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AHDB Pig Market Weekly

16 May 2016

AHDB Pig Market Weekly - 16 May 2016AHDB Pig Market Weekly - 16 May 2016


US exports increase in the first quarter
US exports of fresh and frozen pork increased in the first quarter of 2016, up 5% to 372 thousand tonnes. This was largely driven by a significant increase in the volume of pork shipped to China, which was nearly four times more than the same period a year earlier. At the end of 2015, China relisted 16 establishments from the US that participate in the ractopamine free programme, which has meant that these facilities are now eligible to export to China. Therefore, it may be expected that US shipments to China will continue to increase throughout the year.

Once again, Mexico was the largest importer of US pork, although volumes were down by 9% in Q1 2016 versus the same period last year. The strong dollar may have assisted in dampening down shipment levels. Domestic production is increasing in Mexico but cannot keep pace with rising consumption, so it is still forecast that there will be a strong import demand to satisfy this need.

While volumes of fresh/frozen pork exports have increased throughout the quarter, this has been at the expense of value. The value of shipments decreased by 8% in the first quarter, compared with Q1 2015, and the average unit price fell by 13% year on year, to $2.46/kg. The increased production levels in the US have helped to slide the price lower, coupled with low global prices and the strong dollar, creating a downwards pressure on US prices if they wish to remain competitive.

EU market remains stable
EU pig prices have fluctuated between €125 and €130 per 100kg for most of this year and remained the case in April. Following some improvement in prices in the run up to Easter, a combination of public holidays and subdued demand on the EU market meant that prices eased back. However, by the end of the month they were on the up again, with signs of improving weather in northern Europe stimulating demand. Having reached its highest point of 2016 to date at the end of March, at a fraction over €130 per 100kg, the EU average price had dropped back to €127 in mid-April. It then picked up again, to finish the month at €128.29 per 100kg. The fact that this improvement came despite the release of much of the pig meat stored during the PSA scheme in January provides some encouragement that the market may be strengthening, albeit from a low base.

Prices on the key German and Spanish markets have followed similar trends to the EU average, dropping back in early April before strengthening later in the month. Belgian and Dutch prices showed less sign of recovery in late April, while Polish prices continued to fall. The market has been more stable in Denmark and France. Despite the overall stability in euro terms, some strengthening of the pound during April means that prices have fallen in sterling terms, dropping back below £1/kg in the latest week. As a result, the gap between UK and EU prices has increased slightly to 13p/kg, although this is still well below the level of recent years.

UK pig prices
The recent recovery in pig prices showed signs of accelerating in week ended 7 May, with the EU-spec SPP rising by nearly a penny to 114.70p/kg. This is the biggest weekly rise since the SPP began two years ago and the last time the previous price series rose by as much was in September 2013. The SPP is now more than 2.5p higher than at its low point in mid-March, although still nearly 17p less than a year before. Reports of a more buoyant EU market, coupled with some weakening of the pound, will have helped support UK prices.

The rise is particularly encouraging as it came in a bank holiday week, suggesting demand remains strong. This is confirmed by reports suggesting that most abattoirs were killing for five days as normal. Certainly, estimated slaughterings were very similar to the previous week, at around 169,000 head and were 6% higher than a year before. The average carcase weight fell marginally on the week but remained nearly a kilo heavier than in the equivalent week last year.

The upward movement was also apparent in the EU-spec GB APP, which was up by 0.29p to 117.26p/kg for week ended 30 April. This represented the fifth consecutive rise in the price and was almost identical to the increase in the SPP for the same week. The gap between the two was, therefore, largely unchanged at a fraction under 3½p.

Weaner markets have also shown some sign of improvement of late. The average price for 7kg piglets continued this trend in week ended 7 May, increasing by 49p to £29.01 per head. This was over £1 higher than in mid-March, although still over £4 lower than a year ago. Similarly, 30kg store pigs were worth over £2 more than in March, although the weekly average price did drop by 53p, to £38.66 per head.

Lower sow feed production hints at falling herd
Latest figures from Defra show that 1% more compound pig feed was produced in the first quarter of 2016 than a year earlier. However, within this total, there was a 5% reduction in breeding pig feed. This is the second consecutive quarter with falling output, which may be an indication that the tough financial position facing producers is starting to have an effect on sow numbers. However, this conclusion should be treated with some caution, as feed production has not always been a reliable predictor of breeding herd trends in the past.

