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AHDB Pig Market Weekly

11 December 2014

AHDB BPEX Pig Market Weekly 11 December 2014AHDB BPEX Pig Market Weekly 11 December 2014


Producer margins still positive in Quarter 3

Based on AHDB/BPEX estimates, the average cost of pig production in Great Britain during the third quarter of 2014 was just under 144p/kg (carcase weight). This was around 10p lower than the estimate for the previous quarter, driven by the fall in global cereals prices as this summer’s harvest became reality. This is the lowest estimate of production costs since the final quarter of 2010. As a result, despite pig prices falling steadily between July and September, average producer margins remained positive. With the DAPP averaging nearly 159p/kg during the three month period, producers would have made a positive margin of around £12 per head during the quarter.

Although this paints a relatively positive picture for producers, since September pig prices have continued to fall while grain prices have started to rise again. With the APP falling below 150p/kg in mid-November and the SPP around 3-4p below that, many producers are likely to be close to their break-even point. Some, particularly those selling pigs through the spot market, are probably already losing money again. Unless the market direction changes, more producers will find themselves in this position for the first time since the spring of 2013.

For further analysis of the latest cost of production estimates, click here.

GB pig herd performance improving

Latest figures from the annual report on Pig Cost of Production in Selected Countries show the physical performance of the British pig herd is still improving. The figures are based on analysis by InterPIG, an international group of pig economists, covering the major EU pig producers, along with Brazil, Canada and the US. The 2013 report has just been published by BPEX and shows the number of pigs weaned per sow per year rose by 4% in GB, to 23.6, while the European InterPIG countries averaged a 3% increase. The average number of pigs finished per sow also increased in 2013, to 22.2 pigs per sow. Despite this improvement, the GB performance was still below the EU average, even when the outdoor herd is taken into account. GB feeding herd was broadly in line with the performance of other EU countries.

The report also shows that pig production costs in Great Britain remained higher than most other major producing countries in 2013. Across the year, the average production cost in GB was £1.59 per kg, around 5p more than the average for the other major EU producers. However, GB costs increased more slowly between 2012 and 2013 than in other countries, rising by 6p/kg, compared with an EU average of 9p. Production costs in the non-EU InterPIG countries were substantially lower than in the EU, due to lower fixed costs and cheaper feed.

A copy of the full report, along with previous editions, can be downloaded by clicking here.

UK pig prices

For the week ended 6 December, the EU-spec GB SPP continued to fall, for the ninth consecutive week, to 144.65p per kg. This meant producers received 0.88p less compared with a week earlier. Please note there is one plant missing from the sample this week. Prices across Europe once again weakened, in particular German quotations, which may have partly contributed to the decline in the domestic market. During the week, AHDB/BPEX estimated slaughterings reached 192,000 head, up 4% compared with the same week in 2013. The estimated weekly slaughterings increased for the seventh consecutive week. Carcase weights averaged 81.78kg for the week ended 6 December. The EU-spec GB APP for the week ended 29 September declined to 149.20p per kg, down 0.58p on the week before. The GB SPP for the same week stood at 145.53p per kg, a differential of 3.67p between the two price series.

The 30kg weaner price for the week ended 6 December fell for the third week running to £46.68 per head, its lowest level since February 2013. This was £1.42 per head less than a week earlier and breeders received £9 less compared with the same point in 2013. In contrast, the average 7kg weaner price for the week ended 6 December rose by £1.18 to £34.47 per head. Nevertheless, the 7kg weaner market was somewhat weaker in comparison to last year, as breeders received £8 per head less.

Industry reports suggest a decline in GB sow prices, following on from higher availabilities in Germany and a reduced demand for manufacturing meat in the run up to the Christmas period. Some reports indicate that prices may have dropped as low as 70p/kg as a result, down by more than a third compared with a year ago.

EU weaner prices turn the corner

The average EU weaner price for the week ended 30 November stood at €36.49 per head. This meant that prices have somewhat recovered since the low point for this year, at €34.46 per head in October. The weaner market usually strengthens during this time of the year but the latest price was €9 lower compared with the same period in 2013. The subdued market for finished pigs has undoubtedly influenced the weaner market, which has fallen steadily since the start of May. Weaners lost around a third of their value in that time and prices reached a three year low, leaving most EU piglet producers in a loss-making position. In particular, the finished pig price crash in September was reflected in the weaner price falling particularly sharply during September and October.

The recent recovery in the EU average price for weaners was largely encouraged by a €6 rise in the Spanish weaner price in the four week period ended 30 November 2014. Across the EU, Spain recorded the largest increase, despite stability in its finished pig market. Dutch and Danish quotations for weaners also rose, by €1.50 and €1.10, during the same four week period. There were smaller increases in other key markets, including Poland, Germany and Belgium, where prices rose by less than a euro. Amongst the key markets, France was the only country to record a fall in weaner prices, albeit by only 80 cents, during the four week period.

