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AHDB Pig Market Weekly

08 August 2016

AHDB Pig Market Weekly - 4 August 2016AHDB Pig Market Weekly - 4 August 2016


EU pig prices continue their rise

EU pig prices continued their rise throughout June and July, taking the reference price to €162.54/100kg for week ended 24 July. This was the highest level since September 2014, and over €18 more than the same point a year earlier. The EU average reference price increased by over €7 over the latest four weeks. While this is still a significant rise, it is slower than the price increase recorded over the four weeks prior to this period.

A tightening of supply against a backdrop of increased demand is causing this strengthening of the market. Tighter supplies in some member states have occurred earlier than forecast. Domestic demand has been supported by the barbeque season well underway in northern Europe, while the tourist season is in full swing in the south of the continent. Furthermore, export demand, particularly for China, continues to hit record levels.

All the major producing states recorded rising prices over the latest four weeks. The dominant German price increased over €8 over the period, while the Spanish price increased by just shy of €10. The Irish and Dutch increases were more modest, at €4.15 and €2.27 respectively.

Both the increasing momentum of the EU market, coupled with the weakening pound following the Brexit vote, meant that the UK reference price continued to fall behind the EU price. As at week ended 24 July, the EU average price stands at just under 9p/kg more than the UK price, at 136.07p/kg

Economic update

The UK economy has reacted to the uncertainty both in the run up to the UK referendum and subsequent to the vote to leave the EU. This extended uncertainty is now expected to continue for at least two years, the period of exit negotiations.

The uncertainty caused by the referendum has undermined confidence in the UK. Latest figures show that consumer confidence has dropped to -1.7, while business confidence dropped to -5 in July. This fall in confidence will translate in consumers delaying major purchases and businesses delaying major investment decisions. This, in turn, results in a slowdown of growth, which further fuels uncertainty. Growth forecasts have already been downgraded, from 2.5% for 2017, to 0.4%.

In addition, the value of sterling has dropped sharply since the Brexit vote, although some ground was regained in the following days. This will push up the price of imports, although exports will become more competitive.

The UK’s trading relationship with the EU will not be clear until negotiations are completed but, in the meantime, the UK is still part of the single market, and opportunities within this market are also greater, due to UK goods being relatively less expensive than goods priced in euros.

UK pig prices

The EU spec SPP rose once again in week ended 30 July, up 1.11p to 131.39p/kg. While this increase was less than the previous week, it was still a solid rise, and returns the SPP to levels last recorded in September 2015. The current price stands at just over 1.6p less than at the same point a year earlier. With the EU price continuing to increase, coupled with exports to China showing no signs of drawing back, the SPP remains supported. In addition, the weakening of sterling following the Brexit vote continues to increase the attractiveness of domestic pork over its European counterparts.

Estimated slaughterings remained largely stable on the previous week, at 170,500 head. They were modestly up on the same period a year earlier, by 1.4%. Average carcase weights were also largely the same as the previous week, up 0.09kg to 81.51kg, although they were still 1.19kg heavier than at the same point a year earlier.

The EU-spec APP also increased in week ended 23 July, by 2.12p to 132.82p/kg. This reduced the gap between the APP and SPP to 2.54p, which is the lowest since September 2014.

Both 7kg and 30kg weaners continued recording modest price increases, with 30kg weaners increasing by 85p to £44.00/head and the 7kg weaner price growing by 32p to £31.98/head. This now puts 30kg weaners at 15p more than at the same point a year earlier and is the first time that a positive year-on-year difference has been recorded since August 2014. 7kg weaners remain 89p behind the same week in 2015, and returns it to levels last recorded in October 2015.

Japanese pork imports increasing in H1 2016

Japanese imports of fresh/frozen pork increased by just under 13%, to 429 thousand tonnes, in the first six months of the year. This was driven by an increase in shipments from both EU and non-EU countries. The value of these imports increased ahead of volumes, versus the same period a year earlier, by 18% to $2,027 million. This was as a result of the average unit price, in US dollars, increasing by just under 5%.
With the Japanese herd still recovering after the 2014 PEDv outbreak, with recovery starting in earnest in late 2015, demand for imported product has remained buoyant. However, as the recovery continues, it may be expected that demand will begin to taper off as the year progresses.

The United States remained as the main importer to Japan, and volumes remained largely stable on the year earlier. Within this, there was an increase in fresh product, while frozen product volumes decreased. This reflects a shift in focus from the US Meat Export Federation, who are pushing their promotional efforts on chilled cuts, where they can derive the strongest returns. Shipments from Canada and Mexico were up 7% and 8% respectively.

Imports from the EU increased 31% in the first six months of the year. This was driven by an increase from all member states who exported to Japan, with Danish imports up 14%, while Spanish shipments increased more than 34%.

Spanish exports continuing to grow

According to the latest census results, Spain now has the largest pig herd in Europe, and has had the biggest sow herd for a number a years. This has translated into increasing production year-on-year, at a time when demand has been reducing. As a net exporter of pork, Spain has grown its export market to third countries, where demand for pork has been increasing, and looks set to capitalise on these opportunities further.

Belgian pork exports largely stable

In the first four months of 2016, Belgium exported 231 thousand tonnes of pork. This was virtually stable on the same period a year earlier, up less than 1%. However, the value of these exports fell by 6% over the same period, to €354.4 million, as a result of the price of Belgian exports falling by just under 7%. Fellow EU Member States are the main recipients of Belgian pork, accounting for almost 93% of shipments. Exports to third countries have risen, albeit very modestly. While the Belgian authorities signed an export deal with China in 2015, there still only remains a limited number of companies that are accredited to export to China. Further inspections are scheduled that, if successful, could accredit more companies for Chinese export.

Germany remained the main destination for Belgian pork, accounting for over a third of all shipments. However, these were back just under 2% on the same period a year earlier. This was somewhat offset by a rise in exports to Poland, by 6%. These two markets dominate Belgian exports, accounting for two thirds of the market. The smaller markets, predominantly other EU Member States, all recorded falls in exports, most notably the Netherlands, which was down 16%.

Grain Market Outlook

Bookings are now open for AHDB Cereals & Oilseeds flagship annual Grain Market Outlook Conference. The conference takes place on Wednesday 12 October at the Grange Tower Bridge in London. As well as the usual presentations on the outlook for cereals and oilseed markets, the event will consider the implications of the UK’s decision to leave the EU.

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