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AHDB Pig Market Weekly

01 August 2016

AHDB Pig Market Weekly - 1 August 2016AHDB Pig Market Weekly - 1 August 2016


UK supplies reducing due to improved balance of trade

Domestic production growth is expected to draw back in the second half of 2016, although still be ahead of 2015 levels. However, a shift in the balance of trade, with imports down against increasing exports, should reduce available supplies over the coming months. These are just some of the conclusions of the latest AHDB forecasts, published today.

The UK’s pig meat production is expected to increase for the seventh consecutive year, based on productivity growth being the driver for the increase rather than a rise in breeding herd numbers. Heavier weights will also assist production gains, although it is forecast that weight gain rates will begin to slow. Therefore, production growth is forecast to continue, although the rate may be slower than the previous year.

The balance of trade looks set to improve, given the weaker pound following the Brexit vote and strong Chinese demand supporting exports. Imports are also expected to fall, with the weak pound and accelerating EU price eroding the UK price premium, coupled with a tightening of supplies on the continent. This shift in the balance of trade is forecast to offset any increases in production, and therefore it is projected that supplies available for domestic consumption will be down on last year’s levels. This could mean that prices continue to strengthen in the second half of the year, as they have done in the second quarter of 2016.

Pork’s retail woes continue

Retail pork sales remained subdued in the 12 week period up to 19 June, according to the data from Kantar Worldpanel. The amount of pork sold was down 2%, compared with a year earlier, despite prices being 9% lower. Slightly less pork was sold on promotion than a year ago and, within that, there was an increase in total price reductions but fewer Y for £X deals. Encouragingly, shoulder-roasting joints recorded an increase in volume sales of 7% over the 12 weeks, aided by a particularly strong performance in the final four weeks of the period. Chops and steaks were the only other cuts to record volume sales growth, at 2%. All other cuts suffered decreases, with loin roasting joints and pork ribs the most significant, at 15% and 12% respectively. The overall picture was somewhat more positive in the latest four-week period, with chops/steaks and leg joints joining shoulders in recording growth. Overall 4% more pork was sold than in the same period last year but, with much lower prices, spending was still down 8%.

Bacon recorded a modest decrease in volume sales over the twelve-week period, although there was a slightly steeper decline over the shorter-term view. Sausages and sliced cooked meats (mainly ham) also saw sales declines over both the shorter and longer periods. In all cases, prices were lower than a year before, albeit only marginally in the case of sliced cooked meats. While sausage rolls saw a year-on-year increase in the 12-week period, this was reversed more recently but, more encouragingly, pork pies recorded volumes sales increases over both the longer and shorter-term periods.

UK pig prices

The EU spec SPP continued to rise in week ended 23 July, up 2.14p to 130.28p/kg. This was the second largest weekly increase since the SPP reporting system was introduced, and returns the SPP to north of 130p/kg. This was last seen in September 2015, and the current quote stands just under 3p less than at this point last year. The driving factors that have been dominant for the past three months remain true, namely strong Chinese demand, booming EU prices and tightening UK supplies. In addition, the weakening pound has increased the attractiveness of UK pork for domestic buyers, which will further support the price.
Estimated slaughterings increased slightly, by 5% to 170 thousand head. They were largely stable on the year earlier, only 0.4% behind. Average carcase weights were down 0.48kg on the week earlier, to 81.42kg. However, they are still 1.25kg up on the same period last year.

The EU-spec APP also increased in week ended 16 July, by 1.23p to 130.70p/kg. The gap between the APP and SPP continued to fall, to 2.56p. This is the lowest the gap has been since September 2014.

Both 7kg and 30kg weaners recorded a modest price increase in week ended 23 July. 7kg weaners increased 33p to £31.66/head, returning it to levels last recorded in November 2015. However, it is still £1.45 behind the price recorded at the same point last year. 30kg weaner prices rose by 40p to £43.15/head, £2.30 behind the same point in 2015, returning it to October 2015 levels.

Little sign of slowdown in EU exports

EU pork exports in May 2016 were marginally lower than in April but were still nearly double their level in the same month last year, at 226,000 tonnes. Latest figures from Eurostat show that booming sales to China continued during the month, topping 100,000 tonnes for the second month in a row. This was more than three times higher than in May 2015. There was some slowing of exports to Japan, although they remained higher than a year before. Sales to other Asian markets remained strong, though, as did shipments to the United States, which were more than double last May’s level. Although growth was largely demand driven, lower unit prices did help exports. The average value was down 9% on the year, although the total value of exports was still up nearly 80% at €488.7 million.

