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AHDB Pig Market Weekly

05 November 2015

AHDB Pig Market Weekly - 5 November 2015AHDB Pig Market Weekly - 5 November 2015


Continued pressure on US prices as slaughterings increase

US pig slaughterings in the first nine months of 2015 were running 9% higher compared to the same time period in 2014, at 85 million head. In 2014, the US pig herd was heavily affected by PEDv, with a decline in both slaughterings and production being recorded. As a result of this, producers experienced a spike in prices, fuelling the higher levels of production which have been apparent this year. The gap between the monthly throughputs for 2014 and 2015 was at its highest point during June, when volumes were ahead by 16%. Average finished pig carcase weights have been running at a lower level year on year, down by 1% for the first nine months of the year, at 96kg. Overall, US production of pork in between January and September in 2015 increased by 8% compared to the same time period in 2014.

The high levels of supply which have been apparent throughout 2015 have had a large impact on prices, leading to a sharp drop in the US barrow and gilts price. The average price for January to September 2015 was about $52 per 100lb liveweight, over $27 down on the previous year’s level. Additional pressure was placed on prices at the beginning of the year, with lows of around $45 per 100lb liveweight being recorded between February and April. Despite the seasonal uplift since then, prices are running at a much lower level than in 2013 and 2014, as supply and demand play a pivotal role, especially given limited export growth due to the strong dollar. Looking ahead into the upcoming months, this trend is expected to continue, as USDA forecasts production to increase further, with totals for 2015 as a whole up 8% on 2014. A further small increase in output is expected next year, with prices set to remain low as a result.

Pig farm incomes fell in 2014/15

The average Farm Business Income (FBI) across all farm types in England was £39,700 in 2014/15, an 8% decrease year on year, according to the latest figures published by Defra. The FBI for specialist pig farms recorded a 24% decrease year on year from £65,200 to £49,400. Grazing livestock farms had the lowest income, while incomes for specialist poultry farms were the highest at £127,500. Despite the decline on the year, the FBI for specialist pig farms in 2014/15 was still higher than in the previous three years. Compared to 2013/14, pig prices were much lower in 2014/15, while the cost of production remained relatively static, so producers’ profitability declined. As well as a decrease in average profitability, the figures show that a quarter of specialist pig farms had a negative FBI in 2014/15, compared to one in seven in 2013/14. However, around 15% of specialist pig farms had a FBI of over £75,000.

Unlike other farm businesses, specialist pig farms achieved the majority of their income from agricultural practices. In 2014/15, over 70% of FBI for specialist pig farms came from agricultural operations, compared with just 5% across all types of farms. This reflects their low income from direct payments such as agri-environment and single farm payments. In 2014/15, on average, direct payments accounted for £9,900 of pig farm FBI, compared to £28,300 for all farm types. Some other farm businesses, such as grazing livestock and arable, would have made a loss without support payments. Income from diversification was also relatively low on specialist pig farms at £3,800, 40% of the average across all farms.

UK pig prices

In the week ended 31 October the EU-spec SPP increased for the first time since the end of August, by a small margin of 0.19p to 127.11p/kg. The current quote still remains over 22p down on the figure for the same week in 2014 but the gap between the two figures has narrowed further. Estimated slaughterings were down 3% on the week, at 178,700 head, potentially having an impact on prices. This may have helped to bring a better balance to the market, with demand reportedly steady and the Christmas procurement period fast approaching. The average SPP carcase weight for the week ended 31 October was 82.51kg, recording an increase of 210g. For the second consecutive week, weights were below those recorded in the corresponding week of 2014.

The EU-spec APP fell by a penny to 130.99p/kg in the week ended 24 October, the eighth consecutive week in which the quote decreased. Currently, the price is around 24p behind the figure for the same week in 2014. The gap between the SPP and APP for the same week remains just above the 4p threshold, despite a slightly larger fall in the latter.

Weaner prices for the week ended 31 October recorded diverging trends, with the two categories moving in opposite directions. The 30kg weaner price decreased slightly from the previous week, to £42.75/head. Once again, this took the price to lowest level since November 2008. In contrast, the 7kg weaner price increased by two thirds of a penny to £32.48/head, partly offsetting the reduction of over £1 which occurred last week. Both quotes remain below last year’s level, by £6 and nearly £4 respectively.

Japanese pork imports fall once again

The continued recovery from PEDv, coupled with high stock levels, resulted in a further decline of pork imported into Japan, with volumes for January to September down 6% at 581,300 tonnes. The latest figures show that imports of pork continued to fall during the third quarter of 2015, an ongoing trend throughout the year so far. Volumes were down 9% compared to the corresponding time period in 2014, at 201,000 tonnes. However, it is worth noting that import demand reached high levels in 2014 as domestic production was affected by PEDv outbreaks. For the first nine months of 2015, the total value of imports of fresh and frozen pork fell by 7% to ¥314 billion.

