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AHDB Pork UK Pig Meat Market Update


02 April 2013

BPEX UK Pig Meat Market Update - April 2013BPEX UK Pig Meat Market Update - April 2013


British Pig Executive Monthly UK Pig Meat Market Update

UK Prices

GB finished pig prices continued their seasonal decline into February. The average EU-spec DAPP for the month was 156.21p per kg; this was a three pence decline month on month. Typically demand during this time of the year is subdued after the peak at the Christmas period which is the main factor dragging pig prices down. Nonetheless, producers received nearly 17p per kg more for their pigs in February compared with the corresponding month in 2012. Supplies were plentiful during the month, slightly above last year’s level, and while demand remains sluggish, the relatively high EU prices, helped by the weaker pound, continued to influence our prices. The DAPP picked up slightly during the first half of March, reaching 156.31p per kg for the week ended 16 March.

Average clean pig carcase weights have moved very little since the start of the year and the average for February stood at 80.16kg. This was almost in line with the month before and an annual comparison also showed only a small rise. However, it was the highest monthly average recorded for two years and reflects the relatively good growing conditions during the autumn and early winter. Carcase weights have remained close to 80kg into mid-March with no sign of the normal seasonal decline which typically begins during the month.

The price of an average 30kg weaner edged up by a small amount in February, at £46.38 per head. Weaner price growth is likely to have been constrained by the relatively weaker DAPP since the start of the year but some decline in the feed wheat and soya prices in recent weeks has helped ensure prices didn’t decline. At the February average, the weaner price was £2 above last year’s level. The weaner market began to show signs of life during March, as the finished pig price showed signs of starting to turn, increasing to £47.74 per weaner for the week ended 23 March.

After the 10p drop in the January sow price, the February average reached 99.72p per kg. This was nearly five pence higher compared with the month earlier. The majority of this rise came from strengthening EU sow prices but further weakening of the pound against the euro also helped to support firmer prices. Despite the increase, the latest monthly sow price was nearly 15p lower compared with February 2012. The rise in the cull sow prices continued in the first three weeks of March but at a slower pace, with the average reaching 106.76p per kg by week ended 16 March, the highest level since early December. However, this was still 13p down on a year earlier.

EU Prices

The average EU pig price for February was almost in line with the month earlier at €171.13 per 100kg, an increase of less than one per cent. There was slow growth in the EU pig prices during February, with only a small €3 rise during the month at a time of year when prices are normally rising more rapidly. Nevertheless, the monthly average was over €13 higher than in February 2012. While the price was above €173 in the first week of March, this was followed by a small decline in the following two weeks. For the week ended 17 March, EU pig prices fell marginally to €172.11 per 100 kg. At the latest average, the price in the EU was just over €11 above the same week last year.

Although the average price across Europe remained relatively stable, reportedly partly due to subdued demand both in the EU and in export markets, some Member States recorded increases. Over the four weeks of February, prices rose by over €8 in Spain and €6 in France and Poland, although in the two latter countries falling prices during January meant that the monthly average was little changed. In contrast, Danish prices were flat during the month (and lower than the January average) while Italy joined the UK in recording falling prices. German prices followed a similar trend to the EU average, with February’s average one per cent higher than the previous month.

In euro terms, the fall in the UK reference price was exacerbated by the weakening pound. The difference between the two prices was €6 per 100kg in February, significantly lower than the previous month. Prices in March have so far recorded further convergence with the gap closing to just under €2 per 100kg.

The EU weaner price in February averaged €50.28 per head, a three per cent increase on the month. At this price, the producers received just one euro more than the corresponding month in 2012. So far this year, prices have followed the normal seasonal trend, increasing in anticipation of rising finished pig prices during the spring and summer. While prices remained firm since the start of the year, during mid-March average EU weaner prices began to stabilise, as is typical at this time of year.

Having fallen during January, sow prices in the key EU Member States increased rapidly during February as consumer demand returned. As a result, average prices in February were a few cents higher than the previous month. The German M1 sows averaged at €1.31 per kg, up three cents on the month, and had reached €1.35 per kg by the end of the month. Sow prices in Denmark and the Netherlands increased by a similar amount. However, across all three of these markets, prices were lower than in February 2012, perhaps partly due to higher sow slaughterings during the month.

UK Slaughterings and Pig Meat Supplies

UK clean pig slaughterings in February 2013 totalled 783,000 head. This was nearly two per cent higher than in the same month last year, a bigger uplift than that recorded in January. This figure suggests there have been further improvements in sow productivity, particularly given the decline in the breeding herd recorded in the December census. Good growing conditions during the autumn and early winter were probably also a factor. Scottish throughputs were again less than half their level in February 2012, with most of these pigs transferring south of the border; slaughterings in England and Wales were seven per cent higher year on year. Throughputs in Northern Ireland were two per cent higher than last February.

