BPEX UK Pig Meat Market Update
03 October 2012
The GB pig market in August remained relatively stable as the trend seen since May continued over the holiday period. With only a marginal fall of 0.05p per kg, the average EU-spec DAPP for August came to 150.40p per kg. However, this was nearly two pence higher than the same month last year, when prices had begun their normal seasonal fall. This year, prices in August were supported by higher prices and lower availability of imports, given rising quotes in the EU, while demand was generally firm. With EU supplies remaining tight, GB prices began to rise in September, against the normal seasonal trend and by week ended 22 September, the DAPP had reached 153.46p per kg, more than eight pence higher than a year earlier.
As in July, the average carcase weight only increased marginally during August and early September, at a time of year when weights are normally increasing. At 77.9kg the average carcase weight in the DAPP sample in August was fractionally higher than the July average but more than 1.3kg lower than in August 2011. This is probably a result of producers marketing the pigs earlier than usual as they struggled to break-even due to rising production costs.
The weaner market continued to fall during August, reaching a four-year low, with high feed costs limiting the amount finishers were prepared to pay, given uncertainties about future pig prices. As a consequence, the average weaner price for August fell to £39.31 per head. Producers were selling their weaners for £1.62 less than in July and £3.50 less compared with August 2011. By early September, the price had stabilised at around £39 per head as confidence about the direction of finished pig prices began to improve.
The average monthly price for cull sows reached 109.21p per kg in August. This was 0.38p higher than July, although the annual gap was more significant, with a 5.54p increase compared with the same month last year. Despite a higher number of sows in the market, the firm price indicates that export demand held up well. Most of our sow meat is exported to Germany, so the recent increases are largely a consequence of increases in the German prices, due to tight supplies of clean pigs. Prices had increased to around 112p per kg by early September.
Continuing recent pig price increases, there was a further significant rise in the EU average reference price for August, as the value of a finished pig reached €178.36 per 100kg. This was an increase of over €9 on the month and compared with the same month last year pigs were around €23 per 100 kg more expensive. Such drastic change is a consequence of tight supplies across the EU, along with robust demand as the weather improved in northern Europe. The forthcoming sow stall ban may also have played a role in the recent supply issues.
Comparative EU Pig Prices
(as at 16 September)
The three main southern Member States all contributed to the increase. Italian prices increased by a notable €18, following a similar increase in July. French prices were up by six euros on the month, while prices in Spain rose by just three euros but were still up nearly €19 compared with the corresponding period last year. Hot weather conditions, particularly affecting Italy, have slowed the growth rate of fattening pigs and led to lower carcase weights, contributing to the tightening of supplies.
Similarly, the northern Member States experienced rapid pig price inflation, with German and Dutch prices up by €16 on the month, although Danish prices rose by only five euros. Improved weather has led to robust demand for pig meat at a time when pig supplies were tightening on key markets, with increased weaner exports a contributory factor.
The rapid rise in EU prices meant that the gap between EU and UK prices closed throughout August and by week ended 15 September, the EU average price was above the UK reference price by as much as four pence per kg, the largest gap since January 2009.
The average weaner price in the EU for August fell to €42.41 per head, a little more than one euro lower than July but around €9 higher than the same month last year. The sharpest falls came in southern Europe, with the Spanish and French prices down by five and four euros respectively. In contrast, the German and Polish weaner markets remained firm in August, as higher demand further encouraged prices. In early September, prices edged higher but the Polish price reached its highest level for three years. Fewer weaners in the EU, due to a fall in the breeding herd, combined with higher demand from markets such as Germany and Poland is the main reason for the recent improvement in prices.
UK Slaughterings and Pig Meat Supplies
UK clean pig slaughterings in August were again about three per cent higher than a year earlier at 782,000 head. The largest increase was again in Scotland, up by 21 per cent year on year at 52,000 head. Throughputs in England and Wales were one per cent higher at 601,000 head whereas the Northern Ireland figure stood at 129,000 head, seven per cent higher than in August 2011. Clean pig slaughterings for the first eight months of the year totalled 6.6 million head, also up by three per cent on the same period last year.
The August total for slaughterings of sows and adult boars was 21,100 head. This was around 2,400 higher than in August 2011 and follows an even larger increase in July, providing further evidence that some producers are destocking in the face of increased feed costs. So far this year, 175,000 adult pigs have been slaughtered, seven per cent more than during the same period last year.
