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AHDB Pig Market Weekly

18 September 2015

AHDB Pig Market Weekly - 17 September 2015AHDB Pig Market Weekly - 17 September 2015


Measures to ease pressure on EU pig market announced

Several reports have emerged in recent weeks about the problems facing not only the pig sector but agriculture in general. This cumulated in the introduction of a package of measures, worth €500 million, to support the farming sector by the European Commission on 7 September. Particular reference was made to the dairy and pig meat sectors. For pig meat this included a proposal to open a new private storage aid (PSA) scheme and an increase in the budget for promotion. An assessment will also be undertaken of what additional resources can be provided to help eradicate African Swine Fever (ASF). For the dairy and pig meat sectors there will be a direct aid package worth €420 million of which €36 million has been allocated to the UK. Member states have flexibility as to how funds are to be allocated between the two sectors. It has also been proposed that a pig market observatory would be set up by the Commission to enable more timely monitoring of the market similar to the one already in operation in the dairy sector.

The cumulative impact of ongoing lower pig prices year on year, in spite of favourable feed prices, is starting to bite hard, with producers having major cash flow problems. The situation is being exacerbated by outbreaks of African Swine Fever (ASF) in the Baltic States and Poland.

In the largest pig producer, Germany, both breeders and finishers are in a loss making position especially the former with both finished pig and weaner prices well below last year’s levels. According to reports from the Netherlands 20% of producers are in difficulty and a rescue plan is being worked upon involving Rabobank, the dominant lender to the sector. In neighbouring Belgium pig producers are also in difficulty and a deal is being arranged to provide financial support. The financial crisis and need for structural adjustment among French producers has already been given publicity which has included a national aid package for the sector. The situation has also become very difficult for Italian breeders.

The June EU pig census are not complete but for those for which results are available they show contrasting results. For the female breeding herd numbers in both Belgium and Poland were 6% lower than a year earlier with further falls to come given the sharp falls in in-pig gilt numbers. In the Netherlands and Italy numbers were actually up by 1% while in the largest producer Germany they were 3% lower.

PSA has already been opened this year in the spring, when 63,000 tonnes was contracted in the EU as a whole but was not widely used in the United Kingdom as less than 200 tonnes were contracted for. When final details are announced, due on Thursday, it is expected that the new scheme, unlike the previous one, will include some low valued cuts, such as fresh lard. Such cuts have been particularly affected by Russia’s food import ban. It is also understood that the storage aid rate will be increased by 20% and that there will be no ceiling on the quantity contracted for. Uptake will be monitored on a regular basis to assess what impact it has on the market.

UK pork imports up in July while exports decline

In July the UK imported 10% more pork year on year at 32,100 tonnes according to the latest HMRC trade data, reaching the highest level since December 2014.

Volumes from the UK’s largest supplier, Denmark, accounted for most of this increase, with volumes up by 14%. Belgium, Ireland and Spain were the other significant suppliers to increase shipments to the UK, with volumes up 3%, 18% and 47% respectively. However, volumes from the UK’s second and third largest suppliers, Germany and the Netherlands, decreased by 6% and 2% respectively. Imports from Poland continued to increase and were up 135% in July. Imports for the first seven months of 2015 were 1% higher than the same period in 2014. With prices still well down on last year the overall value of imports in the first seven months was down by 15% on the year at £350 million.

Bacon imports in July decreased by 2% on last year to 21,700 tonnes, as a 28% fall in shipments from Denmark was not fully offset by higher shipments from the Netherlands and Germany. Imports of sausages increased by 23% year on year. Volumes from the Netherlands increased sharply while shipments from Germany declined. Processed pork imports however recorded a 2% fall in July.

Pork exports from the UK were down by 7% in July at 15,200 tonnes. Much of the fall was due to lower shipments to China, which were 35% lower year on year. This was possibly due to the build-up of the economic problems in China although reports still suggest that import demand is still basically firm. Volumes exported to the UK’s largest market, Germany, were up by 13% compared to July last year. Despite lower volumes shipped in July, overall exports in 2015 to date were up 1% compared 2014 at 103,000 tonnes. The value of exports decreased by 10% year on year in the first seven months to £106 million due to unit prices being 12% lower although in euro the price fall was only 1%.

