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AHDB Pig Market Weekly

25 April 2016

AHDB Pig Market Weekly - 25 April 2016AHDB Pig Market Weekly - 25 April 2016


Global pig meat production forecast to decline

Global pig meat production is forecast to decrease by 1% on the year to 109.3 million tonnes in 2016, according to latest global outlook report from the USDA. Furthermore, the latest forecast is 2% lower than October’s estimate as the outlook for the world’s largest pig meat producer, China, has changed. Having predicted an increase year on year in October, USDA now forecasts a decrease of 3% year on year, to 53.5 million tonnes. The reduction in output is thought to be due to poor producer profitability last year, a slowdown in China’s economic growth and issues surrounding its environmental regulations.
EU pig meat production is expected to exceed October’s forecast by 1% to 23.2 million tonnes but is still down 1% on 2015 as low pig prices caused a contraction to the EU pig herd. US production is forecast to increase further by 2% on the year to a record level of 11.3 million tonnes. Output from Russia and Brazil is also forecast to increase, by 3% and 2% respectively.

Once again, global pork exports are forecast to increase year on year by 6% in 2016, to 7.6 million tonnes. The majority of the growth this year is driven by an increase of shipments from the EU and US. US exports are forecast to increase by 5% on the year to 2.4 million tonnes. EU exports are expected to outpace the US for the second year running, increasing by 9% to 2.6 million tonnes. Shipments of pig meat to the world’s largest importer, Japan, are expected to increase by 4% on the year to 1.3 million tonnes. Furthermore, demand for imported pig meat from China, South Korea and Mexico is also expected to increase sharply, pushing total global imports up 8% year on year.

EU exports continue strong performance in February

EU exports continued their strong performance into February, with pork shipments up almost a third on the same period a year earlier, to 168,000 tonnes. South Korea was the only major Far East market to show a fall in volumes (+23%), when compared with February 2015. This was mitigated by substantial increases in shipments to China (+107%), Japan (+28%) and Hong Kong (+51%) over the same period. However, overall export volume increases have been slightly at the expense of value, with overall unit prices falling 6%. Having said that, the value of shipments was still up 23% on the same period a year earlier, to €361million. The strong pig price in China has had a positive effect on the value of European exports as they can remain competitive against the domestic product, while the average unit price increased 8% on February 2015.

Offal shipments also increased significantly in February 2016 versus February 2015, with strong growth experienced in all Far East markets. Although smaller in volume, Vietnam has emerged from a very small importer in 2015, to levels of 3,800 tonnes in 2016 – a near quadrupling on a year earlier. This may well be an opportunity for UK exporters going forwards, so it will be prudent to watch how this market develops.

UK pig prices

In week ended 16 April, the EU-spec SPP increased for the second week running, by 0.40p to 113.26p/kg. Although this is only a slight increase on the week, prices have now increased in four of the last six weeks, which suggests that UK pig prices have hit the bottom, for now at least. Furthermore, there are still two full processing weeks before the next Bank Holiday, so demand might be expected to remain stable until then. The current quote is still over 19p behind the same point last year. However, the gap is narrowing further, as the price quoted at the same point in 2015 increased at a slower rate.

The average carcase weight decreased slightly on a week earlier to 83.65kg, suggesting supply is relatively balanced with demand. However, the current weight is still 1.25kg heavier than the same point last year. Estimated slaughterings increased further (+5%) from the previous week, to 180,700 head, a level last recorded at the beginning of March. Compared to last year, estimated slaughterings were 6% higher. However it is worth bearing in mind that this week was the first full week after Easter last year.

The EU-spec APP also increased once again in week ended 9 April, by 0.46p to 116.78p/kg. This is the highest price recorded since mid-February. The gap between the SPP and APP has increased further but remains under the 4p threshold at 3.9p, as the APP rose further than the SPP for that week.
Differing price trends were recorded by the two weaner categories in week ended 16 April. 30kg weaners fell by £2.26 to £35.67 per head, losing the gains made a week earlier. Nevertheless, after its modest decline last week, 7kg weaners recorded an increase week on week of 46p, to £28.99 per head. Compared to last year, both 30kg and 7kg weaners are down on the price for the equivalent week, by £7.67 and £4.14 respectively.

