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AHDB Pig Market Weekly

14 June 2016

AHDB Pig Market Weekly - 14 June 2016AHDB Pig Market Weekly - 14 June 2016


EU pig prices increasing through May

Pig prices in the EU have increased week-on-week throughout May. The latest average pig price, for week ending 29 May, was €140.76 per 100 kg. This was the highest level recorded since October 2015. Much of this price buoyancy has been exacerbated by the increasing demand from China, where export levels from the major EU producing states are now at record highs. Encouragingly, this volume growth has not been at the expense of value, due to the current high Chinese pig price. This increasing demand from China has also helped to absorb the extra pork released onto the market, which was stored under the Private Storage Aid initiative in January. Demand within the EU also picked up in May with the fine weather contributing to increased sales of grilling cuts. All major producing member states have recorded a positive movement in prices, with the German price rising over €14/100kg since the beginning of May, and the Dutch price over €13/100kg in the same period.

In sterling terms, the EU pig price has also risen over recent weeks, and now stands at 107.65p/kg for week ending 29 May. This level was last recorded in September 2015. While both the EU and UK price has been improving over recent weeks, the EU price has done so at a greater rate. This has resulted in the UK price premium falling to only 8p in the last three weeks, the lowest level since September 2013. This could mean that there is less demand for imported pork, and potentially support the UK market further.

GB sow productivity continues to improve

Performance results for the twelve months ending March 2016 show continued improvement in GB sow herds. For indoor sows, a slight increase in numbers born alive and a small improvement in pre-weaning mortality resulted in the number of pigs weaned per sow per year continuing to increase. The average is 26.4 piglets weaned per sow per year, with the top 10% achieving just over 30 for a second time. For outdoor sows, a small increase in litters per sow per year and pigs born alive, together with an improvement in pre-weaning mortality, resulted in an average of 22.5 pigs weaned per sow per year, with the top 10% achieving 26.57.

Whether indoor or outdoor sows, GB producers still lag behind our main EU competitors. The EU 2014 average was 26.53 pigs weaned per sow per year, with Denmark achieving 30.0 on average for two years running. The main reason GB has a below average number of pigs weaned per sow lies in the number of pigs born alive per litter, with GB still performing below the EU 2014 average of 13.2.

Whilst finishing Feed Conversion Ratio (FCR) and Daily Live Weight Gain (DLWG) have not improved during the latest rolling 12 month period, compared to the twelve months ending in December 2015, this is likely due to the trend observed in the past two years of increased finishing weights. However, on average, GB producers are reasonably successful compared to their EU competitors at rearing and finishing piglets after weaning.

UK pig prices

The EU-spec SPP jumped up by 1.94p to 119.43p/kg in week ended 4 June. This is the largest single weekly increase since July 2008 and brings the price back up to levels of last Christmas. Although the current quote is 7.31p higher than the low point in mid-March, it remains 12p behind the same week last year. The UK pig price is continuing to be buoyed by the upward moving EU market and strong export demand, particularly from China. UK supplies are also tightening as estimated slaughterings were down 2% from the previous week at 167,000 head. It is worth bearing in mind, however, that week ended 4 June included a bank holiday which would have affected the slaughter numbers. Another sign that domestic supply and demand fundamentals are balancing out somewhat is a further reduction in the average carcase weight. In week ended 4 June it averaged 82.11kg, down on the previous week and the lowest level seen since December 2015 when pigs were being pulled forward earlier for Christmas.

In week ended 28 May, the EU-spec APP recorded a further increase of 1.26p to 121.11p/kg. This is the highest price rise since mid-January. The gap between the APP and SPP remains under the 4p threshold at 3.6p.

The GB weaner market also recorded increases in week ended 4 June with no major changes in throughput levels in spite of the short week. 30kg weaners recorded a modest increase of 8p to £39.42/head, the highest quote since the start of January. 7kg weaners showed a greater increase of 71p to £29.80/head. Likewise, the current quote is the highest since the end of January. Despite the increase week on week, both 30kg and 7kg weaners are down on the same point last year by £5.40 and £3.45 per head respectively.

