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AHDB Pig Market Weekly

30 January 2015

AHDB BPEX Pig Market Weekly - 30 January 2015AHDB BPEX Pig Market Weekly - 30 January 2015


More EU pigs killed in October

EU pig slaughterings data for October from Eurostat indicate an increase on the year of 2%, to 22.7 million head. This is the highest monthly kill recorded since 2008, although there were 23 working days in October 2014, more than in most months. With both increasing carcase weights and higher throughputs, EU pig meat production in October reached over 2 million tonnes for the first time since January 2013. This relatively high supply level undoubtedly contributed to the falling pig prices during the autumn. For the first 10 months of 2014, EU production totalled 18.3 million tonnes, which was just 30,000 tonnes more than the same period in 2013. Further seasonal increases are expected as Christmas procurement developed; despite one fewer working day this year, slaughterings in those countries which have already reported data for November were down just 1%.

Poland continued to be a driver in the overall increase in EU slaughterings; its October kill was over 11% up on the year as it continues to import and finish more weaners. Ireland too increased its slaughterings on the year by 10%. Feed and pig prices remained favourable in the first half of last year, encouraging major producing countries to continue finishing more pigs on the year, including Spain, up by 6% in October, and Germany and the Netherlands by 3% and 2% respectively. The Danish kill, however, fell on the year, as more weaners were exported for finishing elsewhere. In line with increasing production, overall European slaughterings for the year to date were up only fractionally, at 205.7 million head.

Relentless rise of sterling

The pound has hit a seven year high against the euro in the last few days. Sterling had already been appreciating slowly but steadily since July 2013 but now, with the Eurozone once more on the brink of recession and growing fears about Greece leaving the Single Currency, it has moved up even further. By the 27 January sterling had appreciated to €1.34 compared with €1.28 at the start of the year and €1.16 in July 2013. The euro was also at an 11-year low against the US dollar. For the UK this inevitably reduces the price competiveness of exports, while imports from the EU will be relatively cheaper. This could have implications for the UK pig meat sector. While there is the consumer preference for British pig meat, the price premium for UK pigs compared with EU prices increases further with a weakening euro. This could mean that the downward pressure on UK pig prices of recent months will continue, at least in the shorter term.

With GDP for the third quarter of 2014 expanding by a marginal 0.2%, the Eurozone managed to keep clear of recession, though the economy remains fragile. Even in key economies such as Germany, business confidence remains low and unemployment high. Moreover, inflation has turned negative, prompting further moves by the European Central Bank (ECB) to try and stimulate growth through quantitative easing. It remains likely that the euro will remain volatile in the short term, as the risk of the “Grexit” remains a possibility, as well as the uncertain economic prospects.

More about recent developments in the Eurozone and implications for the UK economy can be found by clicking here.

UK pig prices

For the week ended 24 January, the EU-spec GB SPP averaged 139.90p, a fall of 0.92p on the week, the fifteenth weekly drop in sixteen weeks. Prices have now fallen by 24p since last June, when the price decline started in earnest, with price reductions of 1p and more in many of these weeks. Carcase weights slipped to average just below 83kg after two record weeks, whilst the average probe measurement of 11.3mm was maintained. Throughputs were estimated to be similar to the previous week, at 175,000 head, up almost 7% on the year. Given the year on year increase in supply and reported poor retail demand for fresh pork, in particular, the market is still somewhat out of balance. Additionally, some industry reports are suggesting that given an ample supply, prices of spot pigs have fallen this week as well.

The EU-spec GB APP for the week ended 17 January averaged 144.06p. This equates to a 0.44p decrease on the previous week with the gap between the APP and SPP for the same week widening to 3.24p.

In the week ended 24 January, weaner prices increased slightly on the week but remain lower than a fortnight ago, suggesting that the downward trend evident since last July has not ended. As such, 7kg weaners averaged £34.15 a head, up 35p on the week although with breeders receiving almost £8 less than a year earlier. 30kg weaners averaged £47.10, an increase of 98p on the week but over £9 down on the year with throughputs well down last week.