EU pig slaughterings up in September

Data for September EU pig slaughterings, published by Eurostat, show an increase of 6% on the year. This is partly because of one additional working day in the month this year, taking total slaughtering to 21.3 million head, the highest since January. This increase in supply contributed to the continued fall in pig prices which has been apparent since the summer and which accelerated in September. Consequently pig meat production significantly increased on the year, by 10%, with the increased throughput added to by heavier carcases. However, year to date EU-28 production at the end of the third quarter remains marginally behind the same period in 2013. However, if the increase in pig meat production seen in September is sustained through to the end of the year, overall annual production could match or even exceed last year.

The increased availability for slaughtering was driven by increases across all the large producers, particularly 17% increases in the Polish and Irish kills, with good weather and falling feed prices allowing pigs to grow well. Smaller slaughtering increases by other large producers, such as 5% in Denmark, France and Germany, 7% in the Netherlands and Spain and 3% in the UK, also contributed to the overall upward trend. The jump in Polish production was largely due to increased weaner imports, along with some recovery in the domestic herd.

Feed market update

After peaking last Tuesday, UK feed wheat futures prices have moved lower. The May-15 contract closed at £134.95/t this Tuesday, down by £6 from a week before, when it closed above £140/t for the first time since early July. Earlier concerns around potential Russian wheat export restrictions, as well as weather fears in Russia, Ukraine and Australia added a certain amount of risk premium to prices, before subsiding somewhat towards the end of last week. This volatility was also seen in international wheat futures contracts during the last week.

The latest GB animal feed statistics from Defra, released last Thursday (4 December), showed that retail production of animal feed was down by 3% year on year in October. For pigs, compound feed production between July and October was also 3% higher compared with the corresponding time period in 2013.
May-15 Paris rapeseed futures prices have been supported by expectations of a lower EU crop next year, settling at €343/t on Tuesday, up by €5.75 on the previous week. Chicago soyabean futures have also found support, with the May-15 contract closing $19.10 higher on Tuesday, at $390.18/t, compared with a week earlier. UK rapemeal (34%, Ex-mill Erith, December delivery) was £181/t on Friday, up £3 on the week. Hi-Pro soyameal (Ex-Store East Coast, December delivery) was £337/t, down £3 from the previous week.
To read more about the latest developments in the feed market click here.

Emerging markets support EU exports but for how long?

Russia’s ban on imports of EU pork has undoubtedly had a major impact on the pig market. However, EU pork exports have held up relatively well, with volumes down only 5% during the first nine months of the year and prices down less than 1%. Given that the Russian Customs Union accounted for 28% of EU pork exports (335,000 tonnes, equivalent to 2% of EU production) in January-September 2013, this shows the adaptability of EU exporters.

Much of the excess pork was diverted to the established markets in Asia, China/Hong Kong, Japan and Korea but most of the rest found another market somewhere outside the EU. At least for most of the period, this gave support to prices. To read analysis of these emerging markets and how sustainable they may be going forward, click here.

More EU pig meat destined for export

The latest Prospects report from the EU Commission paints a picture of recovery for EU meat markets in the medium term. Total meat production by 2024 could reach 44.9 million tonnes. Unsurprisingly, poultry will retain its position as the main driver of rising production figures, being the only sector anticipated to increase in both internal production and consumption.

Pig meat, as the largest meat sector in the EU, is expected to show some recovery in the short term as feed prices are low and herds stabilise in size, resulting in a steady annual increase thereafter. Production is forecast to increase by 2% to 22.6 million tonnes by 2024. This is a slower increase than in the previous decade and has in part been dictated by new legislation on welfare and environmental practices, requiring a restructuring of the industry. Increased production, however, will not be reflected in internal consumption, which is anticipated to fall slightly to 30.3kg per capita, despite recovering economies and increasing populations providing potential for greater demand.

With production increasing but domestic demand decreasing, exports have the potential to increase by 20%. The EU will be in a position to maintain its 50% import market share in China. Redirection of EU pig meat previously destined for Russia (a quarter of EU pig meat exports) should be possible through the expanding Asian markets, such as the Philippines and Vietnam, as well as ensuring internal EU competition is sustained by an export driven market. As global demand increases, the EU can expect to see an increase in price for its pig meat in the medium-term. This report estimates an increase of 11% on current levels, giving a potential average of €1.83 per kg (about £1.45/kg at current exchange rates) in 2024.
The full report can be downloaded by clicking here.

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