BPEX UK Pig Meat Market Update
10 September 2012
The monthly average EU-spec DAPP for July was less than a penny higher than in June at 150.45p per kg and the DAPP remained close to this level throughout July and August. The average price in July was around two pence lower than in July 2011 but by mid August, the DAPP had moved back above its level a year earlier. As pig slaughterings remained high, albeit with lower carcase weights, price stability suggests consumer demand has held up as the weather improved.
The seasonal increase in carcase weights normally seen in July and August has not been apparent this year, largely the result of high feed costs encouraging producers to market pigs earlier. The average carcase weight in July was 77.8kg, slightly lower than in May and more than half a kilo lower than in July 2011. By mid August, weights had only increased slightly and were more than a kilogramme lower than a year earlier.
The decline in weaner prices, driven by high feed prices as well as seasonal factors, continued throughout July and early August. The average price for July was £40.93 per head, two pounds lower than the previous month and nearly five pounds lower than in July 2011. Since then the price has fallen further, reaching little over £39 per head in week ending 25 August. This is the lowest price recorded since June 2008 when feed prices were also at a high level.
Until recently, cull sow prices had also fallen steadily since the spring, largely the result of the weakening euro and the subdued clean pig market in northern Europe due to weak consumer demand. The average price during July was 108.83p per kg dw, nearly seven pence lower than the previous month but still nine pence higher than a year earlier. Following further falls in early August, the price began to recover, following improvements in prices on export markets. This came despite high supplies at home, probably due to some producers destocking as feed prices hit margins.
The EU average pig price during July was €168.92 per 100kg, around one euro higher than in June but nearly €12 higher than a year earlier. This was largely driven by price increases in southern Member States, notably Italy which recorded a rise of nearly €20. French prices increased by four euros and Spanish prices remained high, although they were only slightly higher than in June. In contrast, prices in some northern Member States, notably Germany and the Netherlands, were lower than in June as poor weather continued to hit barbecue demand.
Since late July, pig prices have begun to rise significantly across Europe, in contrast to the normal seasonal pattern of stable or falling prices. The largest movements were in Germany and its neighbours, where the reference price rose by ten per cent in four weeks as supplies tightened and better weather increased demand. The rapid rise in Italian prices continued, with the average price reaching nearly €206 per 100kg, its highest level in more than a decade.
After weakening earlier in the year, the euro stabilised from mid July, rising somewhat from its low point in mid July, when it was worth just below 78p. This meant that, in sterling terms, rising EU prices led to the gap between EU and UK prices narrowing from around 15p per kg in mid July to under seven pence a month later.
As in the UK, weaner prices in the EU have fallen back since the spring as higher feed prices have hit demand from finishers. By July, the average price had fallen below €44 per head, more than eight euros below the peak level. Nevertheless, this price was still nearly eight euros higher than a year earlier. The sharpest falls were in Germany and the Netherlands, where finished pig prices were declining. By mid August, prices had stabilised at around €42 per head, still well above their level a year earlier, influenced by improving pig prices.
Cull sow prices in the key northern Member States fell steadily during the spring and early summer but have since recovered the lost ground. The German M1 sow average for July fell by five cents to €1.34 per kg, although this was still well above last year. By mid August the price had recovered to €1.47. Danish and Dutch average sow prices followed similar trends.
UK Slaughterings and Pig Meat Supplies
UK clean pig slaughterings in July continued at the high levels recorded in previous months with a total of 964,000 head, three per cent higher than in July 2011. Scotland contributed heavily to this increase yet again, as July figures were up ten per cent at 61,000 head. Throughputs in England and Wales were three per cent higher year on year at 750,000 head whereas Northern Ireland figures stood at 153,000 head, a marginal lift from the year before. Clean pig slaughterings for first seven months of the year totalled 5.9 million head, also up by three per cent on the same period last year.
