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AHDB Pig Market Weekly

24 March 2016

AHDB Pig Market Weekly - 24 March 2016AHDB Pig Market Weekly - 24 March 2016


Strong start to 2016 for EU pork exports

The strong performance of EU exporters in the final months of 2015 continued into January, with pork shipments up by more than a quarter compared with a year before, at 156,000 tonnes. This represented comfortably the best start to the year on record, despite the ongoing Russian ban. China remains the key driver of the growth, with shipments more than double their level in January 2015. Most other Asian markets took more EU pork this January, with South Korea the only significant exception. This indicates that demand remains strong, despite the slowdown in economic growth, and EU product remains competitive. This has come at the expense of a 7% fall in unit prices but the value of exports was still up 17% year on year, at €335 million.

The positive trend was also apparent for other products. Offal exports were 30% higher than a year earlier, at 105,900 tonnes, with stronger sales to most Asian markets (other than South Korea). Pig fat sales remain well below their level before the Russian ban but even they were up 23% year on year. China, Georgia and the Philippines were the key buyers, although lower prices wiped out virtually all of the growth in value terms.

Maintaining the good export performance will be vital in supporting EU pig prices, given that internal consumer demand remains subdued. Increased competition from North and South America, for example through Brazil’s regained access to China, can be expected. However, the strong start can only be a positive sign for the year ahead.

Moderate contraction in UK pig herd in December

Defra figures from the 1 December 2015 pig survey show a moderate decline in the total UK pig herd. This was largely driven by the surprising decline in pig numbers recorded in the English census, which was published at the beginning of March. The pig herd size is reported to have fallen 2% to 4.4 million head. As seen in the English census results, this decrease in the total pig herd comes at a time of increased clean pig slaughterings and higher production, so it raises some questions over the accuracy of the movement in total pig numbers. Feeding pig numbers were stated to have fallen 3%, which would suggest that production should fall in the first half of 2016. However, production levels have been increasing year-on-year in the first two months of 2016 and an imminent reverse seems unlikely.

The female breeding herd was reported to have grown by 3% on a year earlier, to 401,000 head. This upward movement was largely due to rises in Scotland (+12%) and Northern Ireland (+6%), with slower growth in England. Of the total, the number of in-pig sows increased 7%, while the number of in-pig gilts decreased by 5%. The number of maiden gilts also increased 5% on a year earlier. This movement would suggest that producers may be delaying serving their gilts while pig prices are falling. Although no reduction was recorded in the breeding herd at the start of December, the pig price has fallen significantly since then. Therefore, it could be inferred that some of the breeding herd may have come forward to slaughter since December, helping to tighten supplies later on in the year.

UK pig prices

The previous week’s small rise was reversed, as the EU-spec SPP fell 0.30p in week ended 19 March, to stand at 112.07p/kg. The small movements recorded over recent weeks suggest that the market remains largely in balance in the run up to Easter. With two short weeks ahead, there may be some short-term pressure on prices, although strengthening EU prices and a weaker pound may provide some support. There was little sign of pigs being pulled forward ahead of the Easter holidays, with estimated slaughterings only fractionally up on the week and similar to a year before, at 173,600 head. Carcase weights remained at a high 83.7kg too, well over a kilo heavier than the equivalent week last year, giving no indication of pigs being marketed early.

Last week’s reported rise in the SPP was replicated in the APP for week ended 12 March. The EU-spec APP was up 0.36p at 116.05p/kg, the first time it has increased since December and the biggest weekly rise since last June. With both price series moving by a similar amount, the gap between the two remained below 4p, as has been the case for most of this year.

Although fluctuating somewhat from week to week, the 7kg weaner market remains under pressure. In the week ended 19 March, the average price fell over £1.50 to £27.79 per head. This is the lowest price recorded since the series began in mid-2013 and is over £5 lower than a year before. Given that feed prices remain low, this indicates there is little confidence about any recovery in the finished pig market. The price for 30kg weaners has been more stable of late and was up 28p at £36.82 per head during the latest week.

