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AHDB Pig Market Weekly

11 December 2015

AHDB Pig Market Weekly - 11 December 2015AHDB Pig Market Weekly - 11 December 2015


January start confirmed for EU Private Storage Aid

On Wednesday 2 December, EU Member States approved plans to open Private Storage Aid (PSA) for pig meat from Monday 4 January 2016. This reflects the ongoing weakness in the EU pig market, with prices having fallen sharply over the last month and now at their lowest level for over a decade. The pig market is normally weak early in the New Year, so further price falls might have been expected. For the moment though there are signs that at least in northern Europe the market, led by Germany, has started to stabilise helped by festive demand.

It is hoped that the PSA scheme may stabilise the market, at least, and may even help it to rise as demand picks up through the spring. Much will depend on the details of the scheme, which haven’t been formally published. However, it is understood that as well as a range of pork cuts, it will also cover unprocessed fats and offals. The value of these products was particularly affected by the Russian ban, with a knock-on effect on overall carcase prices. Piglets up to 20kg are also understood to be included in the scheme.

The rates of aid to be paid are also expected to be higher than under the previous scheme, which was open for two months in the spring. That scheme had little effect on the EU pig market, which has been attributed to a combination of timing (pig prices had started to rise before it was opened) and coverage (it only covered pork cuts and not fats/offals). A total of just 64,000 tonnes was entered into storage and it is thought that most of this was product destined for export. Earlier schemes were more successful, with larger volumes stored and a noticeable impact on the market.

Slow growth forecast for EU pig meat output

EU pig meat production is expected to grow only slowly over the next decade, according to the EU Commission’s newly published Medium-term Outlook report.

Pig meat output in 2025 is projected to be less than 2% higher than in 2015, at 23.8 million tonnes. Only a slow recovery from the current low price level is anticipated, as demand remains subdued on the domestic market. The report suggests that prices will remain below the high levels of 2015. In reality, the market is likely to see periods of both low and high prices during the period. There is considerable uncertainty surrounding the forecasts including environmental issues which would restrict output growth.

The modest growth in supplies will still be too quick to match subdued EU consumption, which is projected to fall slightly despite an increase in the EU population. Per capita consumption is set to fall from 32.6kg/head this year to 31.8kg by 2025. That means that exports will need to rise to reflect the additional volumes. By the end of the projection period, shipments are expected to be more than a quarter above current levels at 2.6 million tonnes (carcase weight equivalent). The report also assumes that pig meat imports will remain minimal. However, this does not take into account any impact of free-trade agreements which are not yet agreed, notably the Transatlantic Trade & Investment Partnership (TTIP) with the US.

UK pig prices

In the week ended 5 December, the EU-spec SPP averaged 125.61p/kg, recording a fall of 0.39p compared to the previous week with demand remaining under pressure. This again takes the quote to the lowest point this year and remaining well behind the price recorded in the corresponding week in 2014, currently back by just over 19p. Estimated slaughterings for the week fell just short of 180,000 head and were up by 2,600 on the previous week when throughputs were disrupted by breakdowns. For the second week running though throughputs were still down around 10,000 head on last year. After three weeks of declining weights, the average SPP carcase weight increased by 150g to 81.96kg. Average weights during the week are currently 180g heavier than in the same week in 2014, the first year on year rise for six weeks. The average probe measurement decreased by a small margin to 11.4mm.

The EU-spec APP increased in the week ended 28 November to 129.87p/kg. The marginal increase of 0.07p is the first week on week rise since the end of August. The gap between the current quote and the corresponding price in 2014 narrowed to a little over 19p as the APP was falling in the same week last year.

The gap between the SPP and APP for the same week increased slightly to 3.87p.

Pressure continues to be placed on the weaner market, with both categories recording a fall in prices in the week ended 5 December. Compared to the previous week, prices for 7kg piglets fell by 75p to £31.09/head, with throughputs somewhat ahead. The 30kg weaner price averaged £39.87/head, dropping 68p week on week. This comes despite a considerable reduction in throughputs. In line with the trend which has been apparent all year, both prices continue to run behind last year’s figures with the 7kg price back by £3.38 and the 30kg price lower by a larger margin of £6.81.

Global pork prices remain at low levels

Global pork export prices have been under continued pressure throughout 2015, with prices dropping to the lowest point of the year in April at $2.51/kg. Prices picked up slightly during the months of May and June, only to continue the downward trend in the third quarter of the year. The average price, which is based on export prices from the four major exporters (the EU, US, Canada and Brazil), fell to $2.56/kg in August and again the following month to stand at $2.55/kg in September. In line with the rest of the monthly prices in 2015, the latest quote remains well below the corresponding time period in 2014, currently back by $0.71/kg.

The low prices which have been recorded in 2015 followed on from a weaker second half of 2014, when prices peaked in the summer and then fell towards the end of the year. Outbreaks of disease drove the spike in prices but, as countries continued their recovery and production moved up, especially in the United States, additional pressure was placed on prices. Exports also increased, especially from the EU, with the opening of new markets into Asia offsetting the loss of the Russian market. Unit prices for Brazilian pork rose during the second quarter of 2015, before falling back again in September and October. The continued deprecation of the Brazilian Real and the ongoing access into the Russian market led to the increase in the volume of pork exported compared to 2014.

