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AHDB Pig Market Weekly

05 March 2015

AHDB BPEX Pig Market Weekly - 5 March 2015AHDB BPEX Pig Market Weekly - 5 March 2015


Producer margins shrinking but still positive in Q4

The average GB cost of pig production in the final quarter of 2014, as estimated by AHDB/BPEX, was just over 142p/kg (£116 per head). This is 2p lower than in Q3 and is largely attributable a reduction in feed costs following last summer’s harvest. This is the lowest recorded cost of production since the third quarter of 2010, mirroring trends in feed prices. Carcase weights increased to the highest level on record, averaging 81kg, also helped by feed costs dropping as a proportion of input costs to 58%, down 4 points on the year. Consequently, fixed costs are distributed across a greater quantity of finished product, reducing the cost per kg. Overall, costs were 3p down on a year earlier, as an 8p fall in feed costs offset increases for some other inputs.

With finished pig prices falling throughout the quarter, producers’ net margins continued to tighten, standing at an average of £7 per pig (9p/kg) in Q4. This was down £5 on the quarter and was a third of the margin a year before, when finished pig prices peaked. However, with pig prices still falling and a modest increase in feed prices during October and November, by the end of the year producer margins would have been close to break even. Further falls in the New Year have taken prices well below the cost of production in Q4, suggesting many producers will now be back in the red, even though feed prices have eased somewhat in recent weeks.

Small increase in EU pig herd

26 of the 28 EU Member States have now reported their December 2014 census data to the European Commission, identifying a 1% increase in the total pig herd, compared with December 2013. This is the first increase in the overall number of EU pigs since 2006, despite falling finished pig prices since July. Looking in more detail, the number of pigs over 50kg being fed for slaughter was slightly down on the year, suggesting there would be some tightening of supply in early 2015. This is supported by market reports of limited finished pig numbers in recent weeks, which has given some support to prices. However, with numbers of piglets and younger feeding pigs higher in December, the tight supply situation may only be temporary. Key markets which recorded more pigs on the ground included the two largest herds, Germany and Spain. Denmark, the Netherlands and Poland were among the other major producers recording increased pig numbers. In contrast, France and Romania reduced their herds, along with several smaller producers.

Overall, the EU breeding herd recorded a marginal increase in the year to December 2014, again the first since 2006. However, only a few countries reported increases in their breeding herd, with Spain’s 5% rise the main driver of overall growth. Excluding Spain, the EU breeding herd was down 1%, with the majority of countries reporting decreases. However, supply is likely to remain ample in the medium term, with continuous improvements in productivity resulting in more piglets per sow being finished to higher carcase weights on relatively low-cost feed. There have been some reports of increased sow slaughterings in recent months, although these may have been too recent to be reflected in the December census figures. This could mean some tightening of supplies towards the end of this year.

UK December survey results are due out later this month and will be covered in a future edition of Pig Market Weekly.

UK pig prices

At 133.21p per kg, the EU spec GB SPP for the week ended 28 February was down 0.74p on the week. While a continuation of the downward trend, this is the smallest weekly decrease recorded since the turn of the year. The extent of the current drop in price, however, has reached almost 10p since the beginning of 2015, a third of the difference compared with the DAPP at this time last year. With reports that recent spot market prices have been slightly more positive, alongside some increasing European finished pig prices, it is possible that, whilst not yet a turn around, the slow-down in price reductions could be sustained. Aiding this, although estimated slaughterings were up slightly on last week, there are signs of the normal seasonal tightening of supplies. In addition, average carcase weights at 82.7kg, the lowest of 2015 so far, should halt supply from running any further ahead of demand.

The EU spec GB APP in the week ended 21 February was 137.69p per kg, down 1.25p on the week. The gap with the SPP for that week narrowed slightly to 3.74p/kg.

With uncertainty still apparent in short-term finished prices, the weaner markets remain unpredictable, with changes in the number and mix of animals being marketed influencing price levels. In the week ending 28 February, 7kg weaners moved up 42p to £33.83 a head, while 30kg weaners dropped £1.21 to £44.82 a head. In part offsetting the previous week’s increase, 30kg producers are now receiving over £12 less than last year’s prices, while 7kg quotes remain around £8 down on the year.

Northern Ireland herd size boosted in 2014

December’s census by the Department of Agriculture and Rural Development in Northern Ireland has reported a 9% increase in the pig herd size in 2014, compared with 2013. The total number of pigs on 1 December 2014 was reported as 497,100. This increase is proportional to that reported in the June census, suggesting little structural change in the herd over the last six months of 2014.

