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AHDB Pig Market Weekly

03 December 2015

AHDB Pig Market Weekly - 3 December 2015AHDB Pig Market Weekly - 3 December 2015


Production costs and prices steady in third quarter

The cost of pig production in the third quarter of 2015 was little changed from the previous three months, according to latest estimates from AHDB Pork. The average cost of production between July and September was estimated to be 139.5p/kg, around a penny higher than in the quarter before. This was largely due to slightly higher feed costs, with most other inputs remaining at similar levels. Despite the small quarter-on-quarter rise, costs during the period were still close to their lowest point in five years and were over 4p/kg down on the same time last year.

Pig prices were also little changed in the third quarter, with the EU-spec APP averaging 136.3p/kg. This meant that producers were estimated to be losing, on average, around £3 per pig sold during the quarter. This is the third consecutive quarter when producers have been losing money, following 18 months of profitability. However, losses are still much smaller than was the case for most of the period between late 2010 and early 2013. However, pig prices having fallen in recent weeks, to stand at around 130p/kg in the first half of November, while feed prices have been fairly stable. Therefore, producer margins are likely to have worsened further.

Both fresh pork and bacon sales under pressure

Over the 12 week period ending 8 November 2015 the volume of pork retail sales continued to fall with 560,000 fewer shoppers buying than a year earlier according to Kantar Worldpanel. Combined with average prices falling as a result of a drop in the base price and even though there were slightly fewer promotions, this has reduced total expenditure. Chops and legs were the biggest drivers of the volume decline, although pork steaks registered small levels of growth within the period. Similar to other proteins pork mince has seen growth, with a 5% increase in volume, but with prices falling total expenditure was still down. The only other area of growth has been within ‘pork other’ which consists predominantly of marinades, with greater household penetration and a higher volume purchased per trip.

There has been a 4% decline in bacon volumes over the same 12 week period, despite a fall in price, mainly due to shoppers switching to other products and buying less. For sausages, low-fat was the only category which has seen gains over the last 12 weeks. There is evidence that health is becoming a bigger driver for consumers, with a recent YouGov survey showing 34% of respondents are looking to reduce saturated fat levels in their diet. Meanwhile, ham volumes have remained stable, with average price reductions lowering total expenditure, with switching evident from loose to prepacked products.

UK pig prices

The EU-spec SPP fell once again in the week ended 28 November by 0.28p to 126.00p/kg in comparison to the previous week even though slaughterings were well down. This is the second consecutive week in which the price declined, leaving the quote 19.5p back on the same week last year. It was also at its lowest level of this year. Estimated slaughterings during the week were down by nearly 12,000 head, representing the lowest weekly throughput since the end of September. The average SPP carcase weight fell slightly to 81.81kg, down by a third of a kilo. Weights are still running behind those recorded in the same week in 2014, albeit by a small margin of 170g. The average probe measurement increased to 11.5mm.
The EU-spec APP for the week ended 21 November fell by 0.18p to 129.8p/kg, continuing the downward trend which has been apparent since the beginning of September. This leaves the current quote just less than 20p behind the same week in 2014. The gap between the SPP and the APP for the same week remained virtually unchanged at 3.5p.

The weaner market recorded diverging trends in the week ended 28 November. For 30kg weaners, supplies were well up on the previous week and the price fell by just over a pound to £40.55, the largest weekly drop since the end of September. In contrast the 7kg category increased to £31.84, up £1.06 on the previous week even though supplies were also more. Both quotes continue to run behind last year’s prices, however the gap for 7kg weaners has narrowed to £1.45 whereas for 30 kg weaners it is still as much as £7.55.
Details are expected shortly from the European Commission about a new private storage aid scheme in the EU and these will be put on the AHDB Pork website. The market has been declining in recent weeks due to poor demand. Under the previous scheme, held earlier this year, contracts were taken out for almost 64,000 tonnes but the scheme was not widely used in the UK as only 179 tonnes were contracted for.

Further rise in Spanish pork exports

Spanish pork exports in the first nine months of 2015 increased by 17% year on year, totalling 890,800 tonnes, setting yet another record. Exports have been running consistently higher throughout 2015. The considerable investment taking place in the Spanish pig industry is resulting in large increases in domestic production which in the first nine months of 2015 was up 8% on a year earlier and amounted to just under 2.9 million tonnes. Intra EU trade increased by 13% between January and September. France, the largest market, recorded an increase of 7% with the majority of pork going for further processing. Exports to Italy and Portugal were up from the previous year, by 9% and 6% respectively, in contrast to a 9% reduction in shipments to Germany. Strong growth though was recorded in trade to Spain’s smaller markets in East Europe with shipments to Poland, Bulgaria and Romania all being up by 40-50% year on year.