The latest data released for October register a further fall in prices for the US, Brazil and Canada but figures for the EU are not yet published. However, due to the links between these markets and the weak EU pig market, it is expected that this trend will be apparent there as well, putting further pressure on the average global price.

Physical performance improvements stall

As reported recently, the estimated cost of pig production in the third quarter of 2015 was little changed from the previous three months. Although prices for feed and other inputs play a big part in determining production costs, physical performance also contributes. Prior to this year, breeding herd productivity had improved for four consecutive years, with two more pigs weaned per sow in 2014 than in 2010. Latest figures from Agrosoft suggest progress in this area, and other aspects of physical performance, may have stalled over the last year.

Feed market update

Last week, exchange rate changes impacted on grain futures prices causing a divergent trend between European and US priced grains. May-16 UK wheat futures prices closed slightly down (£0.85/t) on the week yesterday (8 Dec) at £116.80/t. On the other hand, Chicago wheat futures prices closed up week on week on Tuesday while Chicago maize futures prices (May-16) were unchanged Tuesday to Tuesday. Latest usage figures released by Defra last week records wheat inclusions in animal feed production in GB down in October compared to October 2014, while barley and maize usage increased. Nevertheless, so far this season (July-October) more wheat was used to produce animal feed, while less barley and maize was included compared to last year.

2015/16 was a record year for French soft wheat production at 41Mt. But early indications for planting for harvest 2016 suggest that the record could be matched or even beaten, depending on yields. In the UK despite the later than usual end to harvest, mild and drier weather conditions at the end of September and through October meant most winter cereals were planted by the end of October according to ADAS’s 2015 Autumn Crop Report.

On Tuesday Chicago soyabean and Paris rapeseed futures prices (May-16) closed down on the week. With expectations of large amounts of Argentinian soyabeans coming to the market, Chicago nearby soyabean prices fell on Monday (7 Dec) by over $10/t from Fridays (4 Dec) close. December UK rapemeal (34%, ex-mill, Erith) was down £2/t at £146/t on Friday compared to a week before. However, on Friday, Brazilian soyameal (48% ex-store, Liverpool) was up £5/t on the week to £264/t. Hi-pro (ex-store, East Coast) prices also recorded an increase, of £7/t to £252/t on Friday. Domestically, ADAS’s latest Crop Development Report for autumn 2015 suggested that almost all winter oilseed rape (OSR) crops are in good condition heading into winter. Cabbage stem flea beetle (CSFB) though remains a key priority for farmers. The mild conditions and moist seedbeds have allowed the winter OSR crop to establish very well during the autumn.

Further growth in Irish pork exports

In the first nine months of 2015, Ireland exported 121,600 tonnes of pork, 9% more than the same period in 2014. The value of Irish pork exports was up by 2% on the year, at €271.2 million, while the unit price fell by 7% over the same time. Exports of fresh/chilled pig meat were up by 23% on the year while shipments of frozen product were down by 5%. The overall increase in exports can be attributed to an increase in production, with slaughterings for the first nine months of 2015 up by 7% year on year at 2.4 million head, combined with the weak euro.

Shipments of fresh and frozen pork from Ireland to the rest of the EU were up 16% compared to last year, which equates to 64% of all Irish pork exports, 4 percentage points higher than in the same period last year. Trade to the UK and Germany was up by 11% and 45% respectively, although shipments to Denmark were down by 30%. Despite the overall rise in export volumes, trade to non-EU countries was down by 2% year on year. Nevertheless, shipments to China increased by just under a third to 21,600 tonnes. Over recent years demand for pork in China has increased due to its growing economy and has outweighed domestic supply, in turn increasing import demand. Shipments to the US also increased, by 24% year on year, while trade to smaller markets such as Australia also increased. However, this was offset by lower sales to other Asian markets, particularly Japan.

Volumes of Irish pork imports were down by 14% on the year to 29,400 tonnes with a 47% reduction in shipments from Denmark being the main driver. Imports from the UK also decreased.

EU weaner prices remain at low levels

The average EU weaner price for the week ended 29 November stood at €33.14 per head. Prices this year have followed the trend which occurred in 2014, peaking during April and dropping off throughout the second half of the year. In comparison to the end of August, average prices have picked up slightly, with an increase of 62 cents. A further small increase was noted in October, with prices rising above €34/head but they dropped back down again during November. The most recent quote is over €3 down on the same period a year ago and remains well below €40/head, a level which was last recorded at the start of June. With the finished pig market remaining subdued, all pig producers are facing a difficult economic period. The low weaner price means that this particularly applies to breeders, who will also have seen less benefit from falling feed prices as feed represents a smaller proportion of their total production costs.

During the last three months, increases in weaner prices were recorded for Spain, Denmark and the Netherlands, leading to the overall marginal rise for the EU average. Current quotes from the Netherlands showed the largest uplift of over €5, albeit from a very low base, while increases for Spain and Denmark were slightly smaller. Weaner prices in the UK recorded one of the largest declines in the period, dropping by €2.75 since the end of August in euro terms. Germany and Poland also registered a fall in prices.

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