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AHDB Pig Market Weekly

12 February 2016

AHDB Pig Market Weekly - 12 February 2016AHDB Pig Market Weekly - 12 February 2016


Outlook remains challenging for producers

Supplies of pig meat on the UK market are likely to increase further in 2016, according to latest forecasts from AHDB Pork. So far, there has been little sign of a reduction in the breeding herd, although that is expected to change in the coming months. Therefore, domestic production is forecast to rise for the seventh consecutive year, albeit at a slower rate than in the previous two years. Imports of pork are also expected to increase further, given that the gap between EU and UK pig prices remains high. This should be partly offset by higher exports, particularly if the recent weakening of the pound is sustained. Overall, this will mean another rise in supplies, which will keep the pig market under pressure unless demand increases accordingly.

Although the forecasts suggest another difficult year ahead for producers, there are some glimmers of hope. Input costs remain low, notably for feed, and there is currently little to suggest that this will change, with high stock levels and crops in reasonable condition. The exchange rate has also become more favourable, with the pound weakening against the euro since the turn of the year, making UK pork more price competitive, both at home and abroad. On top of this, contraction in the EU breeding herd is likely to lead to tightening supplies as the year progresses. This could mean firmer prices on the continent, which may provide some support to the UK market in due course.

The latest forecasts were published at the AHDB Outlook Conference on Tuesday. 

Gammon leads the way for pig meat at Christmas

Hard Discounters, led by Lidl, were the key winners during the Christmas period. Promotional activity, such as Lidl’s ‘spend £50 or more and save £10’ voucher scheme helped to pull in consumers and capture the large Christmas shop, as their offering increasingly resembles that of mainstream retailers. Expenditure losses seen within the Big 4 Grocers were mainly attributed to shoppers purchasing smaller basket sizes, although the major retailers did hold their own in the important top-up shop convenience category.

Premium ranges were a key part of Christmas 2015. Consumers traded up for the festive occasion, with up to 50% of shoppers buying into the premium ranges within Lidl. This trading up was also evident within the retailers, with Marks & Spencer doing well during the festive period.

While lamb, chicken and fish all performed well this Christmas, pork suffered a 13% decline in spend over the 4 week period. Despite this, gammon is still the most popular single protein bought within the period, with purchases up 5% in volume terms. The drive towards roasting joints has increased spend and volume of pork loin joints, although pork legs and shoulders were down in spend, partly due to decreased retailer promotions.

UK pig prices

The EU-spec SPP fell 1.30p to 113.42p/kg in the week ending 6 February, as the industry sees the pig price decline for the 12th consecutive week. This would suggest that supplies from the finisher market are still in excess of demand and reports this week that heavier pigs have been causing machinery to break down may go partially towards explaining this backlog.

The average carcase weight has decreased slightly – down 0.3kg to 84.22kg but weights are still historically high and anecdotally having a detrimental effect on processing machinery. Continued mild weather aids favourable growing conditions, although temperatures are forecast to return to near normal levels for February, which may assist in slowing the growth rate. Slaughterings showed their first decrease of 2016 – down 2% to 182,900 head and may be the first signs that production levels will tighten seasonally as we move into the spring. Slaughterings are still estimated 3% higher than this time last year, however.

The EU-spec APP declined 1.31p to 118.23p/kg for the week ending 30 January, over 25p behind the same week last year. The gap between the APP and SPP fell to 3.5p, the lowest level for over a year, which may be indicative of the mix of pigs coming forward for processing.

Prices in the weaner market declined this week following last week’s upturn. 30kg weaners fell 59p to £35.86 and 7kg weaners fell 66p to £29.57 (week ending 6 February), falling below the £30 mark for the second time this year. This would suggest that the lack of confidence experienced in the finisher market is once again translating into the weaner prices.

Limited growth in US & Canadian exports

US pork exports in 2015 increased by 2% year on year to just over 1.5 million tonnes. Shipments from the US in the last quarter of 2015 increased by 9% from the previous three months, which helped to contribute towards the overall yearly rise. Once again, Mexico was the largest importer of US pork, with 35% of total shipments going to the country and volumes increasing 11% on the year. China was bumped down to the fifth largest export destination, with its percentage share of total US exports decreasing, as 10% less pork was shipped year on year. US exports to Japan also decreased on the year, albeit at a slower rate. All was not lost for the US, in terms of the Asian markets, as shipments to South Korea increased by nearly 30% on the year to 152,800 tonnes. The average unit price of pork exports decreased by $0.63/kg (19%) in 2015 compared to 2014, as the strength of the dollar hit competitiveness against other major exporters. This left the total value of pork exports at just over $4 billion, down by 18% year on year.

