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AHDB Pig Market Weekly

07 August 2015

AHDB Pig Market Weekly - 7 August 2015AHDB Pig Market Weekly - 7 August 2015


How does the exchange rate affect the GB pig price?

One of the main developments affecting UK agriculture recently has been the strengthening of the pound against the euro. Since July 2013, the euro has fallen from 87p to be worth only 70p. These movements are important for the pig industry. Historical trends confirm that there is a close relationship between pig prices and the exchange rate.

In the first of two articles looking at how exchange rates influence the pig market, we examine the role that import prices play in influencing GB pig prices. Based on the analysis, we estimate that the GB price might now have been 15-20p higher had the exchange rate not moved over the last two years.

Chinese jitters create risk for pork exporters

Over the last month, doubts about the state of the Chinese economy have increased. Although Chinese economic growth rates have been slowing for some time, the latest concerns have been triggered by a sharp fall in the Shanghai Stock Exchange since mid-June. This has led the government to suspend some share trading, raising doubts about its ability to manage the economy. While the fall in stock values shouldn’t have an immediate impact on the Chinese economy as a whole, it could erode consumer confidence and might directly affect the wealth of some of China’s middle class consumers. As they are among the leading consumers of imported meat, this could be a cause for concern among global pork exporters. Many are hoping that higher Chinese demand will support the global trade in the second half of this year, traditionally the peak period for imports.

Most forecasts had anticipated an increase in Chinese pork imports this year, with some putting shipments at over 1 million tonnes. This was due to an expected fall in production following a decline in the pig herd, driven by poor profitability last year. Since March, Chinese pork prices have increased by a third and are now at their highest level for over two years, meaning the production decline may reverse next year. However, current prices suggest that demand is still running ahead of supplies and there should still be scope for higher imports this year. The economic concerns may temper expectations to some extent and slower economic growth may also hit consumption levels in the longer-term. It is probably too early to say whether this will have an impact on pork imports in the short-term. Many exporters will be hoping it doesn’t, given that demand in some other key import markets has begun to cool.

UK pig prices

In the week ended 1 August, UK finished pig prices began falling, despite slaughterings also being lower compared to the previous week. The EU-spec SPP was almost a quarter of a penny down on the previous week at 133.01p/kg. This led the difference compared to the same week in 2014 to fall to less than 27p/kg as the gap continues to close following steeper falls seen last year. This fall comes despite estimated slaughterings falling by 1% compared to the previous week. However, numbers were estimated to be 2% above levels from the same week last year. Carcase weights were 150g heavier at 80.3kg, offsetting some of the fall in slaughterings, with weights moving back above the levels seen in 2014. The average probe measurement fell to 11.0mm.

In the week ended 25 July, the APP increased for the third week in a row but was only up fractionally. The EU-spec APP was at 137.34p/kg, less than 26p lower than the same week in 2014. The difference between the APP and the SPP decreased but remained above 4p.

The price of both weights of weaners fell in the week ended 1 August, with 30kg store pigs falling by £1.60 to £43.85 per head, while the price of a 7kg weaned piglet fell to £32.87 per head, down by 24p. As has been the case since October last year both weights remained well below levels seen a year earlier, with 30kg weaners down by £12 while 7kg weaners were down by over £7.

Japanese pork imports fall

Japanese imports of pork fell 4% in the first half of 2015 as the country continues to recover from the PEDv outbreak experienced in 2014. Imports in the first six month of the year fell to 380,200 tonnes. However, volumes in 2014 were higher than normal as the outbreak of PEDv limited domestic production, increasing reliance on imported pig meat. Although domestic production has not yet fully recovered, stocks of pig meat had built up, reducing the need to import additional product. Nevertheless, volumes remained 6% above the levels seen in 2013, confirming that PEDv is still having some impact on the market. The total value of Japanese imports also fell by 4% to ¥206.5 billion, as average unit values were almost unchanged due to the gate price system.

The US overtook the EU as the largest supplier of pork to Japan during this period, even though volumes coming from the US fell by 6%. Shipments from the EU fell by 12%, as the amount coming from Denmark, the largest supplier to Japan from the EU, fell by almost a quarter. Other large suppliers of pork from the EU to Japan actually increased shipments, with Spain sending a third more. Total shipments from non-EU countries remained stable as the decline from the US was offset by higher exports from Canada and Mexico, which were up by 11% and 6% respectively.

EU sow price fall slows

While EU sow prices stabilised in the spring, from mid-June the downward trend, which has occurred since the summer of 2013, has resumed. The German sow price had recovered to €1.05 per kg in mid-June, the same price as at the start of the year, although 4 cents less than the highest price so far in 2015. By the first week of July, however, the sow price had fallen to €0.97 per kg but has since remained stable throughout the month. This follows a similar pattern to the EU finished pig market, where prices have also reached a plateau, after a sharp fall in the last two weeks of June.

