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AHDB Pig Market Weekly

19 July 2016

AHDB Pig Market Weekly - 18 July 2016AHDB Pig Market Weekly - 18 July 2016


UK exports still increasing in May

UK exports of fresh/frozen pork increased once again in May, to 14.2 thousand tonnes. This was a 10% increase on the same period a year earlier. Strong export volumes to China once again were the main factor behind this growth, with shipment volumes up 76% in May on 2015 levels. Exports to Ireland and Germany recorded decreases of 7% on last year, while shipments to the United States, Hong Kong and the Philippines all saw strong growth, with volumes to the Philippines increasing over seven-fold on May 2015.
The value of UK exports of fresh/frozen pork increased by 25% in May, to £16.7million, on May 2015. This was assisted by the strong pig price in China, and a rise in shipments of high value cuts to countries such as the United States.

Offal exports also increased in May, up 39% to 6.2 thousand tonnes. Shipments to China almost doubled, and other Asian markets also recorded strong growth.

Imports of fresh/frozen pork were up 23% on May 2015, to 33.7 thousand tonnes. This increase was driven by Danish shipments, which doubled in May 2016, versus the same period a year earlier. However, the average unit price is still 6% behind the same period last year, despite rising pig prices in the UK and EU. The decrease in bacon imports was driven by falling shipment volumes from the Netherlands, Denmark and Germany.

What could a UK/EU trade relationship look like post-Brexit?

The nature of the future relationship that the UK government will seek to negotiate with the rest of the EU has not yet been defined, following the 23 June referendum decision to leave. It is expected that negotiations will commence once the UK gives formal notice to leave the EU under Article 50 of the Lisbon Treaty. Negotiations will take place over a two-year period, which may be extended by agreement of all 27 remaining EU Member States.

Until the moment the UK leaves the EU it remains a full Member State of the Union and therefore bound by all Treaty obligations, legislation and policy.

Nearly two thirds (62% by value) of UK agricultural exports are to the EU, with 70% by value of agricultural imports from the EU. 90% of beef and lamb exports go to the EU. Therefore, the future trading relationship is of critical importance to agriculture and, particularly, to the Pork sector. Although the future relationship won’t be clear for some time, there are some existing models we can learn from. AHDB has published a new document setting out five potential trade relationship options post-Brexit and exploring the pros and cons of each. It is the first of a series of analyses from AHDB looking at the implications of the EU exit.

UK pig prices

The EU-spec SPP continued to climb in week ending 9 July, by 2.8p to 126.57p/kg. This is the largest week-on-week increase since the SPP began, and for a number of years prior. The current quote returns the price to levels last recorded in November 2015, and now stands at less than 7p behind the same point a year earlier. The tightening UK pig supply, robust export demand and strong EU prices have helped support the UK price, although the structure of the UK market means that the full effect of recent currency movements are yet to be reflected in the SPP.

Estimated slaughterings rose by 3% on the previous week to 170,000 head, and while they were only back 1% on the same week a year earlier this represents the eighth consecutive week of lower throughput compared with last year. This would suggest that the supply and demand situation has tightened even further. The average carcase weight fell modestly from the previous week, by 0.06kg to 81.67kg, which is 1.33kg more than the same point a year earlier.

The EU-spec APP also increased once again in week ending 2 July, by 1.15p to 126.77p/kg. This reduced the gap between the APP and SPP to 3p, which is the smallest difference since October 2014.

Both 30kg and 7kg weaners recorded price increases for week ending 9 July. 30kg weaners recorded a price increase of £1.54 to £42.82/head, while 7kg weaners increased by 88p to £31.06/head. These increases return 30kg weaners to prices last recorded in October 2015 and 7kg weaners to levels last seen at the beginning of this year. However, both 30kg and 7kg weaners remain below the level recorded last year, by £2.21 and £1.43 respectively.

