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AHDB European Market Survey


13 February 2012

AHDB European Market Survey - 10 February 2012AHDB European Market Survey - 10 February 2012

European finished pig prices remained at a high level through the second half of 2011. Normally, prices fall during the autumn before recovering slightly in the run up to Christmas.

AHDB

EU pig prices remain high during 2011

European finished pig prices remained at a high level through the second half of 2011. Normally, prices fall during the autumn before recovering slightly in the run up to Christmas. This year, there was little sign of the seasonal fall and prices actually increased during October and November. They reached a peak of over €160 per 100kg in early December, their highest level since October 2008. Prices at this level are unprecedented at this time of year and the average was €23 higher than in December 2010.

Production of pig meat during 2011 was around two per cent higher than in 2010, although supplies were becoming tighter towards the end of the year. With the economic situation remaining difficult, consumer demand was subdued, particularly in Southern Europe. Instead, the main driver of firm prices was strong export demand, particularly from the Far East. Disease problems have led to reduced production in that region, most notably in China and South Korea, which resulted in a sharp increase in imports from the EU. Overall, exports of fresh and frozen pork from the EU between January and November 2011 were 25 per cent higher than a year earlier. Exports of processed products and offal rose at a similar rate.

Pig reference prices for EU and selected Member States, 2011

In North West Europe, prices followed a very similar pattern to the EU average. German prices remained at just below €160 per 100kg for much of the year before rising to over €165 in November and December. Prices in the Netherlands and Denmark followed a similar trend, albeit at a lower level. Prices in France rose even more sharply, increasing by 13 per cent between the end of September and mid November, peaking at €161 per 100kg, briefly above the EU average for the first time since early May. Polish prices rose later than elsewhere, peaking just before Christmas at €167 per 100kg.

Amongst major producing Member States, only Spain experienced declining prices during the autumn. Having been well above the EU average in the summer, Spanish prices fell below average during October and continued to fall to finish the year below €150 per 100kg.

Since Christmas, prices across Europe have fallen sharply. From over €160 per 100kg in week ended 18 December, the EU average price fell to below €149 in week ended 22 January 2012, before recovering slightly the following week. This fall was reportedly the result of reduced consumer demand after the holiday period, along with a slowdown in export demand once supplies for the Chinese Spring Festival had been shipped. However, tightening supplies of pigs are now beginning to push prices higher and there are reports that export demand is beginning to pick up again.

Sharp rise in Chinese pig meat imports

China’s economy has grown at about eight per cent per year over the last two decades. Increasing incomes have led to a changing food consumption pattern, in particular, an increasing consumption of meat. Pork has historically been the primary animal protein source in Chinese diets, and its consumption level has increased significantly.

Similarly, Chinese pig production has increased over the past 20 years at an average rate of 2.1 per cent per year. However, at the same time, production costs have also risen, squeezing profit margins from many backyard producers despite relatively high pork prices. In 2011 pork production in China declined by three per cent as low prices through the first half of 2010 encouraged many smaller producers to exit the industry. In addition, producers were faced with unusually severe and persistent outbreaks of animal diseases, such as FMD, PRRS and pig epidemic diarrhoea in piglets in late 2010 and early 2011.

Imports of pig meat have risen dramatically to fill the resulting supply gap. Official trade figures indicate that Chinese imports of fresh and frozen pork were up 134 per cent compared with 2010. The average price of imports was up 65 per cent in renminbi term due to a combination of rising prices and an increasing share of more expensive cuts.

In May 2010, the United States resumed exports to China following the lifting of trade restrictions on pig meat associated with A-H1N1 influenza. This enabled the US to account for over half of all pork imports in 2011, compared to just 15 per cent the year before. According to Chinese data, some of this rise came at the expense of Denmark, whose shipments declined by 17 per cent. However, this contradicts Danish trade figures which show increased shipments, albeit from a lower base. Other EU Member States shipped increased quantities, particularly Spain, France and Germany. Overall imports from the EU increased by 24 per cent compared with 2010 levels. Canada was the other major supplier of pork to China and its shipments increased by 27 per cent in 2011.

Similarly, the total volume of offal imports to China increased by 26 per cent compared with a year ago. This coincided with a 23 per cent increase in the renminbi unit price of offal imports. Again, the growth in offal imports was mainly made up of increased shipments from the US. This was partly offset by reduced volumes from Denmark and Canada, previously the two largest suppliers, although again this contradicts the trends recorded in those countries’ trade data.

Fuelled by increased prices, China’s pork producers have steadily expanded the herd size during 2011 and this will help boost pork output in 2012 according to the USDA forecast. In addition, production growth is also being supported by China’s decision in July 2011 to resume a 100 Yuan ($15.60) per sow subsidy and introduce other policies to encourage herd expansion. Nevertheless, imports are likely to continue to grow in 2012, fuelled by relatively strong economic growth and continued firm demand for pork. Additional countries will have access to the Chinese market during 2012, including Brazil and more EU Member States.

February 2012

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