Adult pig slaughterings increased somewhat in February to 20,200 head. This was around six per cent higher than in February 2012, meaning the total for the first two months of the year was up two per cent. The improvement in cull sow prices during February will have contributed to some increase in herd replacement, especially given the high number of maiden gilts recorded in the December census. However, with producers still losing money, some may still be reducing their herd size.

For the second consecutive month, UK clean pig carcase weights were at record levels, given near record weights recorded in both England and Northern Ireland. The UK average for the month was 79.83kg, marginally higher than in January and over half a kilo up on a year earlier. This is likely due to the good growing conditions in the autumn and early winter. As a result, UK pig meat production was up three per cent on February 2012 at 65,500 tonnes.

Based on the DAPP sample, clean pig slaughterings began to tighten during the first half of March, with estimated throughputs falling below year earlier levels for the first time since the New Year. This may be the first signs of the expected reduction in pig numbers due to the contraction in the breeding herd since last summer.

During January, UK pork imports were up two per cent year on year, a similar position to most recent months. The increase was mainly due to higher German shipments, which were up by a quarter. Shipments from most other major suppliers were similar to or slightly higher than last year. However, imports from France were more than a third lower than last January. Although only accounting for about a fifth of shipments, frozen imports were up by a quarter, with most of the increase drawn from the Netherlands. This helped to limit the rise in unit prices to four per cent, with the average price 199p per kg, the lowest level since August. As a result, the value of imports in January was up six per cent year on year at £56.2 million.

Cured pig meat imports were seven per cent lower than in January 2012, mainly because of a 19 per cent fall in Danish supplies. The fall was partly due to higher unit prices, which were up 10 per cent at 257p per kg, meaning the value of cured imports was up three per cent at £47.7 million. The upward trend in processed pig meat imports appears to have stalled. Despite an increase in sausage shipments, overall processed volumes were unchanged from last January, in contrast to the strong growth throughout 2012. Again, price was a factor with the average unit price of processed pig meat (excluding sausages) up 19 per cent year on year.

UK pork exports increased on the year in January, the sixth consecutive month of growth, with shipments up by nine per cent to 12,200 tonnes. Frozen shipments rose by a third but fresh volumes fell five per cent. This reflects the ongoing shift towards non-EU markets, led by China, which accounted for almost a third of shipments. However, as well as the 1,700 tonnes sent to China, volumes destined for the Netherlands almost doubled, while the German market remained the largest with an eight per cent increase in shipments. The increased trade with non-EU markets, which generally involved lower-priced cuts, meant that unit values were down two per cent at 117p per kg so the value of exports was only seven per cent higher at £14.2 million.

As has been the case in recent months, the increase in pork exports was more than offset by a sharp fall in exports of cured pig meat, which were only a quarter of their level in January 2012. Both the main markets, Ireland and the Netherlands, which between them account for three-quarters of exports, recorded similar falls. Increased exports of sausages and offal helped ensure that overall pig meat exports were only slightly lower than a year earlier. Offal exports were up six per cent year on year at 2,600 tonnes but, in contrast to some recent months, shipments to the rest of the EU were down 30 per cent.

Feed Prices

Both LIFFE and CBOT wheat futures contracts (May delivery) declined in price over the month ending 19 March. CBOT prices are down three per cent while LIFFE wheat prices decreased by five per cent to £197.75 per tonne. This was largely a result of an easing in the US drought with blizzards seen earlier in the month over the US plains. More rain is forecast and the situation continues to improve, with the condition of the wheat crop reported to be looking better. Specific to the UK, the price decline has been accelerated by some strengthening of the pound, following the falls earlier in the year.

March’s USDA supply and demand estimates helped to ease wheat prices, as US and world wheat stocks were both increased slightly. However, in the latest week, CBOT prices recovered slightly due to better than expected US wheat sales, which fuelled speculation that the recent price decrease has stimulated additional demand. For the UK, combined survey data from AHDB/HGCA, Scottish Government and DARD shows that by 1 December 2012 less than 1.5 million hectares of wheat had been planted, down 25 per cent on the same point in 2011. The crops are generally seen to be in poor condition following on-going wet weather.

In contrast, CBOT maize prices increased by five per cent over the month. This reflects the tight stocks seen for the grain; US end-stocks are forecast at the lowest level for 17 years, representing only a three week supply. The latest USDA report kept US ending stocks unchanged contrary to analyst expectations as demand from the ethanol and animal feed sectors is seen to be increasing.

