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AHDB Pork UK Pig Meat Market Update


08 November 2012

BPEX UK Pig Meat Market Update - November 2012BPEX UK Pig Meat Market Update - November 2012

After a long period of stability, dating back to May, GB finished pig prices began to rise during September, against the usual seasonal trend.
British Pig Executive Monthly UK Pig Meat Market Update

UK Prices

The monthly average EU-spec DAPP for September was 152.91p per kg, around 2.5p higher than in August and nearly eight pence higher than last September. The main driver was the tightening of EU pig supplies since the start of August, leading to sharp increases in EU pig prices. This meant that there was lower availability of imports so demand for British pigs was high, while no extra supplies were available. With EU prices remaining high, GB prices continued to rise throughout September and into October. By week ended 27 October, the DAPP had reached an all-time high of 158.79p per kg, more than 12p higher than a year earlier.

The seasonal increase in clean pig carcase weights, which normally begins in June, did not really start until prices began to rise in September. This was because producers were marketing pigs earlier than usual to limit the impact of higher feed prices. As a result, the average carcase weight in the DAPP sample in September was 1.5kg lower than in September 2011 at 78.4kg, although this was around half a kilo heavier than in August 2012. By late October, average carcase weights had increased and were similar to year earlier levels, although they were still around a kilo lower than in October 2010.

Having fallen steadily since the spring, the weaner market reached a low point of just under £39 per head early in September. The average weaner price for the month was £39.02 per head, the lowest since June 2008 but less than 30p below the August average. While prices normally decline during the summer, the fall was sharper this year as higher feed prices reduced the price finishers were willing to pay. With increased confidence in the direction of finished pig prices, weaner prices began to rise again in October, reaching just over £42 per head by the end of the month.

Despite high slaughterings, cull sow prices firmed during September, following developments in the German market, the main destination for British sow meat. Some strengthening of the euro against the pound also helped to support prices. The monthly average price was 112.94p per kg, nearly four pence higher than in August and around seven pence higher than a year earlier. Cull sow prices stabilised at around 114p per kg throughout October as the upward movement in the German market stalled.

EU Prices

The recent pig price increases across the EU continued during September, although the rate of increase was much lower than during August. The EU average reference price was €190.05 per 100kg, an increase of over ten euros compared with the August average and up more than €35 on last September. This was the second highest monthly figure ever recorded, after March 2001 when prices were inflated during the FMD outbreak. The price increase has been driven by tight supplies across Europe, following herd declines in recent years, with the heat wave in southern Europe also contributing by slowing growth rates. Prices began to ease back in early October, suggesting they may have peaked, for the time being at least. By week ended 28 October, the average price had fallen to €185.78 per 100kg.

Between August and September, prices increased sharply across all of the major producing Member States. The most rapid increase was in France, where the September average was nearly €17 up on the August figure. However, all of the major producers recorded month-on-month increases of at least seven euros per 100kg. Prices were typically around a quarter higher than in September 2011.

The rapid rise in EU prices meant that the EU average price during September was higher than the UK reference price. This was the first time this was true of the monthly price since December 2008. By mid October, the EU average had been above the UK price for seven consecutive weeks, the longest such run since July-September 2008.

EU weaner prices have begun to recover from the falls seen since the spring, reaching an average of €45.32 per head in September. This was nearly three euros higher than in August and more than a third higher than a year earlier. The ongoing strong prices reflect lower availability of weaners, as the breeding herd declines, combined with strong demand from finishers. The latter has come particularly from Poland where many producers have switched from breeding; the Polish weaner price was nearly 50 per cent higher than a year earlier.

Driven by tighter supplies and high clean pig prices, sow prices in key EU Member States rose sharply between July and September and have since stabilised. The Danish average sow price rose by nearly a third while German and Dutch prices were up by more than a fifth.

UK Slaughterings and Pig Meat Supplies

UK clean pig slaughterings in September were noticeably down year-on-year for the first time in 2012, although this was partly because throughputs were high last September. The total number slaughtered reached 785,000 head, almost two per cent lower than the same month last year. Throughputs for England and Wales were also down two per cent at 608,000 head. Figures for Scotland and Northern Ireland show that slaughterings were virtually unchanged compared with the previous year at 49,000 and 128,000 respectively. However, for the first nine months of the year, UK clean pig slaughterings were three per cent higher than last year, at 7.4 million head.

