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AHDB Pig Market Weekly

03 September 2015

AHDB Pig Market Weekly - 3 September 2015AHDB Pig Market Weekly - 3 September 2015


Production costs at 5-year low

Latest estimates from AHDB Pork show that total pig production costs in the second quarter of 2015 were at their lowest level for 5 years. Despite this, the average costs of 139p/kg were still over 2p above the average pig price (EU-spec APP) during the quarter, meaning that producers lost money for the second period in a row. This follows around 18 months of profitability for GB producers, although they have been in a loss-making position more often than not over the last decade. Compared with a year earlier, costs had fallen 15p/kg but pig prices by 28p, moving producers from profit to loss. However, costs were around 8p/kg lower than in the first quarter of the year, while pig prices fell by about half this amount, meaning producer margins improved somewhat during the quarter.

The reduction of costs was largely driven by a combination of further improvements in the productivity and efficiency of the herd and lower feed prices. The latter, combined with better feed conversion, meant that feed costs made up only 55% of the total. This was the lowest level recorded since the first quarter of 2010 and more than 10 points lower than when feed prices were at their peak level in winter 2012-13. Improvements in breeding performance also helped to reduce costs overall, although this was partly offset by the depressed cull sow price, which added to replacement costs. Lighter finished pig carcase weights also limited the reduction in costs to some extent.

Strong growth in Northern Ireland pig herd

The pig herd in Northern Ireland in June 2015 increased by 7% compared to the same time in 2014, according to preliminary results of the June agricultural census from the Department of Agriculture and Rural Development. The total number of pigs as at 1 June 2015 was reported at 554,500 head. Compared to the December 2014 census there had been a general increase across all of the herd, with the breeding herd recording the highest rise.

The number of pigs for slaughter saw the most influential increase on the overall herd number, growing by 35,000 head (7%) in the year to June 2015. This is likely to continue as the total female breeding herd increased by 6% year on year, with gilts in pig rising by 9% in June 2015 compared to June 2014. Maiden gilts also rose by 6%, suggesting further breeding herd growth ahead. Despite this growth, the number of clean pigs slaughtered in Northern Ireland so far in 2015 recorded only a 4% increase compared to the same period in 2014. However, live imports of slaughter pigs from the Republic of Ireland to Northern Ireland decreased by 3% in the first seven months of this year compared to a year earlier. This supports the slightly lower increase in slaughterings compared to the growth in the pig herd.

UK pig prices

Supply and demand remain largely balanced, with the EU-spec SPP rising for the first time in four weeks to 132.43p/kg in week ended 29 August. The euro rose slightly compared to the pound last week, which could have been a contributing factor to the small increase in the SPP. While the current quote is still 25p down year on year, the gap is narrowing as the price was falling in the same week last year. Estimated slaughterings for week ended 29 August were fractionally down on a week previously but recorded a 14% increase compared to the equivalent week in 2014, when there was a Bank Holiday. The average SPP carcase weight for the same week was around half a kilo heavier than a week earlier, the heaviest weight since late June but 110g less that the same week in 2014. The increase in carcase weights is normal for this time of year and the trend can be expected to continue in the coming weeks.

The EU-spec APP fell very slightly to 136.61p/kg for week ended 22 August and had decreased by 24p/kg compared to the same week in 2014. The gap between the SPP and the APP stays at over 4p/kg, having increased slightly from the previous week, as the SPP dropped more.

In week ended 29 August, the 30kg weaner price fell to its lowest level since October 2012, at £41.21 per head, down nearly £3 on the week. Much of this fall was reported to be due to a change in the mix of pigs sold, however. Therefore, while the market may be under a little pressure, it is probably a bit early to say that it has taken a distinct downturn. This is reinforced by a much more modest drop in the 7kg price, to £32.13, although this does represent the lowest price since the series began in mid-2013. Prices for both categories of animal remain well below year earlier levels.

Spanish exports power ahead

The long-term growth of Spanish pork exports continued in the first half of 2015, with shipments reaching a record 584,600 tonnes. This was 15% up on a year earlier and more than double the level recorded a decade ago. Growth is mainly being driven by rising domestic production at a time when the Spanish consumer market remains subdued following the economic difficulties of recent years. In the first five months of this year, 9% more pig meat was produced in Spain than a year earlier. The majority of the extra output will have found its way onto export markets, especially as ham and sausage exports were also higher. To ensure this could happen, unit prices of pork exports were 7% lower than a year before but, even so, their value rose by 7% to €1.29 billion.

