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AHDB Pig Market Weekly

28 May 2015

AHDB BPEX Pig Market Weekly - 28 May 2015AHDB BPEX Pig Market Weekly - 28 May 2015


Producers back in the red

Latest AHDB estimates of the full cost of pig production confirm that producers were, on average, losing money during the first quarter of 2015. At 146.4p/kg, the cost of production was almost 7p higher than the average pig price during the quarter, equating to a loss of £5 per head. This is the first time that costs have risen above incomes since the first quarter of 2013 but before that producers were often in a loss-making position. By the end of the quarter, pig prices had fallen still further, pushing losses up towards £8 per head.

Estimated costs in the first quarter of 2015 were slightly higher than in the second half of last year. This was largely attributable to a modest rise in feed prices, although other factors contributed, including the low cull sow price, which increased the effective cost of replacement gilts. Nevertheless, costs remained 6p/kg lower than a year earlier and were towards the bottom end of the range experienced in recent years. This has helped limit the impact of falling pig prices on producer margins, for now at least.

UK pig supplies remain high

Latest figures from Defra confirm that UK pig supplies remained high during April. Slaughterings were up over 3% compared with a year earlier, to 969,000 head. Throughputs have now been up year on year for 12 consecutive months, with nearly 300,000 extra pigs processed during that period. Slaughterings in Northern Ireland were up by 4%, slightly more than in England, but figures for Scotland are not yet available. Carcase weights during the month were at their lightest since August, averaging 81.6kg. However, with falling weights normal for the time of year, this was still over a kilo heavier than in April 2014.

In contrast, sow slaughterings continue to run below year earlier levels, declining for the 11th straight month. At 22,700 head, they were 6% down on last April. Once again there is little indication that the drop in pig prices is leading to producers reducing or liquidating their herds. Indeed, low cull prices are evidently continuing to discourage producers from replacing some sows. The fall in sow meat production was insufficient to offset the higher clean pig numbers and weights and pig meat production during April was up 4% on the year at 82,400 tonnes.

UK pig prices

The recent fluctuations in the UK finished pig market continued in week ended 23 May, with the EU-spec SPP falling slightly to 131.11p/kg. This reversed the slight uplift of the previous week but the market remains broadly in balance, with prices having moved less than 2p since early March. Despite this, the gap between the latest price and the level of the SPP a year before, when prices were rising slowly, increased to nearly 33p. Estimated slaughterings were up slightly compared with recent weeks and were also a little higher than a year earlier. Nevertheless, the average carcase weight eased back again, to 81.52kg, suggesting that most pigs have been able to find buyers at prevailing price levels.

After the previous week’s fall, the GB APP recovered some of the lost ground in week ended 16 May. It was up around a quarter of a penny at 135.99p/kg. At this level, it is only fractionally lower than in early March but over 30p down on a year earlier. With the SPP having increased more slowly in the same week, the gap between the two series opened up again to 4.55p/kg.

As with finished pigs, the GB weaner market remains broadly stable. The average price for a 7kg weaner fell by 17p to £32.87 per head but 30kg store pigs were up by 22p to £44.82. Despite some weekly fluctuations, both prices are similar to their level in March but remain well below year earlier levels.

German exports up, imports down

German pork exports started 2015 strongly, with total volumes in the first three months up 7% on the year and even higher than the same period in 2013, when exports were particularly strong. Despite volumes increasing to 438,000 tonnes, the average unit value of exports fell 5% due to the large volumes of pork currently on the global market. This led the total value of exports to increase by only 2% to €892 million. The EU remained the primary market for German pork, with 361,000 tonnes being shipped there, up 4% on 2014 levels. Within the EU, Italy remained the largest destination for German pork, with volumes up 6% year on year. Shipments to Poland and the Netherlands also increased, by 4% and 13% respectively. Outside the EU, exports to China rose sharply, following a poor first quarter in 2014, while shipments to South Korea also increased. Exports to Russia fell to zero following the ban on pig meat from the EU imposed in January 2014.

While German exports increased, imports in the first three months of the year fell 12% to 224,500 tonnes, with shipments from Belgium and the Netherlands driving this fall, down 22% and 13% respectively. Volumes from Denmark actually increased 4% but this was not enough to offset the falls from other countries. With the average unit price also falling, the value of imports was down by 27% to €331 million.

Increase in production supports Irish pig meat exports

During the first quarter of 2015, Ireland exported 37,000 tonnes of pork. This was a 12% increase on 2014, bringing in €80.7 million. However, the average export price was down 5%, reflecting the weak EU pig meat market. The increase in exports this quarter can be mainly attributed to production being up 13%, given more pigs on farms and heavier carcase weights. The increased production also drove Ireland’s imports down by 38%. The EU increased its share of Irish exports to 65%. The UK continued to be the main recipient, taking nearly 40% of total exports and volumes were 13% more than the same period in 2014. Irish pig prices were considerably cheaper than UK pig prices, with a difference of €41 per 100kg in the first quarter of 2015, which may explain the increase in UK imports from Ireland.