While the breeding herd was only up 1% to 40,800 head, the number of pigs for slaughter has increased by 10%. Not only has productivity increased (and is likely to continue to, as more in-pig females were recorded) but also the number of pigs imported for finishing from the neighbouring Republic of Ireland has risen. Recent favourable feed costs will have benefitted those producers importing feed for finishing pigs. However, this growing input to UK pig meat production may have been contributing, in part, to the downward pressure on UK finished pig prices.

Uplift for EU weaner prices

The latest EU Commission data reports the EU average weaner price for the week ending 22 February as €40.52 a head. This is the result of week-on-week increases since the very end of 2014 and is over €4 up since the start of 2015, back to prices last seen in September 2014. However, optimism must be balanced with caution as the latest price remains €11 below this week last year. Weaner prices are intrinsically linked to finished pig prices which, while still low in most key producing countries, have shown some seasonal improvement in the last couple of weeks, which could filter through to all stages of the pig supply chain. However, a spring upturn in breeding productivity is soon to be expected, which could contribute to supply running ahead of demand, resulting in pressure on prices; weaner prices typically peak in the early spring before falling back through the summer. The recent announcement of the opening of Private Storage Aid for pig meat, however, could go some way to alleviating this pressure.

Increases in price have been most evident in the larger EU pig markets. For the four weeks ending the 22 February, the Dutch price increased most, up by €7.75 per head. The Spanish price increased by €6.46 and the German one by €5.80. Moreover, since the beginning of 2015 the Belgium price has risen by €10 and in the UK by over €5, although this was mostly due to exchange rate movements. Danish prices were only up marginally, however, and French and Polish prices also rose relatively slowly.

Feed Market Update

Over the past week, UK feed wheat futures (May-15) dropped below £120/t for the first time since mid-October. As at Tuesday 3 March, May-15 UK feed wheat futures closed at £118.70/t, down £1.80 on last Tuesday. Chicago wheat futures (May-15) closed at $185.90/t on Tuesday (3 March), up $0.82 from the previous week. Chicago maize (May-15) futures settled at $153.94/t, $2.17 higher week on week. The latest report from the International Grains Council (IGC) brought more bearish news to the grain market last week as global wheat production estimates were revised higher for 2014/15.

According to the AHDB/HGCA Winter Planting Survey, which covers England and Wales, 1.69Mha of winter wheat had been planted as at 1 December 2014. This is 7% lower than the wheat area that was harvested in 2014. Further findings of this survey can be read here.

The UK rapemeal prices (34%, Ex-mill Erith, March delivery) were £186/t on Friday (27 Feb), down £3 on the previous week. Hi-Pro soyameal (Ex-Store East Coast delivery) was £316/t. Global oilseed prices received some support from the disruption caused by protests by Brazilian truckers during this week, although UK delivered rapeseed prices remained fairly flat due to currency movements.

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

Spanish exports strengthen in the East in 2014

The last quarter of 2014 continued the trend of increasing Spanish exports, bringing fresh and frozen pork shipments for the whole year up almost 7% to 1.05 million tonnes. October, in particular, saw a surge in exports to over 100,000 tonnes in the month, as festive procurement occurred. However, throughout 2014, the EU share of Spanish exports dropped from over 80% in 2013 to below 75%. While remaining the primary recipient, France took 7% less Spanish pork, along with reductions to the smaller markets of Germany, Poland and the UK. Italy (up 3%) and Portugal (2%), however, increased slightly on the year and combined with France to take nearly half of all Spanish exports. As supply across the EU was ample in light of the loss of the Russian market, unit prices fell to promote trade; the price of Spanish exports to the rest of the EU fell by around 2%, dropping the value by 4%. However, with the success of non-EU marketing, Spanish pork exports overall for 2014 were worth just under €2.5 billion, up €137 million on the year.

As focus shifted towards Asian markets, Spanish exporters took advantage of countries where domestic production has been disrupted by disease. Notably Japan and the Philippines more than doubled their volumes, whilst South Korea tripled its. China also increased purchases by a third as pork continues to be a staple for its growing population. In conjunction with this, more offal was exported, primarily to Asian markets, in 2014. As a net exporter, Spain also successfully grew markets for other pig meat, including processed products, speciality hams and sausages.

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