Offal exports continued to recover in July, with volumes up 63% on the year. The majority of this increase was in volumes going to China, which were up 134% at 2,600 tonnes. Increases were also seen across a number of smaller markets in Asia, while volumes going to the Netherlands and Ireland were the only falls of the significant offal markets.

UK pig prices

Following disruption in the bank holiday week, slaughter numbers in the week ended 12 September recovered reaching the highest level since the beginning of July.

There is no strong indication of a pick-up in demand in spite of the start of the new school year. For the week ended 12 September the EU-spec SPP price continued to fall, by a third of a penny, to 131.12p/kg. The current quote is 25p down on the same week in 2014 with the gap narrowing due to prices falling at a slower rate than last year. Estimated slaughterings for week ended 12 September were 1% up on the previous week reaching 174,400 although marginally down on the same week last year one of the few times this has happened this year. The average carcase weight increased for the third consecutive week but still remained lower, by 440 gm, than in the same week last year.

The EU-spec APP for the week ended 5 September fell to 135.45p/kg, a decline of almost 1.4p on the previous week. This price was 15% or 24p down on the same week in 2014. The gap between the SPP for the same week and the APP declined to 4p.

In the week ended 12 September, the 30kg weaner price increased by £1.45 to £45.10 per head compared to the week earlier partly since one company was only trading in premium weaners. Throughput was down 7%. The price was 13% lower on the same week in 2014. GB 7kg weaner prices recorded a decrease of 86p to £32.39 per head, 17% down on the previous year, with throughput up by 2%.

Marginal rise in producer share of pork

The share of the retail price received by producers increased marginally in August reaching 35.5%, the highest point since February.

During the month farmgate prices fell by less than 1%, while the average retail price saw a sharper fall of 2%. This led the producer share of the retail price to increase by 0.8 percentage points with the share being at its highest since February. This leaves the measure 4 points back on August 2014, as farmgate prices remain well below levels from last year although retail prices were also lower.

Average retail pork prices for August were marginally down on the previous month with a drop of 2% across the cuts monitored by AHDB MI. Boneless shoulder joints recorded the largest drop of 6%, whilst both loin steaks and minced pork fell by 3%. However fillet end leg increased by 1% and diced pork saw a marginal increase. Compared with August 2014 retail price changes were mixed, with fillet end leg and fillet of pork up by 7%, while loin chops increased by 3% and traditional pork sausages were up 2%. In contrast prices for boneless legs were down 8%, loin steaks fell by 4%, minced pork and boneless shoulders declined 3% and diced pork was down 2%.

Growth in Italian imports slows

Italy’s pork imports in the first half of this year increased 1% from a year earlier to 514,000 tonnes according to the latest figures published by Istat. This increase occurred in spite of ongoing low demand for pig meat while production is also understood to have been lower based on data from the European Commission.

The largest share of pork imports were sourced from Germany, which provided a third of the total and volumes were up 1% on the same period in 2014. Shipments from Denmark and Spain both increased by 10%. Other suppliers shipping higher volumes included Poland, Austria and Ireland, up 31%, 24% and 48% respectively. In contrast supplies from the Netherlands, the third largest supplier, fell by 6% compared to last year, while imports from France fell by 16%.

The value of imports during the first half of the year totalled €925 million, down 9% compared with the same period in 2014. This is given a fall of 10% in the average price reflecting the general weakness of the EU pig meat market in 2015.

Imports of live pigs in the first half of this year were up by 31%, to 731,000 head. Volumes sourced from Denmark and the Netherlands increased by 68% and 3% respectively, while shipments of live pigs from Germany fell by 21%. The majority of the rise came in the form of pigs under 50kg, mainly weaners, which were up by 40% and accounted for 77% of total imports.

