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AHDB Pig Market Weekly

15 October 2015

AHDB Pig Market Weekly - 15 October 2015AHDB Pig Market Weekly - 15 October 2015


Little sign of EU market recovery

Growth in EU pig slaughterings is expected to continue until at least the middle of 2016, albeit at a slower rate than in the first half of 2015. That conclusion is based on analysis of figures provided by the EU Commission’s forecast working group for pig, which met on Monday. Pig slaughterings are forecast to rise by around 2% year on year in the second half of 2015, with growth slowing to around 1% in the first half of 2016. In fact, many of the main producing Member States are forecasting that pig numbers will be little changed from year earlier levels. However, this general stability is set to be outweighed by further strong growth in Spanish output, although even this may begin to slow by the second quarter of next year.
These forecasts are broadly consistent with the EU Commission’s Short Term Outlook report, published last week, which forecasts a 2.7% increase in pig meat production for 2015 and a 0.5% rise in 2016. More details of the report’s forecasts can be found below.

The forecast slowdown in production is attributed to the impact which low prices are having on pig breeding herds. Herd reductions have not been as large as they might have been so far, however, partly due to low feed costs. Nevertheless, with the EU average reference price now having been below €1.50 per kg for over a year, finances are becoming increasingly difficult for many producers. The working group’s figures don’t offer much comfort for struggling farmers, with prices forecast to remain at or below current levels until the spring and even then, only to show a modest seasonal uplift. This would leave prices only slightly above the depressed levels of late 2014 and early 2015. Prices may find some support if the proposed Private Storage Aid scheme is implemented but the extent of the impact will depend on its design.

Strong month for UK trade in August

UK imports and exports of pig meat both increased in August, compared with a year earlier, according to latest figures from HMRC. Pork imports were 8% higher than in August 2014 at just over 30,000 tonnes, the highest figure for August since 2008. This is the third consecutive month with rising imports, although this follows two months when they were much lower. If this trend continues, it could put further pressure on UK pig prices, especially as the unit price was well down; the value of pork imports was 10% down on a year earlier, at £49.2 million.

Among the major pork suppliers, only the Netherlands sent less pork to the UK, with notable increases from Denmark, Belgium, both up 14%, and Spain, from where volumes were up by more than 50%. Bacon imports were also higher, up 4% year on year, with lower Danish shipments offset by higher volumes from all other major suppliers. Again, the value of the trade was 10% lower, however, at £41.9 million. It was a similar picture for processed imports, with higher volumes but much lower prices than in August 2014. Strong sausage shipments from Germany and the Netherlands contributed.

After a weaker month in July, UK pork exports were 4% up on the year in August, at 15,100 tonnes. Despite the weak euro, sales to the rest of the EU were up 9% on the same month last year, with rising shipments to Ireland, Germany and several smaller markets. Exports to China were also well above August 2014, although this was more than offset by lower shipments to Hong Kong. Although unit prices were lower, the fall wasn’t as great as for imports, so the value of exports was down just 3%, at £16.3 million. Although much smaller in volume, exports of bacon and sausages rose strongly in August. Offal exports were also much higher, with strong growth to both EU and non-EU markets. In particular, sales to China nearly doubled, only partly offset by lower shipments to Hong Kong.

UK pig prices

In the week ended 10 October, the EU-spec SPP fell once again to 127.84p/kg. The decline of 1.49p is the largest week on week reduction which has been recorded since February this year. As was the case last week, this sets a new record for the lowest price to be recorded since the series began in April 2014. Estimated slaughterings for the same week increased by less than half a percent to 186,300 head. However, compared to the corresponding week in 2014, slaughtering levels are estimated to be running 10% higher. The average SPP carcase weight increased by nearly half a kilo to reach 82.19kg. This is the heaviest weight recorded since April 2015 and was slightly heavier than in the same week last year.

For the week ended 3 October 2015, the EU-spec APP also showed a sharp downward movement, losing 1.20p to stand at 133.08p/kg. This price has now fallen nearly 4p/kg in the last five weeks. The gap between the APP and the SPP for the same week fell to its lowest level since April, at 3.75p.

In the week ended 10 October, the 30kg weaner price dropped by 84p to £43.68 per head, with throughputs remaining relatively unchanged on the week. In contrast, the price of 7kg weaners recorded a marginal increase of 16p to £32.16 per head. The prices for both weights of weaners continue to fall behind the same week in 2014, currently back by more than £5 each.

Producer share of retail price down slightly in September

Falling farmgate prices throughout September led to the share of the retail price received by producers declining to 35%. Farmgate prices dropped by over 1% during the month, recording the largest change since March this year. Average retail prices remained unchanged from August, although they continue to be 2% behind the corresponding time period in 2014. The producer share of the retail price is five percentage points below the figure for 2014, as farmgate prices have recorded a much steeper fall than retail prices.

Retail pork prices remained stable overall during September, with marginal changes recorded on a variety of different cuts. Minced pork showed the largest increase of 4%, with boneless leg (+2%) also increasing. Fillet of pork (-4%), boneless shoulder (-3%), traditional pork sausages and loin chops (both -1%) all recorded decreases in price. Overall, the average retail prices across all the cuts monitored by AHDB MI were 0.4 points back on the year earlier. However, loin steaks and boneless shoulder were 8% and 5% cheaper respectively, while fillet end leg was 7% more expensive. Smaller movements were recorded for other cuts.