The September total for sow and adult boar slaughterings reached 23,800 head. This was around 3,500 head more than AHDB estimates for the same month last year. This means that the number of adult pigs slaughtered in the third quarter of 2011 was 11,000 higher than a year earlier. The continuation of high adult pig throughputs indicates that producers were still struggling as a result of the higher cost of production. The total for the first nine months was 199,000 head, with eight per cent more adults culled compared with the year before.

The average UK clean pig carcase weight in September was more than a kilo below last year’s level, at 77.8kg. This is the largest annual change recorded for the year so far. Carcase weights were lower across the UK but the fall was smaller in Northern Ireland. The combination of lighter weights and lower slaughterings meant that pig meat production in September was three per cent lower on the year at 64,500 tonnes. Total pig meat production for the year to date reached 610,000 tonnes. This was three per cent higher than the same period last year.

Based on the DAPP sample, estimated clean pig slaughterings for the first three weeks of October were close to last year’s levels, with throughputs gradually increasing in the run up to the Christmas market. Carcase weights were marginally lower than October last year, which suggests that pig meat production is likely to be little changed from last year. However, sow cullings continued at a high rate, suggesting herd liquidation and destocking is continuing, despite improved pig prices.

Following the trend seen throughout the year to date, UK pork and bacon imports were again lower than a year earlier in August. Monthly pork shipments totalled 29,000 tonnes, just three per cent lower than in August 2011, while 22,500 tonnes of bacon and ham were imported, two per cent less than a year earlier. Although it remained the largest supplier of both fresh and frozen pork, Denmark continued to ship lower volumes than last year, due to lower domestic production. The rise in German shipments also continued but, in contrast to previous months, the Netherlands also increased the quantity of pork sent to the UK. The rise in Spanish shipments also continued as higher production meant supplies were more plentiful. Imports of Dutch bacon also increased, allowing it to overtake Denmark as the largest supplier in August.

Although fresh pork imports were down by five per cent, shipments of frozen pork were 11 per cent higher than last August. This was largely due to a sharp rise in imports of frozen bellies, mainly from Germany and Ireland. Shipments of fresh bellies were also up by 21 per cent, reflecting rising demand from UK consumers. The rapid rise of processed imports continued in August, with sausage volumes up by 14 per cent year on year to 8,600 tonnes and other processed pig meat products by 43 per cent to 13,500 tonnes. Most major suppliers shipped higher volumes, although there was a small fall in imports from Poland.

UK fresh and frozen pork exports in August were nearly 10 per cent higher than a year earlier at 14,000 tonnes, the first increase since April. Much of the increase can be attributed to shipments to China, which reached over 1,400 tonnes, around 10 per cent of the total. However, shipments to other EU Member States were also higher, driven by a large rise in exports to Germany. Bacon and ham exports continued to be very low, only around a quarter of their level in August 2011, largely due to lower demand from Ireland and the Netherlands, the two main markets.

UK offal exports were lower in August 2012 than a year earlier, despite a doubling of shipments to other EU Member States. This was more than offset by much lower volumes shipped to the Far East, although this is compared with some unusually high figures from August 2011. Despite the fall in August, offal exports for the year to date were still 13 per cent higher than in the same period last year.

Feed Prices

Nearby London feed wheat futures (Nov-12 contract) dipped below £200 per tonne during October, but recovered to settle at £209.50 per tonne on Friday 26 October. US maize futures (Dec-12) fell slightly to £181 per tonne, after a month of daily declines interspersed with occasional large upward movements.

The latest USDA report revised US maize yields down but increased the area. This had the net effect of lowering overall production by 530,000 tonnes. Opening stocks were also seen to be lower, while usage remained largely unchanged. As a result world ending stocks are forecast to be below 14 per cent of demand, down from 15 per cent last season. World wheat production was forecast down by 5 million tonnes to 653 million tonnes, mainly on the back of lower Australian, Russian and EU production.

Ukraine has banned wheat exports, effective from 15 November, in response to a rapid export campaign and lower domestic production. This move was not unexpected and exporters had shipped more wheat than at the same time last year in anticipation of the ban.

UK wheat production was provisionally put at 13.31 million tonnes by DEFRA, citing the lowest wheat yield since 1988 (6.68 tonnes per hectare) as the reason for the low production, despite a larger planted area than in 2011/12. Wet weather and low sunshine during grain fill resulted in the lowest specific weights on record according to provisional AHDB/HGCA Cereal Quality Survey results. Wet weather in the UK is causing planting difficulties for winter sown crops which could potentially point to a lower winter wheat area next year.