The average UK clean pig carcase weight for August was marginally lower than in August 2011 at 77.7kg, as higher weights in Northern Ireland partly offset lower GB weights. Given the rise in both clean and adult pig slaughterings, pig meat production in August was more than three per cent higher than a year earlier at 63,900 tonnes. Total pig meat production for the year to date reached 545,800 tonnes, an increment of three per cent.
Based on the DAPP sample, estimated clean pig throughputs in early September were slightly lower than a year earlier, although this is partly due to high slaughterings last year. With carcase weights also lower, pig meat production in September may be lower than a year earlier for the first time since February, although any fall will be mitigated by continuing high levels of sow cullings.
UK pork and bacon imports were again lower than a year earlier in July, although the falls of seven and one per cent respectively were lower than in most recent months. Monthly pork shipments totaled 29,200 tonnes, while 20,000 tonnes of bacon and ham were imported. Continuing the trends seen earlier in the year, falling shipments of pork from Denmark, the Netherlands, Ireland and Belgium were partly offset by increased volumes from Germany, France and Spain. Germany has now clearly overtaken the Netherlands as the second largest supplier of imported pork to the UK market. The weaker euro meant that unit prices were three per cent lower than in July 2011 at £1.92 per kg. However, the trend was different for bacon and ham, with Dutch shipments up by 16 per cent while Danish and German volumes were down.
The recent trend towards increased shipments of boneless cuts at the expense of bone-in hams and loins continued in July, with the latter down by 39 and 47 per cent respectively. The rapid rise of processed imports also continued, with sausage volumes up by five per cent, to 8,300 tonnes, and other processed pig meat products by 46 per cent to 14,200 tonnes. Ireland and the Netherlands performed well in both processed categories.
UK fresh and frozen pork exports in July were down by two per cent year on year, continuing the recent subdued performance. July was the first full month of pork shipments to China, which reached just over 1,000 tonnes. However, this was offset by a sharp fall in shipments to Hong Kong. Within the EU, shipments to Ireland, the Netherlands and Belgium were down but this was more than offset by increased exports to other Member States, notably Germany and Denmark. This came despite much higher unit prices due to the strength of the pound against the euro.
UK offal exports were also lower in July 2012 than a year earlier. Increased shipments to other EU Member States were more than offset by lower shipments to Far Eastern markets. Although volumes were relatively small, exports of processed pig meat products were higher, with sausage volumes nearly doubling but bacon/ham shipments were lower, largely due to a decline in Irish demand.
Global grain prices have remained fairly stable over the last month, with November 2012 LIFFE feed wheat closing between £200 and £207 per tonne every day since 20 August. Chicago maize for December 2012 movement has slipped slightly, from £209.47 per tonne on 21 August to £181.31 per tonne on 19 September.
Commodities in general rallied earlier this month on the back of new Quantitative Easing (QE3) from the US Federal Reserve, which in effect weakens the US dollar. This was then followed by a sell off by investors over macro-economic issues.
The latest USDA report further revised down US maize yields by 0.6 bushels per acre (0.05 tonnes per hectare), but left the abandonment figure unchanged. This leaves room next month for reduced production as analysts are generally expecting a higher abandonment figure than the current nine per cent. Historic data suggest that up to 14 per cent can be abandoned in difficult years. The harvest is progressing about three weeks earlier than usual and as at 16 September, 26 per cent of the crop had been harvested compared with the nine per cent usually expected at this stage.
Russian wheat is becoming gradually uncompetitive in export tenders for November and so far none has been offered for December movement. This suggests that no official export restrictions will be needed, although the options do remain open if required. Lower yields than expected in central Russia have further reduced analyst’s forecasts for wheat and total grain production. IKAR and SovEcon both forecast Russian wheat production below 40 million tonnes. In 2010, 41 million tonnes of wheat was grown, although total grain production is estimated well above that of 2010. In that year 61 million tonnes of grain was produced, whereas forecasts this year are for 69-70 million tonnes.
The domestic harvest is coming to a close with 95 per cent of wheat cut in GB. Only a small area of wheat remains, almost exclusively in Scotland, and the spring barley harvest is progressing well. Specific weights for wheat are well below average, and are the main issue for both milling and feed blending supply chains. Specific weights in the South and Midlands have been some of the lowest on record.