Producer’s share of retail price rises for second consecutive month

Although remaining at a historical low, the producer’s share of the retail pork price increased slightly in June, to 33%. This was one percentage point higher than May and the highest level of 2016 so far. However, this figure is still two percentage points down on June 2015. While the farmgate price has continued to rise since March, the retail price remained unchanged from May to June. Nevertheless, the price received by producers was 9% lower than a year before, while retail prices had fallen by only 4% compared to June 2015.

While the retail prices in June remained unchanged overall, there were small movements in most cuts, with some cheaper and others more expensive. There were lower prices for boneless shoulder (-2%) and fillet end leg (-3%). Boneless leg, diced and minced pork all increased by 1% each, while prices of loin chops and traditional pork sausages remained static.

Over the longer term, there were mixed trends in prices compared to June 2015. The biggest falls were for boneless shoulder, loin chops and diced pork (each -6%). Lower falls were recorded for minced pork (-1%) and loin steaks (-2%), while boneless leg remained unchanged on a year ago. However, the falls offset slightly by increases in the prices of traditional pork sausages (+2%), fillet of pork (+4%) and fillet end leg (+5%).

Developing countries to dominate global pork growth

Global meat production is projected to continue to grow over the coming decade, although at a slightly slower rate than over the last 10 years, according to the newly-published OECD-FAO Agricultural Outlook. Pig meat output is set to rise by 12% by 2025. Most of the extra pig meat production will come from developing countries, mainly in Asia and particularly China, which is expected to return to growth in 2017.
Consumption growth is expected to be even more dominated by developing countries, where 15% more pork will be eaten, compared with just a 4% increase in developed countries. Africa and Latin America are projected to see even faster rises in consumption but the much larger scale of Asian markets means that they will still dominate.

With demand rising even faster than production in developing countries, the amount of pork traded is projected to rise by 22% between 2015 and 2025. Asia will remain the key region for import growth, accounting for around 40% of the extra trade. However, Africa is projected to be the destination for 19% of the additional imports, doubling its share of the global total from 3% to 6%. North America, including Mexico, is also projected to see rising imports. Global pork prices are forecast to rise slowly in the next few years before stabilising or even declining slightly later in the decade.

CETA agreement between the EU and Canada

The EU is in the process of completing the EU-Canada Free Trade Agreement (CETA) and final approval is currently expected in the first quarter of 2017. However, given the outcome of the referendum in the UK, progress could slow.

Under CETA, pork has been classified as a sensitive product. For Canadian pork exported to the EU, while a zero duty will apply, this will be limited by tariff rate quotas (TRQs). So far, Canada has had no success in penetrating the EU pig meat market but could this change as a result of CETA?

Short-Term Outlook for EU arable crops and meat markets published

The EU Commission has recently published its Short-Term Outlook for EU arable crops, dairy and meat markets in 2016 and 2017, and here we look to highlight some of the pertinent points for the pig meat market.

The World Bank has recently (June 2016) revised its projection for world growth significantly downwards, to 2.4% in 2016, 2.8% in 2017 and a projected 3.0% in 2018. This prolongs the slowdown of the world economy, driven by both advanced and emerging economies. The prospects for EU growth remain nearly unchanged.

For pig meat, although the December 2015 livestock survey announced a decline in the EU reproductive pig herd of 1.7%, total pig meat production increased by 1% in the first quarter of 2016. Strong import demand from China has helped to boost pig meat exports and they are expected to reach a record level in 2016 at 2.4 million tonnes. During April, EU pig meat exports to China reached more than 100,000 tonnes, and represented almost 40% of exports. Offal exports to China showed a similar trend. According to the Chinese Agricultural Outlook, the import demand for pig meat if projected to continue over the medium term (900,000 tonnes by 2025).

EU consumption of pig meat reached 32.5kg per capita in 2015, up almost 1kg compared with 2014. Following increased export demand and higher prices, the level of per capita consumption is expected to decrease in 2016 by 1.6%, and stabilise in 2017, largely in line with the trend over the last ten years.

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