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AHDB Pig Market Weekly

04 July 2016

AHDB Pig Market Weekly - 4 July 2016AHDB Pig Market Weekly - 4 July 2016


EU referendum result

Following the results of the EU referendum showing a decision to leave the EU, AHDB CEO Jane King has released a statement. In the statement she said, “The AHDB focus remains unaffected by the decision to leave the EU – to equip levy payers with the tools to become more competitive and sustainable”. Further information and analysis on the implications of the leave decision will be published over the coming weeks by AHDB. In the meantime, a brief summary of some of the short term impacts for the pork sector can be found below.

Short term impacts of “Brexit” result

In the wake of the result of the EU referendum last Thursday, what are the short-term consequences for the UK pork sector? Though this decision will have widespread effects on the meat industry in the long term, much will depend on the terms of the UK’s exit. Full details will be unclear until negotiations are concluded. In the meantime, the UK will remain a part of the EU and will continue to be bound by the existing conditions of our membership.

Once the result of the referendum was clear, one of the first effects was seen in UK currency. The value of the pound fell sharply against other currencies during the day after the result. Further falls were seen at the beginning of this week, as uncertainties continued. As of 29 June, £1 bought €1.21, down 10 cents since immediately before the referendum result and the lowest level in over two years. Against the US dollar, the pound hit its lowest level since 1985, at £1 = $1.32.

Analysis published last year shows that the UK pig price is closely related to the exchange rate between the pound and the euro. This is due to the fact that approximately 60% of pig meat consumed in the UK is imported, mostly from the Eurozone, and UK product has to compete. The decline in the value of the pound will have made product from the EU less competitive on the UK market. For example, at last Thursday’s exchange rate the latest EU average reference price was equivalent to around 116p/kg; at this week’s rate, it equates to about 125p/kg.

The UK’s trade relationship with the EU will remain as it was before the referendum until the terms of the UK’s exit from the EU are agreed over the next two years. As a result, free trade with our largest market can be expected in the short term but a weaker currency may limit imports by making UK products more competitive. Currency shifts also affect exports from the UK, with the weaker pound making them more price competitive on all export markets.

However, it is not only meat imports that will be impacted in the short term. Many inputs, such as fuel, feed and fertiliser may also be more expensive in sterling terms.

Although important, currency is only a single area within a range of market drivers, and underlying factors, such as supply and demand, will continue to move markets for both outputs and inputs. It will also be important to track the impact of economic and political uncertainty on consumer behaviour and demand. AHDB will continue to deliver more information and analysis on the evolving situation which will impact the pork industry in the coming months and years.

Sales of pork in decline again

Pork sales by volume recorded a decline in the 12 weeks to 22 May, according to the latest Kantar Worldpanel data. The amount of fresh/frozen pork sold decreased by just under 2% on the same period a year earlier. This was the pattern recorded by the majority of cuts, with chops/steaks, leg roasting joints and loin roasting joints recording declining sales of 1%, 4% and 7% respectively. Shoulder joints, however, bucked this trend, and showed an increase in volume sales of almost 5% on the same period last year.
While the Pulled Pork campaign was running over much of the 12 weeks to 22 May, the first wave of the campaign was live during April and May 2015. Therefore, both periods being compared are promotional ones. A full evaluation of the second and third wave of the Pulled Pork campaign, which ran earlier this year, will be published in due course. Among other things, this will evaluate whether the “halo effect” observed during last year’s campaign was as apparent this time, given the fall in sales of other roasting joints during the latest three months.

Processed products also recorded sales declines in the 12 weeks to 22 May, with the exception of bacon, which recorded a modest increase of just under half of one per cent. Value fell across all cuts, exacerbated by fewer shoppers buying pork products. Encouragingly, however, pork chilled ready meals grew in both value and volume, as well as increasing the average unit price.

UK pig prices

The EU-spec SPP rose again in week ending 25 June, by 0.63p to 122.16p/kg. This is the twelfth week of growth, although at a slightly more modest rate than the previous four weeks. However, the SPP still stands at just under 11p less than at this time a year earlier. Continued export demand was a driving factor behind supporting prices. Estimated slaughterings fell from the previous week, by 3% to 162 thousand head. They were also down 2% on the same period a year earlier, which contributes to the evidence that supplies are beginning to tighten. Again, average carcase weights fell, albeit modestly, by 0.12kg to 81.54kg. Therefore, average carcase weights were largely on par with the same time a year earlier.