Canadian pork exports recorded a slightly smaller increase of 1% year on year in 2015. However, similar to the US, an increase in exports of 12% in the last quarter of the year contributed to the overall annual rise. In 2015, the US remained the main destination for Canadian pork, with shipments increasing by 10% to 350,900 tonnes, which is 40% of total exports, although sales in the last quarter were down on the year. Volumes destined for Mexico also increased by 31%. Unlike the US, shipments to China and Japan both increased, by 13% and 14% respectively, in 2015. South Korea also imported 4% more Canadian pork compared to 2014. This enabled the Canadian industry to offset the loss of the Russian market, which took over 10% of its exports prior to the ban imposed in August 2014. The value of Canadian pork shipments decreased less than that of the US due to the weaker Canadian dollar, down 8% to total C$2.9 billion in 2015.

Compound pig feed production 2% up on the year

Total UK animal feed production for the first half of this crop season (July-December) increased by 0.4% compared to the same point last year, to 6.59Mt, according to the latest usage data released by Defra. A rise in manufacturing of poultry and pig feed (both +2%) outweighed the decrease in sheep (-10%) and cattle feed (-3%) production. In December, total compound pig feed production was 174,000 tonnes, which is 15% more than November and similar to December 2014. Season to date total production is at 949,000 tonnes.

From July – December pig growing and finishing feed production have both increased, by 8% and 1% respectively, compared to the same point in 2014. Nevertheless, pig breeding feed manufacturing decreased by 3% over the same time. It is worth bearing in mind, however, that a high proportion of UK pigs consume feed milled on farm, which is not counted in these statistics, so they do not represent the feeding trends of the whole UK herd.

Season to date cereal inclusions in animal feed have decrease by 2% year on year. Despite high levels of maize imports, year to date total inclusions of the feed ingredient have fallen by 8% to 167Kt. Wheat and barley usage have also decreased slightly, despite high domestic stock levels and low prices. Once again the inclusion of pulses (field beans and peas) in animal feed production increased in December, compared to the previous month, bringing season to date usage up to 85Kt, well over double the amount used at this point in 2014.

Feed market update

The release of the latest USDA world supply and demand report brought a bearish sentiment to grain markets. UK feed wheat futures prices (May-16) closed down on the week by £2.90 at £105.50/t on Tuesday. Similarly, May-16 Chicago wheat and maize prices (May-16) also recorded a decline Tuesday-Tuesday. Global wheat stocks were revised up once again by the USDA in its latest world supply and demand report, due to a reduction in demand forecasts in China and India. Global production of wheat also increased, albeit by less, due to increases from Argentina and Ukraine outweighing reductions from Kazakhstan. The USDA forecast global maize stocks to remain broadly unchanged from January’s report, despite an upward revision to production.

May-16 Chicago soyabean and Paris rapeseed futures prices closed down on the week on Tuesday. Currency continues to exert influence on UK rapeseed futures prices. On Friday, UK delivered rapeseed prices (34%, ex-mill Erith) were reported broadly unchanged from 29 January at £145/t for March delivery, despite falls in international futures prices on the week. These falls were partly offset by a renewed weakening in sterling against the euro. The latest forecasts from the USDA also recorded upward revisions to global soyabean supply and demand driven by a higher production forecast for Argentina.

Mixed picture for Asian importers

Overall imports of pork to key Asian countries (excluding China, which was reported in last week’s Pig Market Weekly) increased in 2015. Consumer demand remained firm, whilst domestic supplies could not output enough to service increasing demand.

Imports of fresh/frozen pork to Hong Kong increased by almost 7% in 2015, to 254,100 tonnes. EU shipments remained largely stable at 76,000 tonnes, whilst the United States saw a large increase year-on-year of 45% to 23,000 tonnes. Brazil, the largest country supplier, also increased its volumes by 7%. There was an increased volume of imports in the final quarter of 2015, compared with a year earlier, with EU levels being up, following a slightly quieter beginning of the year.

South Korea increased the volume of pork imported in 2015 by almost 25% to 453,100 tonnes, with both the EU and US increasing their export volumes by a quarter. Import levels did start to tail of in the latter half of 2015, falling below 2014 volumes in November and December. Whilst domestic production has been increasing in Korea as producers work to capitalise on the strong pig price, outbreaks of FMD threaten this increase in supply, with the most recent recorded in January. Consumer demand remains strong, with substitutions from poultry in the wake of an avian influenza outbreak.

Imports of pork to Japan fell year-on-year by 5% to 791,000 tonnes. This was largely driven by decreases in volumes imported from the EU – notably from Denmark. EU shipments fell 14% in 2015 to 270,000 tonnes. There was a slight decrease in volumes imported from the US (6%) but this was largely mitigated by an increase in Canadian pork – up 12% to 165,800 tonnes. Imports were higher in 2014 as a result of a PEDv outbreak affecting domestic supply and, as the country recovered in 2015, they returned to more normal levels. Moving into 2016, import volumes are forecast to remain muted as domestic production shows a slight increase and consumer demand is sluggish towards high priced food items and processed items from frozen carcases.

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