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AHDB Pig Market Weekly

30 July 2015

AHDB Pig Market Weekly - 30 July 2015AHDB Pig Market Weekly - 30 July 2015


Further supply growth likely to keep prices under pressure

Latest AHDB forecasts for UK pig meat supplies show that the increase in domestic supplies which has been apparent over the last year is likely to continue. Recent production growth and low levels of sow slaughtering suggest a broadly stable breeding herd, rather than the declines recorded in recent Defra surveys. Combined with continuing productivity improvements and a further modest rise in carcase weights, both slaughterings and production are forecast to continue rising at around the rate seen recently for the rest of this year before possibly slowing down slightly next year.

Although the gap between UK and EU pig prices remains high by historic standards, there is still no sign it is leading to an increase in pig meat imports. With retail buyers still apparently committed to UK sourcing wherever possible and with plentiful domestic supplies available, there is little reason to think that imports will rise much during the rest of this year or next. Meanwhile, the weak euro is making it harder for exports to compete with product from the rest of the EU. Unless the pound weakens, export growth may be limited this year.

Balancing all these factors, total supplies on the UK market are forecast to grow again this year, albeit at a slightly slower rate than in 2014. Therefore, demand will need to rise if the sustained pressure on pig prices is going to be relieved. A rise in export demand seems unlikely while the pound is so strong against the euro, so the domestic market is likely to be key. So far this year, retail demand for pig meat has been weak, meaning a higher share of production has had to be diverted to lower value markets, keeping prices down.

Strong performance for pork shoulder

Pork sales remained down in both volume and value terms in the 12 weeks ending 21 June 2015, compared with the same period a year ago, according to Kantar Worldpanel data. The declines came across the majority of cuts, with only pork shoulder and loin roasting joints providing growth. This comes as customers switch away from fresh pork to fresh chicken and chilled ready meals, with fresh chicken prices having fallen more than fresh pork prices over the last year.

As the biggest single component of the pork category, the decline in chops and steaks has continued to impact overall performance. Pork roasting joints were down more in value than volume overall as the result of lower average prices. Loin recorded a growth in volume sales, as the result of a 12% increase in households purchasing them and a 4% drop in average prices year on year. Pork shoulder sales were also up, boosted by major promotional activity that started at the end of April and which included a 4-week TV campaign that ran until the start of June. Volume sales for the 6 weeks to 7 June showed that the amount of fresh pork shoulder bought was up just over 19% year on year. Against a backdrop of 23% growth a year ago, mince sales fell back this year.

Meanwhile spend on bacon and ham were down more than volume, as base prices were reduced. Sausage sales were reasonably stable year on year, with the premium tier remaining in growth, aided by a drop in prices.

UK pig prices

UK finished pig prices began to rise again in the week ended 25 July, despite slaughterings increasing compared to the previous week. The EU-spec SPP was up by almost a fifth of a penny on the previous week at 133.25p/kg. This left prices less than 28p/kg below levels seen in 2014, with the gap having narrowed by more than 5p in recent week as prices were falling this time last year. The latest increase in prices came despite estimated slaughterings being 3% up on the previous week and remaining well ahead of levels seen in 2014.

Carcase weights fell by 200g compared to the previous week to average 80.17kg; this is the first time average weights have fallen below year earlier levels in 2015. The hot weather earlier in the month undoubtedly contributed to the lower weights. However, there are also reports of producers marketing pigs at lower weights due to space constraints, confirming supplies should remain plentiful in the coming weeks. The average probe measurement remained at 11.1mm.

In the week ended 18 July, the APP increased by over a tenth of a penny, going against the trend seen in the SPP. The EU-spec APP was at 137.30p/kg, almost 27p lower than the same week in 2014. With the differing trends seen in the APP and the SPP the gap between the two measures increased back to over 4p.
The price of both weights of weaners increased in the week ended 25 July. However the increase of over £1.60 per head seen for 30kg weaners, leaving it at £45.45 per head, was much larger than the increase of just a penny for 7kg weaners, leaving them at £33.11 per head. Both 30kg and 7kg weaners remained below levels seen in 2014, down by almost £12 and £7 respectively.

Chinese pork imports at record level in Q2

Chinese pork imports showed an 8% increase in in the first half of 2015. A reduced breeding herd, resulting in an ongoing fall in production, has contributed to strong import demand, which is likely to continue for the remainder of the year. Total pork volumes for the second quarter of 2015 were at record levels of 170,000 tonnes. The increase was largely due to higher volumes of frozen hams and shoulders, up 30% to 90,000 tonnes. The total value of Chinese pork imports in the first half of 2015 was up just 4% at RMB 3.6 billion (£376 million), as the average price fell back 4%.

