.

For the week ended 9 August, the 7kg weaner market edged up slightly to £40.46 per head, 27p higher than the week before. The latest 7kg weaner quotation showed prices £2 below 2013’s level for the same week. The 30kg weaner price weakened by over £4, falling to £51.74 per head. However, due to various disruptions, this fall may not fully reflect market conditions and should be regarded with some caution. Nevertheless, reports suggest that the spot market for weaners is under pressure due to limited availability of finisher accommodation, despite the low level of feed prices. The 30kg weaner price has fallen below the previous year’s level for the first time in nearly two years and is at its lowest level since June 2013.

US exports up despite higher prices

In the first half of the year, US pork exports increased by 10% compared with the same period in 2013. This came despite higher prices on the back of tight supplies due to the PEDv outbreak. Exports slowed somewhat in the second quarter, as the impact of PEDv become more apparent in supply availabilities, but were still ahead of last year’s level. In addition to the higher volumes, there was an average 9% increase in pork export prices over the six months and as much as 19% in the second quarter. As a result, the value of exports in the first half of the year totalled $2.6 billion, up almost a fifth on the previous year.

Mexico overtook Japan as the primary market for US pork exports, with a 22% increase in shipments. New PEDv outbreaks in Central Eastern Mexico, in addition to earlier cases, led to a higher import requirement, increasing the significance of US pork. Nearly half of US pork exports are destined for Asian markets, which include Japan, China and South Korea, with Japan taking the bulk of the volumes. Supplies to Japan were relatively stable, with a 1% increase on a year earlier but strong growth was recorded in China and South Korea. Exports to China were particularly high in the first quarter of the year, followed by a downturn in the second quarter.

US pork imports also increased by 10% to 174,000 tonnes, despite shipments from Canada, the dominant supplier, only rising by 3%. The higher prices on the US market made EU product more competitive, resulting in shipments being up by more than half compared with the first six months of last year. Denmark and Poland were the main beneficiaries.

Don’t rely on the ‘barbecue effect’

With UK finished pig prices falling in recent weeks, producers have been looking for things which might help to arrest the decline. One suggestion which is often cited during warm spells is barbecue demand. But is there any evidence to suggest that there is a link between ‘barbecue weather’ and rising pig prices?

New analysis shows that in months which are seasonally warm, pig price movements are, on average, slightly less positive than normal (either rising more slowly or falling faster). The difference isn’t large but this shows that hot weather, even in the barbecue season, doesn’t mean higher prices. The effects are small though, showing market fundamentals are far more important than the weather. The lack of a positive ‘barbecue effect’ should really come as no surprise, given less fresh pork and bacon are sold during the summer, particularly in warm years. Higher sales of ham and sausages mitigate this to some extent but the value of these products to UK processors is lower.

To read more about the effect of temperature on pig prices, click here.

Feed market update

Bearish news from the latest USDA supply and demand estimates was reported on Tuesday night, as global wheat production was revised upwards, resulting from higher supply in Russia, Ukraine and the US. Although this supply is met with some additional demand, global stocks have also been increased. USDA global maize production forecasts for 2014/15 have increased by 4.4Mt to 985Mt, mainly due to an upward revision to US production. UK feed wheat futures (Nov-14) closed at £122.05/t on Tuesday, down £1.45 from the previous week. Chicago wheat futures also followed the downward trend but Paris maize futures were unchanged since the previous week and Chicago maize was up slightly.

The latest supply and demand estimates from USDA revealed only a slight decrease in global soyabean production. US new crop soyabean export sales have continued strongly, while Chinese imports increased in July, which has provided some support to oilseed prices in recent days. Chicago soyabean prices (Nov-14) closed at $389.26/t on Tuesday, down slightly from the previous week’s close and Paris rapeseed prices have dropped €5.75 since the beginning of August. UK soyameal (Hi pro, Ex-Store East Coast, August delivery) was at £322/t last Friday, up £1 from the previous week. UK Rapemeal (34%, ex-mill Erith, August delivery) was £157/t, down from £161 a week earlier.

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

Producer share of pork price down

According to the latest price figures, pork producers received 41% of the total retail price in July. This was nearly 2% down on the previous month, resulting from lower farmgate prices and higher retail ones. This meant the producer share was two percentage points lower compared with the same month in 2013, when it was 43%. Bacon retail prices for the whole of July are not yet available but the June figure for the producer share stood at 37%, in line with most of the year so far. The share of the retail price received by the bacon producers was 1% lower compared with June 2013.

Retail pork prices in July increased from the month before, with the exception of fillet of pork and traditional pork sausages, which declined by 1% and 2% respectively. Boneless shoulder and loin steaks recorded the largest month-on-month increase, both up by 7%. Retail pork prices in July showed mixed trends compared with the same month in 2013, whereby loin chops increased by 13%, followed by a 6% rise in fillet end leg. There were some smaller increases in other pork categories but the average traditional pork sausage price declined by 8% on a year earlier, while boneless leg and fillet of pork prices also came down, by 5% and 6% respectively.

Rise in compound pig feed production

Latest figures from Defra show that production of compound pig feed between April and June 2014 was 7% higher than in the same period last year. However, at 431,000 tonnes, it was little changed from the first quarter of this year. There was a particularly sharp rise in production of finishing feed, up 16% on the year, likely reflecting higher pig numbers due to improved productivity. Around 5% more breeding pig feed was produced but there was a 1% drop for grower feed. While this hints at a modest increase in the breeding herd, with lower prices likely to have encouraged demand, it suggests there hasn’t been any significant expansion. The trend for pig feed contrasts with the direction for all animals, with overall compound production down 5%, with a particular sharp fall for sheep feed.

As has been the case since last summer, less wheat (and by-products of wheat) was used in the production of compound animal feed, with more use of barley, oats and maize (and their by-products). The balance may shift back towards wheat as supplies become available following this year’s harvest. Use of oilseed cake and meal was 7% lower overall but falls for other oilseeds were partly offset by a rise in the use of sunflower meal.

FAO Meat Price Index up for fifth consecutive month

Latest figures from the UN Food & Agriculture Organisation (FAO) show global meat prices rose for the fifth consecutive month. The FAO’s Meat Price Index reached a record high in July, at 204.8 points. This was almost 2% higher than a month earlier and 14% above last year’s level for the same month. The situation reversed from the previous month, whereby higher bovine prices led the Meat Price Index, encouraged by limited export supplies from Australia whilst there was continuing strong demand from the Asian countries. Sheep and poultry meat prices also strengthened. In contrast, pig quotations, while still high, fell back from the peak in June, due to somewhat subdued demand.

The overall FAO Food Price Index fell in the latest month and was around 2% below the previous year’s level. At 203.9, this was the first time the overall index had been below the Meat Price Index since September 2006. The downturn was largely a result of sharp declines in the Cereal price Index as prospects for this summer’s harvest remain favourable. There were also downward trends in the Dairy and Vegetable Oil Indices, influenced by market imbalances.

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