The new figures also show that the price of pig feed was at its lowest level in nearly six years during the quarter, at £209/tonne. This is 12% lower than a year before and suggests that pig production costs may have fallen further in early 2016, helping to partly mitigate the fall in pig prices.

There was more use of wheat and barley in compound animal feed during the three months than in January to March 2015. This was partly at the expense of oats, but maize use was little changed. For protein, more soya meal was used in place of rape and sunflower meals. However, the most dramatic movement continues to be the rise in the use of pulses. Although quantities are still relatively small, more than four times more were used than a year earlier. Pulses haven’t been used on this scale in feed production in well over a decade.

Pocketbook and Yearbook published
This week’s Pig & Poultry Fair saw the launch of two annual publications, which between them provide a wide range of information about the pork market. The Pig & Poultry Pocketbook provides easy access to a range of key statistics about the pig and poultry sectors, including industry structure, production, prices, international trade and consumption. Among the new features this year are maps showing the destination of UK pig meat and poultry meat exports. The pig section of the pocketbook can be downloaded by clicking here, while the poultry section can be found here.

Also published was the AHDB Pork Yearbook for 2015-16. This provides a range of key industry statistics and pig performance data, including international comparison. As well as this it includes details of AHDB Pork’s knowledge transfer, research and development activity. To download the Yearbook, click here.

Danish breeding herd continues to contract
Provisional figures from the 1 April pig census showed that the number of pigs in Denmark fell slightly in Q1 2016 versus the same period a year earlier. The total number of pigs was 12.4 million head, a decrease of 1%. This is the first decrease in the total herd size over this period since 2011. There was a downwards trend in the breeding herd (-3%), with the number of in-pig sows and in-pig gilts falling 4% and 3% year on year, respectively. This movement further illustrates the rationalisation of the Danish herd, with the potential to tighten supplies and support the price going forwards. Coupled with this, the 7% increase in gilts intended for breeding might suggest that producers are delaying serving in a further attempt to tighten supplies.

The number of young pigs was slightly increased (+2%), possibly as a result of a slight reduction in weaner exports in early 2016. Therefore, we may expect production to increase slightly in the short term, while they work through the system. However, the number of piglets was significantly down (-5%), so longer term it may be expected that production will fall back as supplies reduce.

Throughout the first quarter of 2016, the Danish pig price has remained largely stable at a little over DKK9/kg (€1.22), but fell to a low of DKK8.70/kg (€1.17) in March. Since then, it has rallied back to DKK9.21/kg (€1.24) and any further tightening of supplies can only help to support prices moving forwards.

Canadian export performance boosted by China
Canadian trade with China has shown strong growth in the first quarter of 2016 and, similar to the United States, more than quadrupled to become its second largest market, with a 22% share. Total Canadian exports were up by 12% as it cut back on shipments to other markets, especially in Asia, notably South Korea and Taiwan, and Australia. Trade with the United States was down marginally. Canada also now has a significant and growing share of the Chinese import market and in the first quarter of 2016 accounted for 10 per cent of total Chinese trade.

The average price of Canadian exports was unchanged compared with January-March 2015 and so the value of exports also increased by 12%, to C$781 million. This was in spite of a 16% rise in price on its trade with the United States but offset by the much lower average price and increased importance of the Chinese market. The ongoing weakening of the Canadian dollar contributed to the good export situation as in US dollars the average export price was as much as 9% lower.

Increased pig slaughterings contributed to the growth in pork exports; in the first quarter of 2016 they were up 3% on a year earlier and amounted to 5.45 million. This was in spite of the 12% increase in live exports, to 1.46 million, the highest level since the first quarter of 2009. This comes as US country of origin labelling (COOL) regulations are no longer being implemented. The pig herd is rising in Canada, helped by the good export performance, and numbers on 1 January were up 1% on a year earlier. The breeding herd and pig crop were also both up by one per cent indicating that further increases in slaughterings can be expected. USDA forecasts for 2016 indicate a rise of two per cent in pork production in Canada, with exports also expected to rise, to a new record.

Rising supplies of other meats provide competition for pork
As reported last week, latest AHDB Beef & Lamb forecasts suggest there will be more beef and sheep meat on the UK market this year. With an expectation that poultry supplies will also be higher, the meat market looks set to remain competitive. This could mean that the recent deflation in the retail meat market could continue. Even if, as indicated in AHDB Pork forecasts published last month, there is less pig meat on the market, this competition could hold prices down to some extent.

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