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AHDB Pig Market Weekly

04 September 2014

AHDB Pig Market Weekly - 4 September 2014AHDB Pig Market Weekly - 4 September 2014


Producer margins remain positive

Latest AHDB/BPEX estimates of the cost of pig production have now been published. The new figures cover the first two quarters of 2014 and, in future, estimates will be published each quarter, rather than monthly as in the past. The background information used to calculate the cost of production is reviewed annually and this year ways of improving it were identified. This included changes to the model to bring it in line with the internationally agreed approach used by InterPIG, a group of economists from major pig producing countries around the world. The changes to the cost of production model have been implemented from the start of 2014, which means that the estimates for this year are not directly comparable with earlier years. AHDB/BPEX is always seeking to improve the quality of the information it published and the new methodology does provide a better estimate of production costs. An explanation of the cost of production model can be found by clicking here.

The new estimates show that the cost of pig production in the second quarter of 2014 averaged 154p per kg. This was slightly higher than in the first quarter of the year but was substantially lower than costs during the second half of 2012 and first half of 2013. At this level, costs were around 10p per kg lower than the average DAPP during the quarter, equivalent to a profit of £8 per pig. Producers have, on average, now been making positive margins for the last 12 months. With feed prices having fallen further in recent months, costs in the third quarter are likely to be lower than those in quarter two. Therefore, despite the recent fall in pig prices, most producers should still be making positive margins.

German exports weaken in January to June

The latest half year figures from Statistics Germany recorded a 4% year-on-year decline in pork exports, to 823,100 tonnes, despite lower domestic consumption. This was partly a result of a 2% fall in domestic production during the same period. In addition to this, there was a lower requirement from some non-EU markets, notably China and Russia, which added to the overall decline. However, it is worth noting that pork exports were particularly high in the first half of last year and the latest figures only showed a marginal fall compared with the January to June period in 2012.

Just over a fifth of the German pork was destined for the Italian market, as volumes increased by 9% in the first half of the year compared with 2013. The other leading markets include Poland and the Netherlands and exports to these destinations decreased by 9% and 19% respectively. Higher domestic production and increased competition from Belgium reduced Polish import demand, particularly as its exports were hit by the ASF outbreak. With the loss of the Russian market and lower shipments to China, non-EU exports relied on growth in some smaller markets. Trade with several Asian markets, including South Korea, the Philippines and Japan, strengthened in the latest bi-annual period, as shipments to all three doubled compared with 2013.

At 492,400 tonnes, German pork imports also weakened in the first half of this year, down by 1% compared with the previous year. Denmark replaced Belgium as the primary supplier of pork, with a 5% increase on a year earlier. In contrast, exports of processed products rose by 6%, while sausage shipments to the UK increased by 15% in the January to June period.

UK pig price

For the week ended 30 August, the GB SPP continued to fall, by 0.69p, to 157.17p per kg on the week earlier. As demand continues to remain subdued even in the last week of summer holidays, the EU spec DAPP also fell, to 157.47p per kg, which was over 10p below the previous year's level. The price drop last week came despite a 12% reduction in supplies, with the estimated weekly slaughterings at 152,200 head. The downturn in supply was a direct consequence of the bank holiday on Monday but slaughterings were also down on the same week last year. With the cooler temperature of late, carcase weights for the week ended 30 August rose, by 380g, for the second consecutive week to 79.9kg the highest level since the middle of May.

The APP for the week ended 23 August fell marginally to 160.20p per kg, 2.34p higher than the GB SPP during the same week.

The 30kg weaner prices strengthened in the week ended 30 August, to £53.75 per head, a week-on-week change of £2.50. The price increase came despite higher availability on the market. However, it was only 9p higher compared with the same week in 2013, indicating some weakness in the market. The 7kg weaner market showed a smaller price rise of 45p from the previous week to £39.24 per head but remained around £2 down on the same week in 2013.

Northern Ireland pig census suggests expansion

According to the latest figures published by the Department of Agriculture and Rural Development in Northern Ireland, total pig numbers increased by 9% compared with June 2013. At 525,600 head, this was a direct result of more fattening pigs due to improved productivity combined with increased imports from neighbouring Ireland. There was a 10% year-on-year increase in the ‘other pigs’ category which includes piglets, weaners, and finishers.

At 43,900 head, the total female breeding herd expanded by 3% compared with June 2013. The slower expansion in the breeding herd relative to the total pig numbers confirms that there has been some improvement in productivity. While the latest figures suggest a notable expansion in the herd, gilts not yet in pig recorded a 1% decline compared with the same period a year earlier, which could limit growth going forward.

EU missing out on global pork price surge

During the second quarter of this year, pork prices in many parts of the world rose rapidly. This is reflected in export prices from the world’s four main pork exporters, the EU, US, Canada and Brazil. Over the previous three years, average prices have fluctuated around the US$3 per kg mark, reaching a then record $3.12 per kg in May 2011. However, the tight supply situation driven by outbreaks of PEDv in North America and Asia has pushed prices well beyond this level. The average export price in April was $3.30 per kg, with a further 10 cents added in May and 11 cents in June. The price level in June, an average of $3.51 per kg, was 13% higher than the previous record and 20% up on a year earlier.