The EU remains the largest supplier of pork to China, with volumes up by nearly a third, increasing its share of total imports to 73%, compared with 60% for the same period last year. The expansion was driven by German shipments, which doubled on the year. Supplies from Spain and Denmark also increased, while shipments from the UK were up 5% to 15,000 tonnes and volumes from Ireland were up 29% to 12,000 tonnes. Imports from the rest of the world declined, however. Shipments from both the US and Canada were down by about 30% as the falling price of pork from the EU, helped by a fall in the value of the euro, made it more competitive.

China’s pig offal imports were marginally down in the first half of 2015. Shipments from the EU were up 29% on the year, with volumes from the UK increasing 20% to 9,000 tonnes. Imports from outside the EU fell 36% on the year, with reduced shipments from the US and Canada.

No clear direction for EU prices

During June and early July, the average EU pig price has continued to fluctuate but with no clear direction being established. Having reached its highest point since September in late June, at €149 per 100kg, the average then fell back. Slight increases in the last two weeks took it back to nearly €145 per 100kg. This is around €24 lower than at the same point last year, as increased supplies and sluggish demand, both on EU and export markets, put pressure on returns. Combined with further weakening of the euro, this means that the gap between UK and EU prices has widened again, reaching almost 30p/kg in the latest week.

The fall in the EU average price over the last four weeks was mainly confined to northern Member States. The German price fell by €9 per 100kg, with similar falls in most of its neighbours. Indeed, the Dutch price fell by nearly €13 during this period, perhaps partly due to its leading position on the Greek market, which was effectively closed due to the lack of cash available to pay suppliers. Danish prices also fell but by only €2. The lack of imports meant that Greek pigs were nearly €17 per 100kg more expensive during the period, making them the highest continental prices at over €170 per 100kg. While not seeing rises on this scale, markets in the rest of southern Europe remained firmer than those further north, with French and Italian prices rising by €5, while Spanish quotes were up by nearly €3 from four weeks before.

Feed market update

Improved weather conditions across the US Corn Belt led to bearish forces for both US maize and wheat futures prices last week. The downward momentum was similarly felt for Nov-15 UK feed wheat futures, which closed at £122/t, down £1.50 in comparison to the previous week. In Europe, there remains a question mark hanging over EU maize production potential as a result of less than ideal weather. However, early results from the European winter and spring barley harvests have been better than expected. Grain exports from Russia during the first half of July were almost 60% lower than last year, according to The Russian Federal Customs Service.

Nov-15 Chicago soyabean futures closed at $347.10/t on Tuesday (28 July), down $22.04 week on week, and it was also a bearish week for Paris rapeseed. In the UK, soyameal (Brazilian, 48%, ex-Store Liverpool) was £298/t on Friday (24 July), down £6 on the week. Global rapeseed production is going to be lower this year but currently so are the prices. In Europe, the market is trying to get a grasp of the size of the crop with harvest progressing, while Canadian canola (rapeseed) expectations have been further reduced. In contrast, in the US, better weather conditions and poor export sales mean soyabeans are adding downward price pressure to the oilseed market.

Further increase in Korean Pork imports

South Korea’s pork imports increased during the first six months of 2015 but are projected to ease back in the second half as domestic production recovers from outbreaks of PEDv and FMD over the last year or so. However, they are expected to remain at a higher level than in 2013, before the disease outbreaks began, as production will not have fully returned to normal. Efforts to reduce sow numbers in 2013, coupled with an increased PEDv outbreak during the first half of 2014, have kept import demand high. However, the number of pigs on farm rose 3% in the first quarter of 2015, so production is forecast to increase during the second half of the year. Overall Korean pork consumption has increased, partly due to consumers switching from beef, increased popularity in barbecues and fears about fish consumption after the Fukushima nuclear plant accident in 2011.

Imports from the EU increased 54% compared to the same period in 2014, partly due to Spain’s shipments more than doubling. In contrast, the US saw an annual increase of only 21% leading to a decrease in its overall market share. The strength of the US dollar relative to the Euro contributed to the increase in market share for the EU. The average import price in Won was up 7%, but with a 1% drop for EU product contrasting with a 15% increase for the US. The United States is expected to increase its price competitiveness over EU suppliers in the second half of the year, given sharp price falls on its domestic market.

July Pig Market Trends out now

The July 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:
• The outlook for UK pig meat supplies
• How variations in physical performance influence producer returns
• Trends in EU pig meat consumption and retail sales in the major EU markets
• Developments in the Irish pig sector

Pig Market Trends is available free of charge. 

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