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AHDB Pig Market Weekly

04 March 2016

AHDB Pig Market Weekly - 4 March 2016AHDB Pig Market Weekly - 4 March 2016


Tough times for the UK pig industry

A report just issued by AHDB Pork has revealed the price producers are receiving for their pigs has fallen by a third in a little over two years and should this trend continue it is feared many will be forced to leave the industry. The report aims to provide an overview of the current state of the pig industry in the UK and a round-up of the state of the market.

Much of the findings make for grim reading with the industry facing tough times. The average pig price has fallen steadily since late 2013 and even accelerated in the past 12 weeks, losing 13p/kg (around £11 per head) in that time. As a result, many producers are now losing money and there is an increasing risk that if some cease this will reduce the level of UK pork available to the market in future. This development is already being anticipated in some EU member states by the second half of 2016 in response to falls in their breeding herds.

In the UK the current situation comes in a climate where production continues to rise as efficiency and productivity improve and record carcase weights are being seen, all leading to more pig meat on the market. At the same time, demand for pork has dropped, even though the price is falling. Consumers are increasingly switching to more convenience based foods, where pork does not feature strongly, as well as to chicken. The image of pork is becoming dated and jaded, a development though that the current Pulled Pork advertising campaign is aiming to reverse. UK pork is having to battle hard against cheaper EU imports, despite the fact that it is produced to higher welfare standards. This has been exacerbated by the weakness of the euro against sterling and a supply glut on the continent due to both increased production and difficult export markets for the EU. However, over recent weeks, the pound has weakened against the euro, and so maybe providing a glimmer of hope for the UK industry and its competitiveness.

Spanish exports see strong growth

For 2015, exports of Spanish pork increased 17% on the year earlier to 1.23 million tonnes. In euro terms, the value of these shipments also grew, although at a lesser pace, up by 6% to €2.65 billion. This highlighted that the unit price fell by 9% in 2015, versus 2014, to €2.15/kg. Domestic production levels were up 8% year on year given the growing pig herd. The December 2015 census stated that the Spanish pig herd grew 7% during 2015 to 28.4 million head, making it now the largest pig herd in Europe, overtaking Germany. The breeding sow herd also grew, by 5%, over the same period, inferring that domestic production will increase further into 2016. With forecasts that domestic consumption will stabilise in 2016, following a recovery in 2015, production will still be ahead of demand, thereby creating an even greater excess of product available for export. Therefore we can expect to see Spanish export levels continue to rise into 2016.

Shipments of fresh/frozen pork from Spain to the rest of the EU grew by 12% to 868,000 tonnes in 2015, with France being the main recipient. Trade was also up 11% to Italy but saw a 5% decrease to Portugal. EU shipments accounted for 71% of Spanish pork exports but this is down from over 80% just two years earlier. Sales to the UK increased by 16% for the year as a whole but growth was much stronger in the second half of the year, when volumes were up nearly 30% year on year. With more Spanish pork set to be available in 2016, there is little reason why this growth could not continue, if the demand is there from UK buyers.

Non-EU trade also saw significant growth in 2015, versus a year earlier, with exports up 30% to 362,000 tonnes. This was largely driven by a 72% increase in shipments to China, while Japan and South Korea saw more modest growth of 6% and 7% year-on-year respectively.

UK pig prices

The EU-spec SPP largely stood-on in the week ending 27 February 2016, falling by only -0.15p to 112.17p/kg the smallest week on week decline since mid-November when prices actually rose by a small amount. However, it was still down 21p on a year earlier. This was the third consecutive week of only a very modest decline, so inferences may be made that the bottom of the market may now be close helped by demand kicking in for the Easter period. Coupled with this, spot prices have also stood-on for another week, providing further indications of a price stabilisation.

The average carcase weight fell by 0.15kg in the week ending 27 February 2016 to 83.90kg, only the third time this year it has fallen below 84kg. The average probe measurement again declined, to 11.2mm, the lowest figure since last September suggesting that pigs are getting leaner. With a return to more normal growing conditions for the time of year, this may have helped to provide a slight brake after the mild and favourable conditions recorded in the first few weeks of 2016. Estimated slaughterings fell just over 1% to 177,000 head, although were up just under 5% on the same period a year earlier. This, again, may be some evidence that supplies are beginning to tighten, and there are reports that processors are accepting both contract numbers and even pulling pigs forward which in turn is contributing to the fall in carcase weights.

The EU-spec APP fell by -0.86p to 116.31p/kg for the week ending 20 February 2016, reducing the gap between the APP and SPP to just under 4p. This suggests that fewer premium pigs may have come forward to slaughter during this week.