Trade outside of the EU remained a strong growth market for Spain, with demand amongst some Asian markets increasing sharply. Spanish pork destined for China increased throughout 2015, with volumes increasing by two thirds compared to 2014. Purchases from South Korea also recorded an increase, of 40%. In contrast volumes to Japan were down by 6%. Domestic demand in Japan remains subdued, along with the steady rise of production which is reducing import demand. The unit price of Spanish exports for the first nine months of 2015 fell by 9% compared to the previous year given both the weaker EU and global market in 2015. However, there was an increase in the total value of exports, up by 6% to €1.95 billion, given the large growth in volumes shipped.

German pork trade recording diverging trends

There was an overall increase in German pork exports for January to September 2015, with volumes ahead by 1%, compared with a year earlier, at 1.3 million tonnes. Whilst the overall volume increased, shipments destined for other EU countries declined being down by 3% at just over 1 million tonnes. As a result of this, the EU’s market share dropped from 85% to 81%. Italy remained the main export destination for German pork, despite volumes dropping by 3%. Poland and the Netherlands actually increased their purchases, which were ahead by 4% for both countries. In order to offset the losses from EU member states, Germany looked to Asian markets to compensate. Growth in the Chinese market continued throughout the year, driving shipments to more than double, compared to the corresponding time period in 2014. South Korea also recorded an increase, as trade with Germany was up 10%. With the unit value of exports decreasing compared with 2014, the total value of exports for the first three quarters of 2015 fell by 6% year on year to €2.6 billion.

Imports of pork into Germany continued to decline in the third quarter of 2015, with volumes dropping 12% on the year, to 215,000 tonnes. This leaves volumes for the first nine months of 2015 running 9% lower than the same time period in 2014, at 691,600 tonnes. Imports from Denmark were down by less than 1% but the main falls came from Belgium and the Netherlands, with shipments down by 14% and 10% respectively.

Following the trend throughout the year, the live pig import trade continued to decline, with numbers for the months of January to September down by 9%, at 10.5 million head. This fall was driven by the Netherlands, Denmark and Belgium all sending fewer weaners and slaughter pigs to Germany. Live exports from Germany were also lower.

Feed market update

UK feed wheat futures (May-16), closed at £117.65/t yesterday (1 Dec), down marginally (£0.40/t) on the previous week. Chicago wheat futures (May-16) and Paris wheat futures (May-16) also closed down on Tuesday, compared to the week before. The lack of EU export demand continues to offer little support to prices. Season to date (to week ending 25 Nov) soft wheat export licenses issued, at 8.7Mt, are lagging behind last year’s pace and only 31% of full season forecasts so far. While cumulative EU barley exports currently exceed last year’s volumes, the pace looks to be slowing, with only 97Kt of licenses issued in the latest week. UkrAgroConsult has reported that recent milder weather benefited winter crops in Ukraine but still, nearly 36% of winter crops were rated ‘poor’ as at 28 November.

In contrast to grain markets, oilseed futures were generally up on the week. May-16 Chicago soyabean futures closed at $329.74/t on Tuesday (1 Dec), up by $9.28/t on the previous week. Paris rapeseed futures also increased, by €5.50/t over the same time period, settling at €382/t on Tuesday. Vegetable oil prices have received support from the strength of palm oil markets, with the arrival of monsoon rains in key palm oil producing regions expected to impact on production. UK rapemeal prices (34%, ex-mill Erith, spot delivery) declined by £2/t on the week to £148/t on Friday (27 Nov), while soyameal (Brazilian, 48%, ex-store Liverpool, spot delivery) increased by £3/t to £259/t. Hi Pro soyameal prices (ex-store, East Coast, spot delivery) also increased over the week, by £1/t, to £245/t on Friday.

Northern Irish herd growth revised up

Final figures from the June Agricultural Census in Northern Ireland show that the pig herd grew faster than was previously thought. The updated figures show a 10% year-on-year rise in total pig numbers, three points higher than the provisional results published in September. The increase was largely due to higher numbers of pigs being raised for slaughter. This is attributed to a combination of higher imports of pigs for finishing from the Republic of Ireland and expansion among some large, productive herds.

The revised figures also show a marginally larger rise in the Northern Irish sow herd, which is now up 7% on a year earlier, at 45,600 head. With both in-pig and maiden gilt numbers also rising sharply, further expansion might be expected in the coming months. These trends contrast with a more stable position in other parts of the UK. Final UK results from the June surveys are due to be published in mid-December.

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