The July total for slaughterings of sows and adult boars came to 26,000 head. According to AHDB estimates, abattoirs were killing a quarter more adult pigs compared with July 2011, partly due to some producers destocking as a result of the rapid rise in feed costs. This accelerated the trend for the year as a whole, with estimated cullings for the year to date seven per cent higher than in the first seven months of 2011.
The average UK clean pig carcase weight for July was marginally higher than July 2011 at 77.1kg. While the average carcase weights for sows and boars recorded a significant decline on the year, this was largely due to an unusually high figure in July 2011. Given the rise in both clean and adult pig slaughterings, pig meat production in July increased by four per cent compared with the same month last year to 78,300 tonnes. Total pig meat production for the year to date reached 482,600 tonnes, an increment of three per cent.
In June, UK pork and bacon imports were both lower than a year earlier by 19 per cent, with a similar reduction in pork imports from the largest supplier, Denmark, while Dutch trade was down by more than half compared with June 2011. In contrast, imports from Germany and France were higher, by 22 per cent and 10 per cent respectively. The average import price at £1.96 per kg was virtually unchanged from a year earlier in sterling terms, although up by as much as 12 per cent in euros, given the weakness of the latter currency.
Across the first half of the year, pork imports declined by 13 per cent. There was a 12 per cent rise in imports of chilled boneless cuts but trade in both bone-in loins and hams was down sharply, by 51 per cent and 39 per cent respectively. An eight per cent increase was noted for sausage imports in the first half of the year, largely resulting from a higher intake in June. Bacon and ham imports were down 11 per cent with an especially marked reduction for the Netherlands, while the average import price was up three per cent.
UK fresh and frozen pork export trade in June was down by 15 per cent, continuing the sluggish performance during the first half of the year. While deliveries to Germany and Denmark were notably higher in June, there were reductions in trade with other significant countries, including Hong Kong. Lower quantities of pig offal were exported in June than a year earlier, while bacon shipments were around three quarters lower. However, there was higher demand for processed British pig meat.
Exports of fresh and frozen pork in January-June 2012 were up just one per cent with the stronger pound contributing to this development. Nevertheless, the value of export sales was up by nine per cent at £86 million. There was little change in UK exports to its three largest markets of Germany, Ireland and the Netherlands although shipments to Denmark were up by as much as a quarter. After increasing sharply in the first half of 2011, trade with non EU-countries eased back in the first half of 2012 with lower shipments to Hong Kong, in particular. In contrast, offal exports have grown by a fifth so far this year, with most big markets increasing their intake with the exception of the Asian markets including Hong Kong/China.
Global grain prices have moved higher since the beginning of August as the drought in the US continued. Despite some encouraging results from wheat crops in the US, the maize crop continued to suffer. As at Thursday 23 August, feed wheat futures for November 2012 delivery closed at £206.40 per tonne, hitting new contract highs in the process. This represented a gain of almost £20 per tonne from a month earlier.
With yields formed in most maize crops the market is now trying to work out how much damage was done and where demand can be rationed. Pollination occurred during some of the hottest weather of the year in early August and the majority of the crops have reflected that in damaged or small kernels. In some states harvest has already started, up to a month earlier than normal and a record early start. The USDA reports that six per cent of the crop had been harvested as of 27 August, compared with two per cent at the same time last year. Recent rains have stabilised the crop condition but were too late to bring about any improvement in yield expectations. In their August supply and demand estimate the USDA wiped 55.7 million tonnes from their US production forecasts, to 273.79 million tonnes. Ending stocks are currently forecast to be 5.8 per cent of yearly demand, at 16.50 million tonnes.
Chicago prices for maize for December delivery closed at $320.77 per tonne (£202.89/t), up from $309.25 a month earlier, suggesting that much of damage to maize crops was already factored into the price last month.
