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AHDB Pig Market Weekly

05 February 2016

AHDB Pig Market Weekly - 5 February 2016AHDB Pig Market Weekly - 5 February 2016


Chinese imports continue to rise in 2015

Chinese pork imports rose 38% in 2015, compared with 2014, totalling 778,000 tonnes. 2015 was an exceptional year for pork imports to China, exacerbated by the significant rationalisation of the Chinese herd in the first half of the year. This was brought about through high feed prices and low pig prices at the beginning of the year, reducing producers’ profitability. Following the decrease in herd size, the wholesale pig price increased, which could be capitalised on by importing countries. Exports from EU Member States increased substantially over the year, up by 57% compared to 2014, with 580,000 tonnes of pig meat exported, almost three-quarters of the total. This was largely driven by Germany, which almost doubled its level of exports year on year. EU pork was particularly attractive to the Chinese market as the euro had weakened against the dollar, making it more price competitive and there was a supply glut following the cessation of trade with Russia.

Imports from non-EU countries stayed largely stable. The United States, historically the main exporter of pork to China, saw a reduction in volume of exports by 13% in 2015 compared with the previous year. US supplies were affected by labour disputes in some West Coast ports in the early part of the year. Also, as previously mentioned, the US dollar was stronger than the euro, making US product less attractive to the Chinese market. Coupled with this, China does not allow the growth hormone ractopamine into its food supply and this is routinely used by a large proportion of US producers.

The Chinese pig herd is forecast to increase by the second half of 2016 as producers are attracted to the market by the high wholesale pig price. Coupled with the slowdown in Chinese economic growth, this could mean imports in 2016 as a whole may not reach the same level experienced in 2015.

AHDB gathers UK industry to tackle market volatility

AHDB has embarked on an ambitious new initiative to tackle volatility in agricultural commodities markets. Experts from across industry gathered in Westminster at the launch of the AHDB Volatility Forum on Wednesday 27 January. The event saw farmers, processors, retailers and trade associations come together to seek practical solutions for businesses affected by market uncertainty across agricultural supply chains.
Forum members were tasked with maintaining a long-term focus on volatility management and providing a knowledge exchange hub between the industry, supply chain, academics and policy-makers. As part of the launch event, forum members were asked to prioritise areas of work to shape the group’s focus. The top priority was identified as helping the industry better understand the commodity cycle and its impact on agricultural business strategy. Shortly behind was the need to upskill the industry in its approach to assessing risk likelihoods, impacts and prioritisation.

The launch of the AHDB Volatility Forum coincides with the inauguration of the European Commission’s Agricultural Markets Task Force, which is due to report in the autumn on policy and legislative initiatives to improve farmers’ position in the supply chain. Part of the Volatility Forum’s remit will be to apply practical considerations to any recommendations arising from the initiative.

A long-term work programme will be determined by a Steering Group to ensure the initiative maintains momentum and produces tangible results for the benefit of the industry. AHDB is interested in hearing from anyone interested in the Volatility Forum about the skills and knowledge they could offer the initiative.

Contact Jack Watts on 024 7647 8760, [email protected] or @JGCWatts.

UK Pig Prices

Whilst the EU-spec SPP price fell once again last week, it was at the slowest rate seen since before Christmas (week ending 12 December 2015). The price fell by 0.45p to 114.72 p/kg in the week ending 30 January 2016. However, it is too early to yet say whether we will start to see the price firming going forwards, although the beginnings of a stabilisation would be greatly welcomed. This suggests that the surplus of pigs coming forwards following the holiday period could now be drawing to a conclusion, although supply levels are still in excess of demand. The EU pig price continued to firm during January, although the latest prices for week ending 24 January were released before the announcement came to suspend the Private Storage Aid scheme with a view of closing it. It remains to be seen what impact this will have on the EU price.

Slaughterings increased slightly to an estimated 186,900, a marginal weekly rise but a 13.5% increase on the same period last year. The average carcase weight increased again to 84.54kg (week ending 30 January), 0.6kg heavier than the previous week. This is the heaviest weight on record, and may illustrate that favourable growing conditions have now returned after a short cold weather period.
The EU-spec APP declined 2.05p to 119.54p/kg for the week ending 23 January 2016. This was almost 24p behind the same week last year. The gap between the APP and SPP grew to just over 4p, with the SPP showing a slightly greater fall during the same week.

Prices in the weaner market increased in week ending 30 January, following a couple of weeks of decline. 30kg weaners increased 35p to £36.45 per head and 7kg weaners increased £1.36 to £30.23 a head, bring their levels over the £30 price point again. This is the largest single week increase seen in the 7kg weaner price since January 2014 but is likely down to the mix of animals traded during the week. Certainly it is too early to say whether finishers are starting to increase their demand again, given the difficulties that are evident in the finished market.