Looking at prices for individual exporters, the US, Canada and Brazil all recorded dramatic rises in export values. Brazilian prices were up by more than half on a year earlier, topping $4 per kg in June, although they did fall back somewhat in July. US and Canadian prices both topped $3.50 in June. In contrast, EU exporters did not experience the same rises, as the Russian import ban limited gains. Although prices did rise in April, to £3.30 per kg, this was only marginally higher than their level in late 2013 and they have since stabilised at this level. This means that the EU, normally the highest priced of the major exporters has become the lowest priced. This has helped it to achieve strong growth in export volumes to Asian markets, mitigating the effect of the Russian ban to some extent.

Strong pound increases gap between UK and EU prices

As a gauge of a country’s relative level of economic health, the exchange rate is affected by a myriad of factors but, in essence, it reflects the strength of the economy and its relative outlook compared with others. For the UK, the economic recovery appears to be well-established now, following consecutive quarters of economic growth, rising employment levels and signs that productivity is starting to pick up. In comparison, while the Eurozone is showing signs of having finally emerged from recession, growth continues to be weighed down by high unemployment levels, high levels of debt, low rates of investment and low inflation. The result is that, while the UK is projected to hit 2.9% annual GDP growth for 2014, the Euro area is expected to reach just 1.2%, according to the latest IMF World Economic Outlook.

As such, there has been an overall strengthening of the pound against the euro over the past year. Since the end of July 2013, the pound has risen by 9% against the single currency, reflecting stronger UK prospects and a better economic outlook compared with the Eurozone. One impact of this is to make imported products cheaper on the UK market and UK exports more expensive overseas. To illustrate this, the EU average pig reference price stood at €164.65 per 100kg in the latest week, equivalent to just under 132p/kg. However, had the pound remained at its low point against the euro, it would have equated to 143p/kg, meaning the gap between EU and UK reference prices would have been just over 10p rather than the current 22p. Even since the start of 2014, currency movements have knocked over 5p off the import price, although the recent modest strengthening of the euro has reduced this by a penny.

Feed market update

UK feed wheat futures (Nov-14) closed at £121/t on Tuesday (2 September), up £0.40/t from the previous week’s settlement price. Prices peaked at £121.80/t as at Friday’s close, with escalating tensions between Russia and Ukraine providing support. Both Chicago wheat and maize prices (Dec-14) closed lower on the week on Tuesday, settling at $203.91/t (down $0.55/t) and $143.21/t (down $0.49/t) respectively.

Cereal stocks data, released by Defra on 28 August, revealed that while wheat stocks held on-farm in England and Wales, as at end June 2014, were 26% lower year-on-year, stocks of barley and oats doubled. Provisional results of the AHDB/HGCA Cereal Quality Survey 2014 are available on the HGCA website. The European Commission raised its monthly estimates for cereal production last week. Soft wheat and maize production are also expected to be higher than a year earlier but barley output will be less. The International Grains Council (IGC) increased its forecast of global wheat production in its latest estimates released last Friday.

Chicago soyabean futures (Nov-14) closed $1.47/t higher on Tuesday (2 September), at $379.16/t, compared with a week earlier. As at Friday (29 August), Hi-Pro soyameal prices (ex-store East Coast, September delivery) were £340/t, up £6/t on the week. Rapemeal prices (ex-mill Erith, September delivery) were £166/t, up £3/t compared with a week earlier.

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

Quarterly Category Report published

The latest edition of the BPEX Quarterly Category Report has now been published. The report provides an overview of the retail market for the four main pig meat categories, pork, bacon, sausages and ham. The report covers the period up to 20 July and provides information for each category about volume sales, spending, prices, purchase frequency and household penetration. The report also gives information about market share for each of the main multiple retailers and for other types of retail outlets.

To download a copy of the report, click here.

Canadian pig numbers up

According to the latest figures published by Statistics Canada, the size of the Canadian pig herd on 1 July had increased by 1% on a year earlier, to 12.9 million head. As such, the impact of the PEDv outbreak was not as evident in the overall Canadian pig numbers as it has been in the US. The breeding herd also recorded an expansion, being up 1% compared with 1 July 2013.

Although most categories recorded increases, the number weighing less than 23kg came down by 1% on the year before. It is possible that this partly resulted from PEDv leading to some piglet and weaner deaths. However, the results showed that the number of sows farrowed fell by 2% in the first half of this year compared with the same period in 2013, although this may also have been influenced by PEDv. Consequently, the pig crop declined by 1% on a year earlier but farrowings in the second half of the year are expected to increase marginally compared with both the first half of the year and a year earlier.

DOWNLOAD REPORT:- Download this report here

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