The latest figures take EU exports for the first five months of this year to nearly 1 million tonnes, 56% more than in the same period last year. The value of these exports was over €2 billion, 43% more than in January to May 2015.

There was a slight slowdown in offal exports during May, although they were still up by more than 30% year on year, at 107,000 tonnes. This was more than 10,000 tonnes lower than in April. There were good sales to all the main Asian markets. Vietnam continued to grow in importance, with shipments treble their level last May, although its share of total exports was still only 3%, as the trade remains dominated by China/Hong Kong.

Chinese imports continuing to boom

Chinese imports of fresh/frozen pork continued to increase significantly in June, up 138% to 762 thousand tonnes. Chinese pork imports have been booming through 2016 to date. Following last year’s rationalisation of the Chinese breeding herd, domestic production has yet to recover. Strong environmental barriers are preventing producers from entering the market, or expanding, and some smaller producers are being squeezed out. This has led to the pig price in China reaching historic highs, despite authorities trying to ease the situation by releasing government stores of pigmeat onto the market. Therefore, this has presented opportunities for major producing countries, to capitalise on both increasing demand and increasing prices.

In the first six months of 2016, the EU has provided over two thirds of the imported pork, and this more than doubled to 528 thousand tonnes on the same period a year earlier. Volumes were up from all member states, with Germany shipping the most pork to China. However, Spanish volumes were almost 2 ½ times greater than 2015 levels, and are now only slightly behind German levels.

Shipments from non-EU countries were over 2 ½ times up on the same period a year earlier. Just under half of these were from the United States. Both Canadian and Brazilian shipments were increased significantly on the year earlier, with Canadian imports recoding a four-fold increase and Brazilian imports surging to over 26 thousand tonnes from a standing start last year.

South Korean pork imports remain stable

Korean imports of fresh and frozen pork have remained largely static in the first six months of 2016, up less than half of one percent, at 230 thousand tonnes. This followed a sharp increase the year before to supplement decreased production following outbreaks of PEDv and FMD. Since then, domestic production has recovered, which has helped to satiate a growing domestic demand. Increased production has been somewhat tempered with sporadic FMD outbreaks during the first half of the year. These have largely been contained, therefore not having the same level of impact on the domestic herd and production as the 2010 outbreak. Overall, Korean pork consumption has continued to increase, as growing economic pressures move consumers away from expensive Hanwoo and imported beef, and towards cheaper protein sources.

Imports from the EU decreased by 4% on the same period in 2015. Shipments from Germany were back slightly, while the reverse was true for imports from Spain. However, imports from non-EU countries were up 4%, largely driven by an 8% increase in shipments from the United States. The US dollar had been weakening against the euro during the first half of 2016, helping to make US pork more competitive over its European counterparts.

Feed market update – July 2016

Over the past month (23 June – 20 July), markets have been reacting to the outcome of the EU referendum. From 23 June to 19 July, the value of sterling fell by almost 9% against the euro, reaching its low point on the 6 July of £1 = €1.17, the lowest level since October 2013. However, sterling had recovered slightly by the end of the period, to £1 = €1.19. Feed wheat futures have followed a similar path to the currency, climbed by £4.80/t in the immediate aftermath of the Brexit vote, before falling back after peaking on 27 June. Throughout July, they have remained largely stable.

Over the past months, concerns have also arisen surrounding the quality of the French wheat and barley crop, leaving crop conditions in 2016 substantially behind where they were a year earlier. These concerns have added bullish measures to an otherwise bearish grain market.

The 2016 AHDB Planting and Variety survey shows an overall decline in the area of cereals and oilseed rape (OSR) across England and Scotland. This has been driven by a sharp fall in the OSR area for the second consecutive year, in addition to slightly lower winter barley and wheat areas. However, strong GB spring barley, plus higher oat levels have restored some balance.
The proteins market across the past month has been driven by weather concerns in the US, with weather patterns reiterating concerns of a La Niña event. UK delivered rapeseed prices have followed a very similar trend to the global oilseed futures markets. Since 24 June, prices for delivered rapeseed have jumped £18.50/t, reaching £291/t on 15 July.

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