US soyabean crops have also started to be harvested, and were 10 per cent complete as at 16 September. This was ahead of the four per cent average at this date. Anecdotally, yields were higher than anticipated and prices have slipped to reflect this. The South American planting season is due to start within the next week or so and conditions were said to be generally good, although slightly wet in Argentina and slightly dry in Brazil. Chicago futures for November 2012 movement were £365 per tonne at close of play on 20 September.
UK imported Hi-Pro soyameal was £400 per tonne from the east coast on Friday 21 September, down £38 per tonne on the month.
Total Cost of Pig Production Compared with the DAPP
AHDB’s provisional estimate for the cost of pig production in September was marginally lower than the August estimate at just under 169p per kg. The reduction is the result of slightly lower quotes for compound pig feed, although prices for the main feed ingredients remain high and there has been little sign of them easing. Price rises have been mitigated somewhat by further improvements in physical performance, slightly reducing estimates of production costs for recent months.
The September estimate is still nearly 7p per kg higher than in July and more than 20p higher than at the start of the year. This is almost entirely due to rising feed prices as non-feed costs are less than a penny per kg higher than they were in January. The latest figure is nearly 15p per kg higher than the estimate for September 2011. Pig prices are currently around 5p per kg higher than the average for last September but are about 18p lower than the current cost of production. This is equivalent to a loss of over £14 per pig, slightly lower than in August, meaning that pig producers are collectively losing nearly £2.5 million each week.
Based on data from Kantar Worldpanel, the average price paid by consumers for fresh and frozen pork in the four-week period ending 2 September was nearly five per cent lower than in the previous four weeks at £5.23 per kg. The increase was largely due to higher prices for roasting joints with little change in prices for most other cuts. Bacon prices were three per cent down from the previous period and were lower than a year earlier. Prices paid for sausages were slightly lower than in the previous four weeks but higher than a year earlier, while the opposite was true of sliced cooked meats.
In the 12 weeks to 2 September 2012, overall consumer purchases of pig meat were higher than a year earlier. Both bacon and sliced cooked meats were up three per cent but purchases of pork and sausages were both down two per cent. Within the fresh pork category, the most significant movement was the continuing shift from leg to loin roasting joints, with purchases of the former down 26 per cent and the latter up by 27 per cent. Belly’s strong performance continued, with purchases up nine per cent, while chops and steaks were both down.
In the most recent 4-week period, many of these trends continued, with bacon purchases up by as much as seven per cent. Sausage sales were almost the same as last August but fresh/frozen pork was down three per cent. Leg joints performed better than recently, with purchases up 19 per cent, mainly at the expense of shoulder joints which were down 33 per cent. Expenditure was up across all categories, as prices for sausages and fresh/frozen pork were higher than a year earlier.
Trends in Retail Meat Purchases (Period Ended 2 September 2012)
Earlier in the summer, the nation celebrated the London 2012 Olympics but which meats did people eat while watching the games? Growth in both expenditure and quantity made pork the gold medallist, up eight and nine per cent respectively on the same period last year. This was ahead of chicken in silver (up seven per cent in value and five per cent in volume) and in bronze position was turkey (up two and four per cent). Lamb was just outside the medals in fourth with a slight fall in expenditure but six per cent increase in the amount purchased, while beef lagged well behind with a three per cent fall in spending and an 11 per cent fall in volumes.
It might have been expected that traditional party foods such as sausage rolls and pork pies would perform well as quick convenient snack foods to consume whilst watching the games. However, they suffered as price-conscious consumers noticed the large year-on-year price increases of 17 and 14 per cent respectively. Convenience however had not gone away and there were increased purchases of pizza. The recent emergence of pork marinades continued with an increase of 85 per cent and the improvement in the weather during the Olympic period, and perhaps the successes of Team GB, drove the traditional British summer BBQ occasion as sausages and burgers both saw volume growth in both fresh and frozen formats.
Sales of those products that gained momentum while the games were on peaked during the second week, while beef and lamb, which started well in the first week, fell back in the second. The momentum built up by “Super Saturday” resulted in stronger sales for barbecue products as the final weekend approached and Usain Bolt won his third gold, Mo Farah his second and consumers prepared for the closing ceremony.
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