Private Storage Aid suspended prior to closure

The EU’s Private Storage Aid scheme for pig meat has been suspended as of 27 January, with the intention being to close the scheme. Some applications that were made before this date may be rejected. The PSA scheme was opened on 4 January in an attempt to try and stem the falling pig prices throughout the EU and had been operational for three weeks. During that time, a substantial amount of pig meat was taken off the market – around 90,000 tonnes. This far exceeded the quantity of pig meat that entered last year’s scheme, which totalled 67,000 tonnes. Most of the meat is to be stored for a period of three months, at an estimated cost of €27.6 million. In total, 18 Member States have taken advantage of the scheme, with four countries accounting for over 75% of all applications.

15 Member States, of which the United Kingdom was one, voted for an early closure of the scheme. There is a risk, the commission believes, that if more meat is stored, it will cause an imbalance when it returns to the market later this year.

Early indications show that the EU average pig price has halted its decline experienced in 2015 and started to stabilise. Some Member States are also showing cautious signs of growth - for example Germany has experienced an increase of over €4 per 100kg between the start of the year and week ending 17 January. There is an inference that the PSA has had a role to play in this movement. However, it remains to be seen whether this positive price trend can be sustained post-PSA.

Pig farm incomes down sharply

The average Farm Business Income (FBI) for specialist pig farms is set to fall in 2015/16 by 46% year on year, from £49,400 to £26,500, according to the latest forecasts from Defra. This is the largest year on year decrease on record and would represent the lowest FBI for pig farms since 2007/08. At that time, animal feed prices were increasing while pig prices were falling, which forced many English pig farmers out of business. The sharp fall that has been recorded this year reiterates the downward sentiment of the GB pig market at the moment. Indeed, with pig prices falling particularly sharply in recent weeks, the final FBI estimate may end up being lower still. However unlike in 2007/08, input costs, particularly feed, are expected to decrease through the year, which brings some comfort in what can only be described as hard times for pig producers.

The decline of 46% was the largest proportional fall for any type of farm, with the dairy sector close behind, recording a decrease of 45% on the year. Cereals and general cropping are also projected to record decreases in FBI for 2015/16, of 24% and 17% respectively. Nevertheless, the latest data shows a yearly increase in average FBI for the poultry sector of 14% to £145,000, driven by lower feed and heating costs. It is worth bearing in mind, however, that the number of poultry farms in the sample is small so the forecasts may not be representative of the whole industry. Grazing livestock also recorded an average increase of 25% in FBI with fuel and feed costs expected to fall slightly for lowland farmers, while upland farmers have benefitted from an increase in the Basic Payment Scheme.

Feed market update

On Tuesday, UK wheat futures prices (May-16) closed down on the week at £108.40/t a decrease of £4.45. Chicago and Paris wheat futures prices also declined from Tuesday to Tuesday but Chicago maize futures closed up on the week. Speculation over potential changes to Russia’s grain export policies has continued to partially support international wheat futures. As the rouble has fallen against the US dollar, Russian grain prices have risen, putting additional pressure on pig and poultry producers. As a result, changes to the export system are being considered with a decision expected to be made on Wednesday (3 Feb). The latest crop conditions report from the USDA indicated that 55% of winter wheat grown in Kansas, the largest growing region in the US, is in good or excellent condition, up from 54% the previous month and 46% this time last year.

Both May-16 Chicago soybean and Paris rapeseed futures prices closed up on the week on Tuesday. As at Friday, UK rapemeal (34%, ex-mill Erith) for February delivery was £144/t, a decrease of £4 on the week. Brazilian soyameal (48% ex-store Liverpool) for March delivery also recorded a weekly fall, of £3 to £259/t on Friday. Crude oil continues to be a key driver in the oilseed market. Brent crude oil future prices (May-16) recorded an increase towards the end of last week, after speculation of a reduction of supply from Russia. Changing weather across South America has brought mixed conditions for soyabean crops, with beneficial rain across central and southern Brazil expected to continue. Meanwhile, in Argentina concerns are beginning to arise due to the continued wet weather starting to effect crop conditions in some areas, with dryness an issue in others.

EU sow prices steady

Since the start of the year, EU sow prices have generally been stable. In fact, for the key German market, this stability has been apparent since the end of November, although the average M1 sow price has been at a low level of 95¢/kg. This is the lowest price recorded since the dioxin crisis of January 2011. With the pound weakening against the euro during this period, the sterling value of the German sow price has increased from below 67p/kg to 72.5p/kg in the latest week. This has reportedly led to some strengthening of GB sow prices, although they too remain at a low level by historic standards.

As is usually the case, the German price set the tone for other Member States, with most recording a generally steady price either side of the holiday period. Having held up better over the summer, the French price declined more than the German one in the autumn before it stabilised. In contrast, the Dutch price held up better, barring a short-lived drop in November.

These price developments come despite the likelihood that sow slaughterings have been relatively high, due to the difficult financial position of many EU producers. So far, census figures from three EU Member States, Germany, France and Poland, all show declining breeding herds during 2015, with a particularly sharp fall of 15% in Poland. As well as indicating possible tighter supplies of finished pigs ahead, which could eventually lead to better prices for both clean pigs and sows, this suggests that demand for sow meat is firm.

Therefore, if cullings do slow down, there is potentially some scope for sow prices to rise, even without a recovery in the finished pig price.

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