Russian imports hit by trade bans

Russian trade data has recently become available for the first time since April. The new figures show that, while Russia imported 542,800 tonnes of pork between January and November 2013, for the same period in 2014 this dropped by over 200,000 tonnes, or nearly 40%, to 329,800 tonnes. This decrease has been stepped, due to successive trade restrictions based on product safety and international politics.
Firstly, imports from the EU were banned in February due to concerns over ASF; shipments decreased from 332,000 tonnes in the first 11 months of 2013 (over 60% of all imports) to just 19,000 tonnes (6% of the total) last year. Canada and Brazil subsequently increased their deliveries but they could in no way fill the deficit. However, sanctions were then enforced on Canada and the US, as well as the EU, in August on political grounds. This allowed Brazil to expand shipments to over 20,000 tonnes in November, going some way to compensating for the loss of US and Canadian pork but leaving the deficit from the EU untouched. Russia also expanded trade with some of its smaller partners as well, including Chile and Serbia. Agreements with China, India and South Korea are thought to be in progress but had not come into effect by November.

Imported pork prices increased by over a third on average for the January to November period. However, as the successive restrictions began to impact on the market, prices rose steadily and by November the year on year increase was up to 80% in rouble terms, partly due to the devaluation of the Russian currency. This has inevitably driven pork prices much higher on the Russian consumer market, even with internal pig production reported to be increasing, with a 12% rise in slaughterings.

Reports last week suggested that the Russian market was set to reopen to some pig meat products from certain EU countries, including France, Italy and Denmark. However, while progress has been made in discussions, it appears that significant technical work will be required before shipments can resume. Even then, the political ban will remain in place until the summer, at least, and will prevent fresh and frozen pork and some other EU products from being sent to Russia.

Danish industry having to adapt to new challenges

With the Danish pig industry focused almost entirely on exports, its strategies undoubtedly affect other countries, including the UK – the largest importer of Danish bacon. For the first ten months of 2014, Denmark’s pork production decreased but both pork and live pig exports increased. The latter, in particular continues to present a challenge for parts of the Danish industry, while price, disease, environmental and animal welfare pressures are also prominent.

Feed Market Update

May-15 UK feed wheat futures fell to a 6 week low as the contract closed at £127.05/t on Tuesday, down £3.45 on last week. This movement echoed Chicago wheat futures (May-15) which closed at $192.15/t, down $5.69 and the lowest level since the start of November. May-15 Chicago maize futures, which have been mainly bearish since the New Year, closed at $150.10/t on Tuesday, a drop of $3.54 on the week before. These price drops follow a lack of bullish news and may also, in part, reflect the recent strength of the dollar. Although the strength of the pound against the euro is bearish for the UK market, it is also bullish for values in the Eurozone so may not result in lower UK prices. The important issue is that sterling is weak against the US dollar, helping non-EU exports compete.

UK rapemeal (34%, Ex-mill Erith, December delivery) was £190/t on 23 Jan, following a drop of £7 on the week before. While Paris May-15 rapeseed futures had fallen €2.50/t over the week to 27 January, in sterling terms the price had fallen by £7.71/t due to currency movements. May-15 Chicago soyabean meal futures were $298.28/t on 27 Jan, supported by strong US export sales, up $7.17 compared to 20 Jan. However, the global outlook for soyabeans is bearish according to IGC, with production estimates for 2014/15 having been revised upwards.

South Korean imports up on the year

South Korea imported 24% more fresh and frozen pork in 2014 than in 2013, recording almost 363,000 tonnes, although this remains short of the figure for 2012 when the Korean industry was still recovering from a major FMD outbreak. Throughout last year, more was imported in each quarter, with October to December reaching 99,000 tonnes alone, up by more than half on a year before. The reasons behind this increase are attributed to continued depressed domestic production due to poor profitability in 2013, herds suffering from PEDv, which is lingering on, as well as some new FMD cases being confirmed from August to December. However, domestic demand for pork has not faltered and a new declaration that the pork supply chain is now ‘fully traceable’, with individual identification and tracking, confirms investment in the industry is expected to be supported by the consumer. The total value of pork imports for 2014 was ?1,220 billion (£700million), up over a third on 2013, as unit prices from most sources increased.

The EU’s market share of pork imports was over 50% for 2014, as South Korea absorbed some product diverted from Russia. Volumes showed a significant increase in the second half of the year, particularly from Germany and Spain, and unit prices were slightly reduced from most EU countries as product needed moving quickly. The UK’s contribution also increased, by 3% on the year to 1,850 tonnes. Imports from the US also increased for the year but only by 7% as their own production was also hindered by PEDv, pushing unit prices up. Lower shipments from Chile and China could be due to some of their pork going to Russia instead.

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