Russian grain estimates have been downgraded by several analysts; the Agricultural Ministry admitted that the harvest was likely to be 75 million tonnes rather than the 75-80 million tonnes previously forecast. SovEcon reduced their forecast to 71-72.5 million tonnes. This is likely to mean a very small export surplus and many analysts are anticipating export restrictions or tariffs by the end of 2012. An all out ban looks unlikely due to Russia joining the WTO, although restrictions on exports are allowed to protect domestic supplies.
The UK harvest is in full swing, although we are no closer to getting a consensus on yield or quality of the wheat crop. Specific weights have been lower than average, although they are anecdotally improving as harvest continues, and are still likely to be a big issue for the 2012 crop. The Ensus biofuel plant on Teesside will start production shortly, with the capacity to consume one million tonnes of feed wheat and producing 350,000 tonnes of DDG high protein animal feed.
Imported Hi-Pro soyameal prices on the east coast were £438 per tonne as at Friday 24 August, up by £9 from last month. US soyabean crops were rated at only 30 per cent good/excellent in the latest USDA crop progress report, down one per cent on the month. Prices are still driven by the US drought although high prices are likely to encourage large plantings by South American farmers in Brazil and Argentina.
AHDB estimate the cost of pig production in August at just over 170p per kg. This is nearly eight pence higher than in July as the rapid rise in global cereal and oilseed prices feeds through into the cost of pig feed. The latest figure is the highest monthly estimate ever and is over 12p per kg higher than in August 2011. This contrasts with pig prices, which are little different to their level a year ago. The August estimate is around 20p per kg above the current level of the DAPP, equivalent to an average loss of over £15 per pig. This is the worst financial situation faced by pig producers since April 2011, although they have been in a loss-making position through virtually all of that period.
In the 12-week period to 5 August 2012 purchases of fresh and frozen pork were two per cent lower than in the same period of 2011. The rate of decline has slowed compared with the fall of three per cent in the 12 weeks to 8 July. The key drivers of the fall were chops and leg roasting joints, which were down by 15 per cent and 32 per cent respectively. In contrast, loin joints and belly continued to perform well with shoulder joints also performing well in the latest period. Purchases of both belly and shoulder on promotion were double the same period last year. Overall, in the fresh and frozen pork category purchases on promotion have increased from 37 to 39 per cent.
Bacon purchases were slightly down on last year, the first negative performance since the beginning of the year. However, the equivalent period in 2011 was particularly strong for bacon and this year’s purchases were 10 per cent higher than in 2010, with rasher purchases driving this. Sausage purchases were also slightly down while sliced cooked meats were up by three per cent year-on-year after a period of decline.
Over the quarter, expenditure on fresh and frozen pork increased by one per cent year on year with sausages and sliced cooked meats also recording growth. Bacon expenditure was down by two per cent, the first year on year decline in over 3 years, although compared against a strong performance and higher average price last year.
In the latest 4-week period the trends seen across the quarter continued for the majority of pig meat products. The exceptions were chops returning to growth after a period of decline, with purchases up by two per cent, and bacon purchases also increasing marginally year on year. Particularly strong sales of belly, loin and shoulder joints led to overall fresh and frozen pork purchases being four per cent higher than in the same period last year.
So how are the trends seen at retail level transferring to the plate? In-home consumption of pork cuts declined slightly over the year to May 2012, with the number of meal occasions that included a pork cut falling by two per cent. Consumption of beef and lamb fell more than pork, with a three per cent decline for beef and a 13 per cent decline for lamb. Bacon fared better, supported by a strong rasher performance. The consumption of bacon cuts increased by two per cent to over 1.6 billion meal occasions; rashers accounted for 79 per cent of this figure. Poultry consumption also grew by two per cent.
Looking at joints, bacon/gammon currently account for a higher number of meal occasions than pork, beef or lamb. However, overall consumption levels across all of these meat cuts fell year on year, with the number of Sunday roast meal occasions declining by one per cent year on year. Pork Sunday roasts have seen growth of one per cent with poultry accounting for the lion’s share of roasts and growing by four per cent year on year.
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