Irish export volumes to the EU in total were up 19% whilst non-EU trade was only up 2%. This was despite trade with the United States increasing by 59%, becoming the second largest recipient outside the EU, with China remaining the largest. Ireland also took advantage of lower South Korean production, leading to a doubling of exports. The Russian import ban and a decrease of 93% in shipments to Japan largely offset gains elsewhere.

Total pig offal exports increased 57% at 6,100 tonnes, primarily to China with over 50% of the total volumes. Hong Kong and the Philippines, the next two main export markets, also took more compared with the same period last year.

Feed market update

After increasing towards the end of last week, grain prices have generally fallen compared with last week’s values. UK feed wheat futures (Nov-15) closed at £120.70/t on Tuesday, down £1.55 on the previous week. Concerns over the US wheat crop appear to have abated following Tuesday’s USDA crop progress and conditions report. For the week ending 24 May, 81% of US winter wheat was described as being in ‘fair’ to ‘excellent’ condition, compared with 56% at same time last year. Similarly, 96% of spring wheat was rated to be in ‘fair’ to ‘excellent’ condition, above the previous five year average of 79%.

The latest update of Defra’s UK cereal supply and demand forecasts for 2014/15 was released on 21 May. Wheat consumption in animal feed was estimated at 6.68Mt, 8% higher year on year, while barley usage in feed was projected to decline by 4% compared with 2013/14. Maize usage was estimated at 1.10Mt, slightly higher than the previous forecast made in March but 13% lower year-on-year.

As at Tuesday’s close (26 May), Chicago soyabeans futures (Nov-15) were $332.41/t, a contract low and $11.29 lower than last week’s price but Paris rapeseed (Nov-15) futures have continued their upward momentum. UK rapemeal prices (34%, ex-mill Erith, spot delivery) were £204/t on Friday (22 May), up £14 on the previous week. The Brazilian soyameal price (48%, ex-store Liverpool, spot delivery) was £307/t on Friday (22 May), up £3 week on week. Strong planting progress in the US and the strengthening US dollar were behind the falls in soyabean prices. Both Paris rapeseed and Canadian canola futures withstood the pressure from the soyabean market as forecasts indicated lower rapeseed production in 2015/16.

Negative margins hit German producers

German pig prices have been low so far this year. The ongoing impact of the Russian import ban is one contributory factor, along with subdued consumer demand across the EU and an increase in production. The situation might have been even worse were it not for strong sales to Asian markets, helped by the weak euro. Nevertheless, most producers have been in the red since last summer and there are signs that this could lead to tighter supplies from the end of this year.

It’s not just pigs – cattle and sheep markets subdued too

The last year has been a challenging one for pig producers, with prices falling steadily. However, the pig sector is not the only one experiencing a subdued market. Prices for most agricultural commodities are low and this is certainly true of the cattle and sheep markets. Although there may be signs that the situation could improve for the former, the latter looks to be set for more difficult times ahead.

May Pig Market Trends out now

The May edition of Pig Market Trends (PMT) was published on Tuesday. As well as the usual summary of developments in the UK and EU pig markets and the global feed market over the last month, this month’s issue includes more detailed articles on:

• Beef and Lamb. The last year has been a challenging one for pig producers, with prices falling steadily. However, prices for most agricultural commodities are also low and this is certainly true of the cattle and sheep markets. To find out more, read this article which updates the situation for pork producers’ competitors.

• Poultry. One of the big challenges faced by red meat producers is the continuing reliance of UK consumers on poultry meat. So how did the UK poultry industry fair in 2014? Many of the answers can be found in the Pig and Poultry Pocketbook, released by AHDB this month. This article analyses some of the key information contained in the Pocketbook.

• Germany. German pig prices have been low so far this year. The situation might have been even worse but for strong sales to Asian markets, helped by the weak euro. Nevertheless, most producers have been in the red since last summer and there are signs this could lead to tighter supplies from the end of this year. Read more about the latest situation in this article.

• China. While much of the world was experiencing high pig prices and low input costs during 2014, the reverse was true in China. This led to a sharp fall in the breeding herd and is projected to mean lower production this year, which will inevitably lead to greater export opportunities. Our latest analysis of the Chinese market can be found in this article.

• Easter. In the run up to the Easter weekend, lamb and beef sales recorded growth but this was offset by slight declines in chicken and significant reductions in pork sales. This article provides more on retail sales at Easter.

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