Global soyabean prices have drifted lower this month; the May CBOT contract was down five per cent at $516.84 per tonne. At the forefront of investor minds is the upcoming record harvest from South America, where Brazil is expected to exceed US exports for the first time. This, combined with a general reduction in demand in anticipation of the cheaper South American crop, has meant that the price of soyabeans has been on a downward trend.

The Brazilian harvest is currently underway, with just over half the forecasted crop harvested so far. Logistical problems are slowing down the delivery of soyabeans to the export market and as a result the downward swing in prices is being limited. Argentina, the third largest producer of soyabeans, has also begun harvesting. Recent rains have helped replenish soil moisture levels although low temperatures now pose a risk for late-planted soyabean yields. The latest USDA report left US supply and demand estimates unchanged, despite increasing export sales recently. The Brazilian production figure was also kept at 83.5Mt but Argentina’s production was decreased by 1.5Mt due to unfavourable weather conditions.

Domestically, UK oilseed rape plantings for 2013, as at 1 December, are estimated to be down one per cent but were still historically high. However, a decline in harvested area is likely due to abandonment of areas where crops have established poorly.

Latest AHDB/BPEX provisional estimates for the average cost of pig production in March show they were over a penny lower than in March at just over 162p per kg. This is largely the result of a further easing of feed prices, with both wheat and soya prices lower. Despite these falls, feed continues to make up 65% of the overall cost of production and is the main reason why it remains high; at their current level, costs are around 9p per kg higher than in March 2012. Nevertheless, they are around 5p lower than three months earlier.

Despite their position having improved somewhat in recent months, producers are still making significant losses. Based on the current level of the DAPP, producers will lose around 6p per kg during March, equivalent to around £5 per head. Forward feed quotes suggest that the cost of production will remain high until after this year’s harvest so pig prices will need to increase before producers return to profitability. The situation may ease following the harvest, although this will depend on global weather conditions and the level of pig prices as the year progresses.

Consumption

Recessionary and cultural changes have impacted the way consumers shop for proteins over the last few years. Consumers are ever more conscious of price and are on the lookout for products that offer the best value, even though these may not necessarily be the lowest priced. Within red meats, there has been a long term trend for cuts that are more versatile and convenient, such as mince, to out-perform the more traditional stewing and frying/grilling cuts, as shoppers are increasingly pressed on both budget and time.

Lamb legs have recently been heavily promoted across a number of retailers meaning that they are at a very attractive price point for consumers. As a result consumers are switching into lamb legs from other red meat. Household penetration for lamb in the 12 weeks ending 17 February reached 38 per cent, which is the highest point seen since June 2011. Lamb purchases were higher than at any point during 2012, including popular occasions such as Easter. This strong performance over the last few months has had a knock-on effect to all other proteins. Volumes have been lost from pork leg/shoulder joints and some beef joints over the year. There has also been switching away from other cuts, such as pork chops/steaks and even mince beef as consumers make the most of the promotions.

As well as consumers switching from pork into lamb, it has also lost out to fresh beef and poultry. As a result, in the latest 12 week period, quantities purchased were six per cent lower than a year earlier. Expenditure increased, however, due to average price rises. Purchases of pork chops/steaks were down 11 per cent, while pork shoulder and leg roasting joints also continued to record declines compared with last year. For shoulder joints this decline was driven by consumers buying smaller packs, while fewer households were purchasing leg joints.

Trends in Retail Meat Purchases (Period Ended 17 February 2013)

Q = quantity purchased, E = expenditure, P = price
Source: Kantar Worldpanel

Sales of pork loin joints continued to perform very strongly, but this has come partly at the expense of other pork cuts. More households were buying loins as consumers switched from other pork joints and it continues to be popular with two person households. As a result, in the last 12 weeks, loin joint purchases increased by a third, driving expenditure growth of 53 per cent. Pork loin is one of the few joints to not be losing out to lamb leg joints.

Even processed products have lost out to fresh lamb in the latest 12 weeks. Bacon and sausage consumers switched to lamb and poultry and amounts purchased declined as a result. Again, price rises for both products boosted expenditure overall. Bacon rashers and bacon joints both saw volumes down year on year but purchases of bacon steaks increased, resulting in expenditure growth of six per cent. Low fat sausages, although a small share of the market, saw volume purchases up 11 per cent, as household penetration increased.

Volume purchases of ham increased one per cent in the latest 12-week period, although a reduction in the average price resulted in a one per cent decline in expenditure.

The horse meat investigation may begin to alter purchase habits for processed meat products and in the latest 12 weeks, sales of chilled and frozen ready meals were down year on year, although beef mince volumes remained static. However, at this stage it is hard to evaluate how much of the change can be attributed to concerns around the horse meat investigations, and how much was due to the removal of products from shelves by some retailers. This will be monitored upon release of the retail results over the next few months.

April 2013

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