EU meat production growth set to slow

Overall meat production growth in the EU is expected to slow in 2016, according to the EU Commission’s latest Short-term Outlook report. Having risen by around 2.5% in 2014 and 2015, output is only forecast to increase by 0.7% in 2016. The slowdown is expected to affect all the major meats except sheep meat, where there was little growth to start with. Poultry meat is still expected to grow more quickly than other meats but even it is only forecast to record a 1.1% rise.

Despite the slower production growth, meat exports are forecast to rise by around 3% in 2016, with beef, pork and poultry meat all showing similar increases. This follows a better than expected export performance in 2015, with shipments up 6% even with the loss of the Russian market. Meat imports are also forecast to be higher, by 2%, with most of the increase being for poultry meat. As in most recent years, poultry meat is set to be the main driver of a small increase in per capita meat consumption.

The report also forecasts that EU cereal production will reach 301.9 million tonnes this year. Although that is 8% lower than last year’s record harvest, only 3 of the previous 10 seasons were more productive. Similarly, oilseed production is estimated to be lower than last year but above the 5-year average. Combined with favourable global production, this suggests that prices for cereals and oilseeds will remain low. Indeed low prices are apparent throughout the report, with sugar and dairy also involved, along with the pig sector, of course.

Feed Market Update

Nov-15 UK feed wheat futures prices closed at £117/t on Tuesday, up 20p from the previous Tuesday. Chicago wheat and maize futures were lower on the week, however. Global wheat supplies were increased in the October Supply and Demand Estimates from the USDA last Friday but maize production was cut for several of the major exporters, including the US and Ukraine. However, total grain supplies remain high and the US futures markets closed lower. Defra’s provisional estimate for UK 2015 wheat production is 16.1Mt, while barley output could be the highest since 1997 at 7.3Mt. In AHDB Cereal & Oilseeds’ Early Balance Sheet, animal feed demand for cereals is forecast to be higher compared with last year. The proportion of wheat used in feed rations is forecast to increase throughout this season, due to its current price competitiveness compared with other feed grains.

Nov-15 Chicago soyabean prices closed at $335.80/t on Tuesday, up $9.55 week on week. Paris rapeseed futures prices also closed higher. On Friday, Brazilian soyameal (48%, ex-Store, Liverpool, October delivery) was £277/t, down £5 week on week. In its latest supply and demand estimates, the USDA revised US soyabean production 1.3Mt lower than the September forecast, to 105.8Mt. The revision was at the low end of trade expectations, which created some support for oilseeds markets. Brazilian soyabean production in 2015/16 is forecast to reach a record 100Mt by the USDA. The increase comes as local prices have been insulated from global declines by the weaker real, which is expected to encourage farmers to plant a larger area this season.

US exporters looking forward to Trans-Pacific Partnership

More details of the Trans-Pacific Partnership (TPP) have emerged, including the new market opportunities that are expected to develop for the US pig meat industry. The United States is the second largest global exporter of pork after the EU and both countries are in competition on many of the 12 markets that are included in the TPP. Two thirds of US exports already go to the other members of the TPP, although some of this trade is already duty free, such as that coming under the North American FTA and exports to Australia and Singapore. For the EU, the proportion is just under 30% and so any competitive advantage to the United States could put some of this trade in jeopardy until the EU secures its own trade agreements. The EU is in negotiation with countries in the ASEAN region such as Singapore and Vietnam, both importers of pork from the EU, but progress is slow. EU trade negotiations with Japan started in November 2012.
Japan is the largest market for EU exporters, yet for the US under the TPP duties on more than 65% of tariff lines will be eliminated within 11 years and on nearly 80% within 16 years. In addition the gate price specific duty will be reduced by 90% in 11 years. Smaller markets where the United States should be able to increase its market penetration include Vietnam, where tariffs that are currently as high as 34% will be eliminated in 5-10 years. The same applies to New Zealand, for which tariffs that are currently up to 5% will be eliminated within 3 years.

Global focus for Grain Market Outlook conference

This year’s AHDB Grain Market Outlook conference, which took place yesterday, emphasised the global nature of today’s agricultural markets. The four speakers all had much to say about global developments and how these impact on the UK markets for cereals and oilseeds. AHDB Lead Analyst, Jack Watts, spoke about the outlook for grain markets. With a third consecutive strong global harvest, prices are currently low and stocks are plentiful, particularly for wheat. However, he did highlight that some risks remain for maize, where stocks are lower relative to demand, albeit higher than in some recent years. The small number of major producing countries means that weather events can have more of an impact on global maize supplies than is the case for wheat.

The second speaker, Julian McGill from LMC International Ltd looked at the oilseed market and, in particular, its close relationship with crude oil. Falling oil prices had pulled down vegetable oil prices, although there is still potential for further falls. This was likely to lead to some reduction in production for most oilseeds but perhaps not for soyabeans, where demand for meal, notably from China, is a key market driver.
Hamish Smith from Capital Economics looked at the macroeconomic outlook. His view was that concerns about the Chinese economy have been overstated but that the Eurozone recovery was still fragile. He also highlighted how the strong US dollar meant that low commodity prices weren’t necessarily feeding into decision making – highlighting rising soyabean prices in Brazil due to the depreciation of the real.
The final speaker was Dominic Watkins of DWF, who gave an overview of the Transatlantic Trade & Investment Partnership (TTIP). Negotiations between the EU and US continue and may not be concluded before late 2016, with ratification taking longer still. Food and agriculture issues, such as GMOs, growth hormones and food labelling, are among the most challenging elements to be resolved.

Copies of the presentations and videos of the speakers will be available soon through the AHDB Cereals and Oilseeds website.

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