Prices in the weaner market showed a dichotomy in their movement for week ending 27 February 2016. For 30kg weaners prices increased £2.29 to £37.76. This was the largest single week increase since August 2014. Conversely, 7kg weaners saw a price fall of £0.26 to £28.79, keeping prices under £30 for the fourth consecutive week. Throughputs of 30 kg weaners were well down on the previous week while for 7 kg weaners they were up but it is also possible that there may be some increase in confidence in the price outlook for the finishing market in the shorter term.

Increases to the Northern Irish pig herd in 2015

As at the 1 December 2015, the total pig herd in Northern Ireland increased by 7% on the previous year, to 533,400 head, according to the Department of Agriculture and Rural Development in Northern Ireland. Nevertheless, despite an increase year on year, December’s figure is 6% lower than that reported in June, although this is the normal seasonal development between the two surveys.

The total female breeding herd recorded an increase of 6% on the year 43,400 head. Furthermore, the other pig category, which includes piglets, weaners, finishers and cull sows, increased by 8% on the year to 484,200 head. Despite an overall increase in the breeding herd in December, the number of maiden gilts recorded actually decreased by 10% on the year to 5,200 head. This suggests that the NI pig herd might start to contract but these figures can be unreliable, so it is probably too early to be sure.

Results of the English December Survey are due to be published by Defra on 3 March and full UK results on 17 March.

Emerging Asian markets provide opportunities

China is undoubtedly a key export market for both the UK and Europe as a whole and Asia is fast becoming the dominant region in the global pork trade. Japan and South Korea’s markets have grown significantly in recent years and become key markets for EU exporters. There are also emerging markets, such as Taiwan, Vietnam and the Philippines. China, Japan and Korea are often looked at in detail but what opportunities do the emerging markets present in 2016 and beyond?

Feed market update

UK feed wheat futures (May-16) closed down £3.65/t on the week yesterday (1 Mar) at £101.85/t. Similarly, May-16 Chicago wheat futures closed at $163.86/t, a decrease of $3.58/t Tuesday to Tuesday. In contrast Chicago maize futures (May-16) also declined on the week, by $4.33/t closing at £140.06/t.
Data released from the USDA’s Outlook Forum on Friday (26 Feb) indicated that US grain markets are likely to remain heavily supplied in 2016/17. Revealing it’s first projections, the USDA forecast both US maize and wheat end season stocks at multi-year highs.

UK exports have become more competitive in recent weeks given the fall in sterling but they still need to bid against more than ample global supplies. The surplus of wheat available for either export or for free stock is up 38% on last year according to the latest Defra supply and demand estimates for 2015/16 published last Wednesday (24 Feb) So exports are going to be key in avoiding an even larger carry over into 2016/17. In contrast a decrease in demand for animal feed manufacture and human and industrial usage is expected.

May-16 Chicago soyabean futures prices closed yesterday at $315.23/t, recording a week on week decrease of $5.51/t. As at Friday (5 Feb), UK rapemeal (34%, ex-mill Erith) for March delivery was £138/t, unchanged from the previous week. Brazilian soyameal (48% ex-store Liverpool) for March delivery recorded a weekly increase of £2/t, to £262/t on Friday. Global soyabean production in 2015/16 is expected to match last year’s bumper harvest of 321Mt, according to the latest report published by the International Grains Council with consumption also increasing.

EU weaner price rises could mean tighter supplies

Weaner prices across the EU have firmed significantly since early December, with the EU average reference price rising from below €32 per head to over €40 during that time. This is easing the pressure on breeders many of whom have been in severe financial difficulty in recent months. Rising prices are usual during the spring but this year’s increase seems to have started earlier than normal. This may be an indication of lower numbers of weaners being marketed, which could mean tighter finished pig supplies later in the year. Nevertheless, prices have remained close to year earlier levels, which does not suggest that there is much confidence for a marked recovery in finished pig prices before the summer, at least.

The overall average does hide some differing trends. Most of the leading producers did record strongly rising prices, most notably in Germany, the Netherlands, Belgium, France and Spain. The latter is perhaps surprising given the ongoing strong growth in its herd and suggests there has been strong demand from finishers there. Some Member States have seen stable or falling prices, however, including Denmark and Poland, as well as the UK, of course.

Defra consultation on official statistics

Defra has launched a consultation on a set of specific proposed changes to its official statistics, including the June Survey of Agriculture, the Farm Business Survey and various surveys of cereals use and stocks. Please click here to view the consultation, which will remain open for responses until 24 March.

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