In contrast to the UK, other Northern Hemisphere regions have experienced dry conditions for drilling which have caused slow germination and early drought stress in some locations. Recent rains have relieved the immediate moisture concerns across most areas, although large parts of the USA remain in drought. With such a long time between now and harvest, the weather is something to watch but it is too early to draw firm conclusions on any potential yield impacts.

The US soyabean harvest is progressing ahead of last year, with harvest 80 per cent complete by 21 October, compared with 69 per cent on average for this time of year. Chicago Nov-12 futures were worth £358 per tonne at close of play on Friday 26 October, down from £366 per tonne on 28 September.

Brazil and Argentina have begun planting soyabeans, with record South American production anticipated. Weather issues have complicated matters but both countries are still forecasting large plantings. Argentina has received excessive moisture over the last few months, causing planting delays, while Brazil has been generally quite dry with infrequent rain. Production forecasts have so far remained unchanged and the market is now watching the South American weather over the next three months.

UK imported Hi-Pro soyameal was available for £392 per tonne from the east coast on Friday 26 October, down from £425 per tonne as at 27 September.

According to AHDB’s provisional estimates, the cost of pig production was still close to a record high in October, despite having eased slightly since August. The latest estimate puts the full production cost at 167.2p per kg, around three pence lower than the peak two months earlier. The reduced costs are the result of slightly lower quotes for compound pig feed, as prices for some raw materials have eased slightly as the US harvest progresses. Nevertheless, the October estimate is still around 16 pence higher than a year ago.

Although the gap has narrowed as the pig price has increased, the latest cost of production remains around 10p per kg higher than the DAPP. This means that producers are still losing around £10 per pig, although this is much lower than the losses being experienced over the summer. Based on forward feed quotes, production costs are likely to remain close to their current level until next summer, at least. This means that pig prices will need to rise further for the industry to return to profitability.

Consumption

Based on data from Kantar Worldpanel, the average price paid by consumers for fresh and frozen pork in the four-week period ending 30 September was nearly seven per cent lower than in the previous four weeks. The decrease reversed price increases during the previous period and was largely due to lower prices for leg and shoulder roasting joints with only modest price changes for most other cuts. Bacon prices were two per cent up on the previous period but were still lower than a year earlier. Prices paid for sausages were slightly lower than in the previous four weeks, while sliced cooked meat prices were little changed.

In the 12 weeks to 30 September, consumer purchases of most categories of pig meat were higher than in the same period last year. Sliced cooked meats (mainly ham) recorded growth of nearly five per cent, with bacon and fresh/frozen pork up by three per cent and one per cent respectively. However, higher prices meant that fewer sausages were sold than a year earlier, although spending was up three per cent. Within the fresh pork category, the growth of loin roasting joints and pork belly continued but other cuts, notably frying/grilling chops and steaks, were sold in lower quantities.

Looking at the most recent 4-week period, roughly coinciding with the month of September, sales were higher year on year across all pig meat categories. Lower prices helped raise purchases of pork and bacon by two per cent, although spending on both was lower than last September. The rise of pork belly continued, with 28 per cent more purchased than a year earlier. Sales of sliced cooked meats were up by six per cent over the year, with lower prices again a factor. Sausage sales were up by one per cent, while prices were two per cent higher than a year earlier.

The current online grocery market is valued by Kantar Worldpanel at £4.7 billion, with 16 per cent year-on-year growth in expenditure, significantly higher than the 4.5 per cent growth in the total grocery market. Over the past few years, retailers have continued to invest in online and it has recorded growth despite difficult trading conditions.

While fresh protein has been less likely to be bought online, it is now the fastest growing online grocery sector. Ham and sausages recorded double digit growth in the year to 2 September, as did chicken and fish. There was also positive growth for beef, lamb and pork online while volume sales in traditional stores fell. The most important pork cuts online are frying/grilling cuts with a 44 per cent volume share, slightly higher than their share of supermarket sales. Pork roasting joints are less likely to be bought online but there has been growth in other cuts such as belly and ribs.

The habits of online grocery shoppers differ significantly from traditional in-store purchases. Traditional grocery shoppers visit stores just over four times per month with an average spend of £13.73; online purchases are made just over once a month but average spend is £65. There is also greater participation in promotions online, with a heavy bias towards Y for £X volume based promotions.

Over the past year, 22 per cent of GB households have tried online grocery shopping at least once. Retailers are making continued attempts to build loyalty through schemes such as a subscription service, with monthly fees to cover delivery costs and access to priority delivery slots. Technology advances are not limited to those who shop online. Continued investment in schemes such as ‘click and collect’ and ‘self scan’ further merge technology into the modern grocery marketplace.

November 2012

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