In sterling terms, the German price has come down from 82p at the beginning of the year to 68 pence in the latest week, as the euro has weakened against the pound. The German price normally influences the GB one, although the GB price is typically lower, and reports suggest a similar fall in domestic prices, to their lowest level for many years.

Prices in Netherlands have followed the German trend quite closely, with the latest change in week ended 28 June down from 75c to 72c, then staying at the latter price for the whole of July. In Denmark, the trend has also been similar, down from 70c to 64c for three weeks to the week ended 12 July but it has recovered in the last two weeks to 67c. Despite a slight drop in April, French sow prices have been rising since the beginning of the year, going against the trends of the other countries. At the beginning of the year it stood at 78c and has levelled out in July at the highest price so far this year, at 98c, which means that it is, unusually, above the German price. This reflects the stronger French pig market, with prices having been on an upward trend for most of this year.

Feed market update

Grain futures prices continued to descend during last week, with global bearishness offsetting European weather concerns. Nov-15 UK feed wheat futures closed at £118/t on Tuesday, down £4 compared with the previous week. In its July monthly forecast, the International Grains Council painted a heavy balance for world feed grains, increasing the outlook for maize production by just over 3Mt, to 966Mt – driven by rises in Chinese output. The wheat forecast was cut by 1Mt but stocks were revised higher due to lower consumption expectations. FranceAgriMer reported on Friday that 59% of the maize crop was rated good/very good as at 27 July. This compares with 62% the previous week and is a deterioration of 22 percentage points in the last four weeks.

Oilseed prices also followed a bearish trend through last week; Chicago soyabean futures for Nov-15 closed at $346.18/t on Tuesday, down marginally since the previous Tuesday’s close. On Friday, UK soyameal (Hi Pro, ex-Store, East coast) was £277/t. Last Thursday’s US soyabean export sales data provided a brief price boost but on Friday the USDA reported the cancellation of 200Kt of US soyabeans to China. China has increasingly bought more soyabeans from South America recently due to cheaper prices, which may threaten the US’s market share. The European rapeseed harvest has been progressing well, with the French harvest nearing completion. However, the EU Commission and Strategie Grains have cut their monthly forecasts for EU rapeseed output further.

Greek economic situation affecting pig market

Greece is not generally regarded as a major player in the EU pork market but its recent economic problems are still having an impact. Greece’s domestic pig meat production is only in the region of 100,000 tonnes annually and per capita consumption is among the lowest in the EU at around 30kg per head. However, it produces only around a third of the pig meat that it consumes, meaning that it is actually the third largest net importer in the EU, after Italy and the UK. The Netherlands is the leading supplier, accounting for almost a half of shipments, with Germany and France also significant. Around 40% of imports are of carcases, although the share is gradually falling.

Until recently, Greek imports have been relatively stable, falling only marginally last year and in the first five months of 2015. However, reports suggest that the recent crisis, with its controls on access to cash, have affected the ability of Greek importers to pay for product, meaning that trade has largely dried up. This development is too recent to show up yet in official trade figures but the impact is apparent in pig prices. Since the end of May, the Greek reference price has risen by over €22 per 100kg, as the lack of imported pork leads to increased demand for domestic pigs. This has increased the gap to the EU average from €7 to €28 and the Greek price is now the highest in mainland Europe. Over the same period, the fall in the Dutch price has been among the sharpest in the EU, although the extent to which this is due to the Greek situation is less certain.

Book now for Grain Market Outlook

Bookings are now open for AHDB Cereals & Oilseeds flagship annual Grain Market Outlook Conference. The conference takes place on Wednesday 14 October at the Grange Tower Bridge in London. Speakers will analyse the impact of changing policies and politics, from Chinese import protocols and Russian export tariffs to the potentially game-changing Transatlantic Trade and Investment Partnership (TTIP).
Four speakers will present a full morning of detailed market analysis, with opportunities for the audience to question the experts after each paper. Starting off the day, Jack Watts, AHDB Cereals & Oilseeds Lead Analyst will present the 2015/16 Grain Market Outlook. Julian McGill, Senior Economist at LMC International will follow with the Oilseeds Market Outlook. These will be followed by two presentations looking at wider issues affecting the global market, starting with Hamish Smith from Capital Economics looking at the global macroeconomic outlook and its implications for agricultural commodities. The final session of the conference will see Dominic Watkins from DWF looking at TTIP – the good, the bad and the ugly.

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