During the months of July to September 2015, imports from the EU fell by nearly a quarter on the year to 72,200 tonnes. This was predominantly driven by Denmark and Spain, with both countries recording declines, of 17% and 18% respectively. Outside of the EU, there was a marginal increase in pork destined for Japan, with increases from Mexico and Canada. In comparison to the third quarter of 2014, shipments from Canada were ahead by 22% and Mexico by 7%. Whilst imports from the US dropped 8% year on year, it remained the largest country supplier, making up just under a third of all shipments.

Slight recovery in EU sow market

Having dropped to its lowest level since the dioxin crisis of January 2011 over the summer, the German sow price has since picked up. The M1 grade price fell below €1 per kg at the start of July and stayed at this level until September. However, it has since gained over 10 cents, stabilising at €1.08 per kg since mid-September. This takes the price back to a similar level to that seen during the spring but is over 10 cents lower than a year ago. The firming of the German market, along with a slight strengthening of the euro, is reported to have led to some improvement in GB sow prices, albeit from a very low level.

As is normally the case, Dutch and Danish sow prices have followed the German trend closely, albeit at a discount. Having been somewhat stronger during the spring, however, French sow prices have been largely unchanged since the start of June. This means that, having matched the German quote over the summer, the French price is now at a more normal discount to it. Indeed, a slight easing in the latest week increased the gap between French and German prices to 13 cents, close to the average over the last two years.

Feed market update

UK feed wheat futures prices (Nov-15) closed down on the week by £1.70 at £113.20/t on Tuesday. Nevertheless, Dec-15 Chicago wheat futures prices increased week on week, following early 2016 wheat crop concerns in the US and Australian quality worries. Chicago maize futures prices closed marginally down on Tuesday compared to a week earlier. World wheat production in 2015/16 was forecast 1Mt lower than a month ago at 726Mt by the International Grains Council (IGC) in their latest market report released on Thursday. Meanwhile, the latest forecasts from the European Commission, released earlier this week, show an increase in European soft wheat production for 2015/16. The IGC revised world maize production for 2015/16 up in October’s market report, while the European Commission revised its forecast for this year’s maize harvest down from September’s forecast.

Jan-16 Chicago soyabean futures prices closed down on the week by $4.41 at $322.94/t on Tuesday. However, Paris rapeseed futures (Feb-16) closed at €381.50/t, up by €4 compared to the previous week, partly due to the euro weakening against the US dollar. UK rapemeal (34%, ex-mill, Erith) prices were £163/t as at Friday, down by £3 week on week. Brazilian soyameal (48% ex-store, Liverpool) also decreased £7 Friday to Friday to £273/t. Hi-pro (ex-store, East Coast) soyameal prices were at £258/t on Friday, a £4 decrease on the week. The IGC increased its global soyabean production forecast but it doesn’t expect global stocks to get heavier, due to increased crush demand in the US and EU. The same report also recorded a stable EU-28 winter rapeseed area for harvest 2016.

Contrasting trends in Asian export markets

So far this year, there have been contrasting trends in imports to the major pork markets in Asia. As reported last week, Chinese imports have been very strong in recent months while, as detailed above, Japan has imported less pork. Strong growth has also been seen in shipments to South Korea. In contrast, pork purchases by the Philippines and Hong Kong have reduced.

South Korea imported 356,000 tonnes of pork in the first nine months of 2015, up by more than a third compared with a year earlier. Disease problems continue to affect domestic production, although output has only been down marginally. At the same time, consumer demand has been strong, in part due to the impact of avian influenza on poultry production. This has provided opportunities for the major suppliers of pork to the country, with all showing strong growth, led by the EU (primarily Germany and Spain) and North America. The EU’s market share increased to over half, up from 37% in January-September 2013.

Shipments of pork to Hong Kong were down by 3% year on year during January-September 2015. Were it not for a rise in imports from mainland China, the decline would have been a slightly larger 6%. Other than China, the two main suppliers, Brazil and the EU, both sent less pork to Hong Kong, shipments falling by 7% and 13% respectively. These falls were partly offset by higher volumes from smaller suppliers such as the US, Canada and Vietnam.

Data for the Philippines are currently only available up to July but these also show a decline in imports, by 18% to 31,600 tonnes. Shipments from the EU fell by 3% but, nevertheless, its market share increased to nearly three-quarters, as there were much sharper falls in supplies from Canada and the US. Despite the lower quantities, a sharp increase in unit prices meant that the value of trade was actually up fractionally at 2.63 billion pesos.

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