In the week ending 18 June, the EU-spec APP increased further, by 1p to 125.01p/kg. The gap between the APP and SPP narrowed further to just under 3.5p, illustrating that the SPP increased at a greater rate during this week.

30kg weaners remained largely static in their price, falling a mere £0.03 in week ending 25 June, to £40.42/head. 7kg weaners recorded modest growth of £0.39 to stand at £30.48/head. These slight movements infer that confidence in the longer-term view is remaining largely static.

US pig herd increasing

As at June 1, the US pig herd was at 68.4 million, which was an increase of 2% on the same period a year earlier, according to the latest Quarterly Hogs and Pigs report from the USDA. This figure was also up 1% from March 1, 2016 and the highest June 1 inventory of all hogs and pigs since estimates began in 1964. The total number of pigs available for slaughter was also up 2% from last year, and 1% from the previous quarter. Again, this was the highest June 1 inventory since the start of estimates in 1964. Breaking it down by weight band, all weights were up on a year earlier, with marginally more at the lower weight bands, suggesting that supplies of slaughter pigs will continue to increase throughout the year.

The March-May 2016 pig crop, at 30.3 million head, was up 3% on 2015, and was the largest March-May crop since 1971. The number of sows farrowed during this period was up 1%, and represented 48% of the breeding herd. At the same time, the number of pigs weaned per litter was at a record high of 10.48. All of these factors point to a growing US pig herd, both short and longer term. With the US being one of the EU’s main competitors on a global scale, this increase in production could affect the demand for EU pig meat.

Feed market update – June 2016

The price of maize has been a key focal point over the month to 23 June, with US maize futures (Dec-16) peaking at $176.66/t on 17 June, before falling back down to $156.59/t on 23 June. The main catalyst behind the rise was a concern over South American production, combined with concerns over how drier than usual US weather could affect crop condition.

The upward movement to maize markets also pulled global wheat prices up with it, while UK prices received a further boost from a weakening of sterling against the euro to mid-June. The fall in prices later in the month followed the easing in US weather concerns, which were compounded in the UK by a partial recovery in sterling to 23 June.

South America has been a key talking point in the proteins market, as well as dominating the grains market, this month. Earlier in the month, prices were driven over concerns over both the quality and quantity of soyabean stocks, specifically in Argentina. Reports of restricted supplies, from one of the world’s largest growers of soyabeans, led to sharp price rises. Changes in the value of rapeseed over the month to 23 June were also recorded, with Paris rapeseed future prices (Nov-16) following a similar trend to other oilseeds.

Polish imports and exports increasing

Polish exports of fresh and frozen pork recorded a 5% increase in the first quarter of 2016 on a year earlier, to 104 thousand tonnes. Both EU and non-EU countries saw a growth in shipments from Poland. Polish domestic production has recorded a decline over recent years, so to support growing export volumes, Poland has been importing a significant number of finishers from other member states. Indeed this volume has increased by 7% during Q1 2016 on a year earlier, to 1.5 million head. While there was a small decline in exports to Italy (-9%), shipments to Germany, the United States and Hong Kong grew significantly (by 28%, 34% and 55% respectively).

During the first quarter of 2016, imports of fresh/frozen pork also grew on the year earlier, up 4% to 171 thousand tonnes. Much of this growth was due to increased shipments from Belgium, while Germany, Denmark and the Netherlands recorded falls in their shipment levels. As well as for domestic consumption, a proportion of this imported pig meat is also intended for further processing and subsequent re-export. Much investment has taken place in the meat-processing sector, where volumes are growing steadily, particularly exports to the United Kingdom and Denmark.

June Pig Market Trends out now
The June edition of Pig Market Trends (PMT) was published on Tuesday. In addition to the usual summary of developments in the UK and EU pig markets and the global feed market over the last month, the latest issue included more detailed articles on:
• Feed prices and cost of production
• Industry structure
• EU pig meat demand
• Poland

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