Although shipments to other EU markets were higher by 9%, the strongest growth was recorded elsewhere, so the EU’s share of trade fell from 77% last year to 73%. Particularly strong sales were recorded to China, up by more than half, and South Korea, up by three-quarters. A wide range of smaller third country markets also took more Spanish pork, although shipments to Japan, the second largest non-EU buyer, were little changed. Even within the EU, most countries increased their purchases, although higher production meant Germany took less Spanish pork and UK sales were virtually unchanged from a year before.

Chinese economic concerns grow

Concern about the state of the Chinese economy increased last week with Stock Markets around the world falling as a result. While Chinese growth rates are still high in comparison to the Euro area and the UK, they are slowing significantly. The Chinese government has implemented a number of measures to address this slowdown and boost their economy, including cutting interest rates and devaluing the yuan.

Most forecasts anticipate an increase in Chinese pork imports this year and shipments were up 11% in the first seven months of the year. Reports suggest they have remained strong since then. This is down to a fall in production after a sharp decline in the pig herd, driven by poor profitability last year. Chinese pork prices have increased by a third since March and are at their highest level for over two years, meaning the production decline may reverse next year. While current prices suggest that demand is still running ahead of supplies and there should still be scope for higher pork imports, the economic concerns may temper expectations to an extent.

Feed market update

Tuesday’s Nov-15 UK feed wheat futures closing price was £114/t, a level which the contract trended around for most of the past week. On Friday, the contract reached a new low of £113.65/t, reflecting harvest pressure and the bearish sentiments in the grain markets at the moment. The International Grains Council (IGC) added further weight to grain markets as they forecasted global grain production to reach a record of 1,988Mt, up 18Mt on their previous forecast. UK wheat stocks climbed 71% in June, to the highest tonnage since 2009. With a substantial level of stocks in place at the end of 2014/15 and another big wheat harvest expected, 2015/16 is likely to be another year of large supplies.

Market anxiety over the impact of the Chinese economic slowdown on global oilseed demand has moved in and out of focus throughout the last week. Concerns eased towards the end of last week following Chinese government measures to boost demand. However, indications that demand from manufacturers contracted in August have capped gains for oilseed prices. The IGC increased estimates for the 2015/16 Brazilian soyabean area to 33Mha, up 3% year-on-year and a new record. UK soyameal prices (Brazilian, 48%, ex-store Liverpool, spot delivery) increased by £5 to £288/t on Friday, compared with a week earlier. Rapemeal (34%, ex-mill, Erith, September delivery) prices were unchanged on the week, at £172/t on Friday.

Irish pork exports at a record level

In the first half of 2015, Ireland exported 79,200 tonnes of pork, up 11% on 2014 to a record level. The value reached €175.9 million, up just 3% on the year, as the average price fell 7%. Fresh/chilled product exports were up by 23% on the year, as frozen shipments fell back 3%. The overall increase was largely due to increased product availability, with pig slaughterings in Ireland up 8% in the first half of 2015, combined with the weak euro. Import volumes were down 28% on the year, with reduced shipments from the UK, Denmark and the Netherlands. The price differential between the UK and Irish pig prices in the first half of 2015 remained high, at around 25p in sterling terms.

Irish export volumes to the rest of the EU were up 23% on the year to represent two-thirds of all Irish pork exports, up from 60% last year. Shipments to the UK and Germany were up 14% and 60%, respectively. In contrast, exports to non-EU countries were down 7%. This fall came despite shipments to the United States increasing by 38% and volumes to China by 23%. Shipments to South Korea, which were up in the first quarter, fell back in quarter two to end up down 4% for the half year. However, shipments to Japan fell 84% to just 1,000 tonnes, after very strong sales last year. Both the Japanese and South Korean pig industries are recovering from PEDv, reducing import demand, while Japanese pork stocks are also much higher than a year ago. Of the smaller non-EU markets, volumes to Australia were up five-fold to 2,500 tonnes.
Exports of pig offal were up 45% in the first half of the year at 12,000 tonnes. Volumes to the largest market, China were up 38% to 6,000 tonnes. There was also growth to the Philippines and Hong Kong, the next largest markets.

Quarterly Consumer Category Report out now

The latest edition of AHDB Pork’s Consumer Category Report for pig meat was published today. The report contains a wide range of information about the retail performance of the main pig meat categories, particularly in the 12 weeks up to the 19 July. It also covers wider consumer trends and recent developments in the pig market.

DOWNLOAD REPORT:- Download this report here

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