Italian pork export volumes are at much lower levels than imports. Volumes shipped in the first half of 2015 fell by 17% to 31,300 tonnes. In contrast exports of processed products, mainly hams, increased by 25% to 11,800 tonnes although there are some doubts about the accuracy of the data for trade with Spain.

Feed market update

UK Nov-15 feed wheat futures closed at £113.50/t on Tuesday (15 September), up £1.60/t week on week. Furthermore Chicago Dec-15 wheat futures increased on the week by $7.26/t on Tuesday (15 September), closing at $181.77/t. Chicago maize futures prices (Dec-15) also followed the upward trend closing at $153.74/t on Tuesday, $8.76/t up week on week. Last Friday (11 September), the USDA released the latest world agriculture supply and demand estimates (WASDE), which had been the main focus of markets last week. Wheat output estimates were increased by 5.1Mt to 731.6Mt, taking 2015/16 production to 6Mt higher than last season. In line with expectations, US maize production estimates have been reduced by 2.5Mt from August to September, due to lower estimated yields. EU maize production was also decreased by 4.3Mt, cutting the total world maize output for 2015/16 by 7.5Mt to 978.1Mt.

Chicago (Nov-15) soyabean futures prices closed up on Tuesday (15 September) at $326.62/t, $3.58/t up week on week in response to the latest USDA supply and demand estimates. Nov-15 Paris rapeseed futures prices were also up on Tuesday, by €3.50/t on the week closing at €367.50/t. However in the UK, as at 11 September, UK rapemeal (34% ex-mill, Erith) was down for the second consecutive week, at £164/t, £5/t down week on week. It was a similar story for Brazilian soyameal. The latest USDA supply and demand report increased projected US soyabean yields but regardless of this the estimate of world soyabean production has been revised downwards from 320.1Mt in August to 319.6Mt in September.

Sharpest falls in global food prices since 2008

The latest food price index from the UN Food & Agriculture Organisation (FAO), covering August, fell 5.2% from July, the largest month on month fall since December 2008 and was down 21% from a year earlier. Meat though was the one commodity that did not decline compared with July this year whereas all the others did with vegetable oils and dairy showing particularly sharp reductions. In fact the meat index was at its highest level since February in contrast to sharp reductions for all other commodities over the same period.

High stock levels of cereals, oil seeds and dairy products are responsible for much of the fall. However, a number of other factors have also influenced this decline. These include low energy prices and concerns about China’s economic slowdown and its negative consequences on the global economy and financial markets.

The FAO Meat Price Index averaged 173 points in August and follows an increase in the price of ovine meat, while other meats were stable compared with July. This left the measure 39 points (18%) below its historic peak in August 2014, driven mainly by falls in pig and ovine meat prices. However falls were seen over this period for all four major meats.

South Korean demand drives Chilean exports

In the first half of 2015, Chilean pork exports totalled 64,000 tonnes, up 17% on a year earlier to a record level with South Korea driving much of this increase.

The 69% increase to South Korea is linked to the depressed domestic production as the country is recovering from outbreaks of PEDv and FMD. Chilean exports to China increased by 20%, a result of the reduced breeding herd. In contrast exports to Japan have decreased by 29%, mainly due to the country recovering from breakouts of PEDv in 2014. High stock levels and subdued consumer demand have also reduced import demand. Volumes of pork going to Russia have continued to increase, by 66% on the same time period in 2014. This follows sanctions placed by Russia on some of its traditional pork suppliers leading to higher demand from other exporters.

Exports to the EU in the first half of 2015 have fallen by over a third compared to the same period last year. Despite this, Chile has remained as the largest exporter to the EU, with a 31% market share in the same period based on EU import statistics, even though it shipped just 1,100 tonnes in the first six months of the year.

Despite overall demand for Chilean pork continuing to grow, the overall unit price for the first six months of the year declined by 13% in US dollar terms given the decline in the global market so far this year. This left the overall value of exports up by only 2% at US$190 million.

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