Global prices stabilise as trade booms

Global pork export prices have been relatively stable over recent months, albeit at a lower level than for many years. Analysis of figures from the four leading global exporters shows the average price during the first quarter of this year was just over $2.30 per kg, with similar levels in each of the three months. This was slightly lower than the price at the end of 2015 and around 35 cents down on the first quarter of last year. The price fall since late 2015 is largely due to a sharp reduction in the dollar price of Brazilian pork exports due to the depreciation of the Brazilian real. Prices from the other three exporters, the EU, US and Canada have been largely stable since November.

While the price has levelled, the volume of pork being traded has boomed. The amount shipped by the four main exporters during January to March 2016 was up by almost a quarter from the same period last year. The growth began in the second half of 2015 but has accelerated significantly since the New Year. March exports topped 475,000 tonnes, which is the highest monthly total on record. The surge is largely due to the strength of demand from China, whose imports during the period almost doubled on the year. However, with Chinese imports typically lower priced ($1.85/kg in Q1 2016, little changed from a year earlier), its increased share of trade has contributed to the lower global average price.

Spanish exports continue to grow

Exports of fresh/frozen pork from Spain have grown strongly in the first quarter of 2016, when compared with the same period a year earlier. Volumes were up 16% to 355 thousand tonnes including an increase of over 50% in its third country trade which now accounts for over 35% of exports. The overall growth, as with other member states, was largely attributed to increased shipments to China. These more than doubled in Q1 2016 from last year. As widely documented, the high pig price in China is attracting imports from all major exporting nations, coupled with the increased demand from China that cannot be met by domestic production. Shipments to Italy also recorded an increase, of 5%, while sales to the UK were up 16%. France remains the largest importer of Spanish pork, although volumes were reduced by 17% on last year given lower demand from French further processors. As there looks to be little sign of any tightening of Spanish supplies given the rising pig herd there, we may expect to see Spanish export levels continuing to rise throughout the year.

Imports of fresh/frozen pork into Spain fell by 8%, to 26.1 thousand tonnes, in the first quarter of 2016, when compared with the same period a year earlier. Shipments from France and the Netherlands both recorded significant declines (-26% and -27% respectively), while imports from Poland and Portugal increased in volume, albeit from a smaller base.

UK pig feed consumption forecast to increase

Total demand for cereals in UK animal feed production in 2015/16, year ended June, has been revised up, by 1.3%, compared with earlier estimates, according to the latest Defra UK Supply and Demand estimates released last month.

The year on year rise has partly been driven by a forecast increase in usage from the UK pig and poultry sectors. In the case of pigs, low prices and a reduction in demand meant, that in some cases, abattoirs had to roll them over week on week, causing weights to get heavier. The heavier the pig, the less efficient it is at converting feed, therefore more feed is being consumed to maintain these weights. Furthermore, the latest AHDB outlook forecast for UK pig slaughterings indicates that they will continue to increase through 2016.

Pig meat supplies will remain plentiful and the growth in production is expected to outweigh demand. However, an improvement in the balance of trade, with lower imports and higher exports, could reduce the supply/demand imbalance. In turn, this could result in the pig market becoming more stable than in recent years with a possibility of prices rising.

Brazilian maize price hinders livestock producers

From a cereals perspective, one of the main talking points over the past month that has been affecting global grain prices is Brazil’s second, or safrinha, maize crop. This is because dry weather conditions during key growing stages is feared to have hindered production – read more here.

Tight supplies of maize from the world’s second largest exporter has had substantial knock-on effects on its livestock sectors. Worst hit by the record high maize prices are the country’s pig and poultry sectors. For the pig sector, a combination of record high feed prices and a reduction in domestic demand due to the country’s poor economic state, is pushing producers out of business because many are in a loss making situation. Furthermore there have been reports of increased sow slaughterings in some states.

Brazil produces 1.2 million tonnes of poultry meat per month and slaughters around 3 million head of pigs per month. According to Reuters, it is estimated that up to 15% of pig and poultry processing capacity in the country has shut, which equates to around 225 thousand tonnes of meat production a month.

However, as the harvest of the safrinha maize crop gets well under way, it should relieve the tight situation slightly. Nevertheless, livestock producers could still lose money as supply will remain tighter than usual.

Brazil is the largest poultry and fourth largest pork exporter in the world. From a UK perspective, a large reduction in pork production and export availability for Brazil could increase demand for our own product. The second and third largest importers of Brazilian pork in January-March this year have been Hong Kong and China respectively. These two countries also bought around 6% and 18% respectively of total UK pork exports over the same period.

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