UK production growth continues

Latest figures from Defra appear to show a 9% year-on-year rise in UK pork production in February. However, a change in methodology means that this growth is overstated and the increase was actually around 4%. Similarly, the apparent 8% uplift in clean pig slaughterings was in reality a rise of little over 2%, similar to the increase seen in January. The explanation is that, while historically data has always been published for ‘statistical months’ (based on either four or five full weeks), from now onwards they will be on a calendar month basis. That means the figures for February 2016 cover one more working day than February 2015 (due to the leap year). Similar adjustments will be required for future months, to account for the differing numbers of working days from year to year.

The adjusted figure for sow slaughterings shows another significant rise, of 12%, compared with February 2015. Weekly throughputs were at their highest level since November 2012. This adds further weight to suggestions that some producers may be starting to reduce the size of their herds. As well as this, heavy carcase weights continue to contribute to the growth in pig meat production. The average clean pig weight of 83.3kg was half a kilo lower than in January but still represented the second heaviest weight on record.

Germany and Spain lead EU exporters

Traditionally, Denmark has been the leading EU exporter of pork to third country markets. However, in 2015 it was overtaken by both Germany and Spain. All three shipped over 300,000 tonnes of pork outside the EU during the year, accounting for 60% of EU pork exports between them, up from just over half two years before. Germany and Spain recorded increases in non-EU sales of 23% and 30% respectively during the year, while Danish exports rose by just 4%; overall EU exports were up 11%. Third country markets accounted for nearly 30% of Spanish and Danish exports but only 20% for Germany.

Overall, just under a quarter of pork exported from the 28 EU Member States was destined for a non-EU market. This share is little changed over the last two years, despite the Russian import ban and other restrictions on sales from countries affected by African Swine Fever, notably Poland.

UK pork accounted for only 3% of all EU exports but among the 10 leading exporters, the UK had the second highest share of its exports leaving the EU, at 31% – only Ireland had a higher share (37%). Third country sales have driven UK export growth in recent years, with their share of the total rising slowly. With UK and EU pork consumption projected to show little growth in the years ahead, further developing third country export sales will be crucial if production continues to rise.

Feed market update

UK feed wheat futures prices (May-16) closed up £1 on the week on Tuesday at £104.60/t, with prices supported by the weakening of the sterling. Nevertheless, May-16 Chicago wheat futures prices closed down Tuesday to Tuesday while Chicago maize futures prices (May-16) recorded a slight increase. The gap between ex-farm feed wheat and ex-farm feed barley has narrowed to £3.50/t. The smaller premium could mean that wheat is more attractive to use as a feed ingredient than barley. On a domestic level, cereal crops look to have come through the winter in relatively good condition, according to the latest Spring Arable Crop Report from ADAS.

May-16 Chicago soyabean and Paris rapeseed futures prices closed up on the week yesterday. As at Friday 18 March, UK rapemeal (34%, ex-mill Erith) for April delivery was at £158/t, a total increase of £11 Friday to Friday. In contrast hi-pro soyameal (ex-store, East Coast) was at £246/t for March delivery, a decrease of £5 on the week. UK winter oilseed rape is ahead of the usual crop development pace according to the latest ADAS Report. Around 75% of crops were at early flower bud development by the end of February, well ahead of normal. US soyabean crushing pace slowed in February, according to National Oilseed Processors Association, but the monthly crush was greater than analysts had been expecting in a Reuters' Poll.

Release of product from Private Storage starts soon

The 90,000 tonnes of pig meat products which were accepted into the EU Commission’s Private Storage Aid (PSA) scheme in January will soon start to be released. Around two-thirds of the total volume was stored for the minimum three months. Most of this will be released back onto the market in the three weeks commencing 17 April. The remaining product, which was stored for four or five months, will be released later in May or during June.

EU pig prices have started to show signs of upward movement as demand picks up in the run up to Easter. However, there must be some concern that the extra supplies released from storage will curtail this trend. The volume to be released during April and early May is equivalent to around 3% of monthly EU production. This would be enough to move prices if demand (either from domestic or export markets) is insufficient to absorb the quantity involved. Most of the stored product is likely to be intended for export but, even so, it may displace other product, which will then have to be sold on the EU market.

If the release of supplies from the PSA scheme does suppress prices, it would increase the pressure on the EU Commission to open a new PSA scheme. This is already under consideration as part of a package of support messages announced last week by Commissioner Hogan.

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