UK production growth continues

UK pig meat production remained strong in March, with 79,800 tonnes output during the month, according to latest figures from Defra. This equated to an increase of around 5% compared with March 2015, once changes to reporting periods are taken into account. A combination of factors contributed to this increase. Clean pig slaughterings were up by 3%, at 920,000 head, despite Easter falling in March this year. This is in line with expectations, given the slight increase in the breeding herd during 2015 and further productivity gains. Easter holidays appear to have had a bigger effect on throughputs in Northern Ireland, which were reportedly lower than in March 2015.

As well as the larger number of clean pigs processed, they were heavier than in March 2015. The average carcase weight of 83.1kg was well over a kilo higher than a year before, although lower than the two previous months. In addition, the difficult financial position of producers meant that sow slaughterings remained inflated. Throughputs during the month totalled 23,400 head, around 10% (or 2,200 head) more than the adjusted figure for last March. So far this year, around 7,500 more sows have been slaughtered than in the first three months of 2015. While the rate of culling was lower than usual last year, this might indicate some contraction of the breeding herd is underway, particularly if the increase is sustained.

China offers new market opportunities for Brazil

There was a sharp growth in Brazilian pork exports in the first quarter of 2016, of over 80% year on year, to 140,000 tonnes. Trade with its traditional markets of Russia and Hong Kong moved up sharply, rising by around two thirds. Brazil’s export diversification strategy, though, is now paying off as China has emerged as its third largest market in very quick time, as shipments were negligible a year before. By March shipments had reached 6,400 tonnes, to account for 11% of total Brazilian trade, and up from just 1,600 tonnes in January. This is given increased access to the Chinese market as more Brazilian plants obtain approval. Even shipments to Singapore and Angola were also well up in the first quarter.

Brazilian pork is very competitive with the average export price down by as much as 32% in US dollar terms in the first quarter of 2016, compared with a year earlier. This represents a much larger price fall than for other major exporters, such as the EU and the United States, although their data is not so up to date. This was helped by the marked fall in the value of the Brazilian currency, as in reals the average export price was only 8% lower. The sharp increase in volume shipments meant that the value of exports in real increased by two thirds.

The increase in volume exports has helped to provide some support to Brazilian producers as production was higher year on year. Meanwhile, domestic demand has been reduced by the poor economic situation, with reduced consumer spending and intense heat in much of the country. Pig meat consumption in Brazil is more focussed on the winter months.

Feed market update

On Tuesday, UK feed wheat futures prices (May-16) recorded an increase of £1.35 on the week, closing at £105.70/t. Furthermore, May-16 Chicago wheat and maize futures prices closed up week on week. Across Europe, winter crops continue to be reported as in good condition. Strategie Grains increased its forecast of EU soft wheat production for 2016/17 by just over 1Mt from March's estimate, to 145Mt, based on the conditions to date (151Mt in 2015/16). Brazil’s second maize crop is currently expected to reach a record level of 57.1Mt this season but concern has been growing about the impact of dry weather on the crop. Over the last two weeks, the malting barley premium over feed barley has declined to season lows. The squeeze between malting and feed barley prices has been a factor of increased barley inclusions in animal feed rations this season.

Chicago soyabean futures prices (May-16) closed up $18.10 on the week on Tuesday, settling at $362.11/t. May-16 Paris rapeseed futures prices also closed up Tuesday to Tuesday, albeit by less. Rapemeal (34%, ex-mill Erith) for April delivery was at £162/t on Friday, £4 more than a week before. Bullish sentiment has crept into soyabean markets, chiefly driven by fears over wet Argentine weather during harvest. As at last Tuesday, the funds (traders in futures markets described as ‘managed money’) held their largest net long on Chicago soyabean futures in nearly 9 months. A net long indicates that the funds hold more contracts bought than sold, suggesting a bullish view on the market, while a net short suggests the opposite view.

Korean import growth slows

South Korea imported 5% more pork in the first quarter of 2016 than a year earlier, although this is much slower growth than was recorded in 2015. In part, this reflects higher domestic production. However, there are reports that booming demand from China is reducing the availability of pork for import by other markets in Asia. This particularly applies to EU pork, which is in especially high demand in China. The Korean figures provide some support for this view, as shipments from the EU were 8% lower than a year earlier.

Canada, which is also benefitting from the Chinese market, also shipped less to Korea. The reverse was true for the US, which faces barriers to accessing China due to its widespread use of Ractopamine. This meant it was able to increase its share of Korean imports from 29% last year to 36% in January-March 2016. The slowdown in Korean import growth came despite prices being 11% lower than in early 2015. This meant that the value of imports was 7% down year on year, at ?376.1 billion.

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