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AHDB Pork UK Pig Meat Market Update


31 May 2013

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


British Pig Executive Monthly UK Pig Meat Market Update

UK Prices

GB finished pig prices increased steadily during April and the monthly average price of 160.94p per kg was only fractionally lower than the all-time high recorded in December 2012. It was around 4p higher than the March average and nearly 15p up on April 2012. Increasing prices are normal at this time of year, typically driven by tightening supplies and higher EU prices. However, this year, supplies have remained relatively plentiful and EU prices have been subdued. Therefore, the increase appears to be down to an increased retailer preference for assured British pork, in the wake of the horse meat issues earlier in the year. In late April, the DAPP passed the record level recorded in the week before Christmas 2012 and has continued to rise since then, reaching 164.39p per kg in week ended 25 May.

So far this year, carcase weights of pigs in the DAPP sample have remained above seasonal norms. The weekly average has remained above 79kg throughout and the monthly average for April was 79.30kg, up over half a kilo on a year earlier. The seasonal fall in weights has been less marked this year, despite the cold weather, suggesting that processors are starting to look for slightly heavier pigs to offset expected tighter supplies as the year progresses. Weights have remained well above year earlier levels into May.

Weaner prices edged upwards during April and May, passing the £50 per head mark, which was last exceeded in August 2010, at the end of May. The monthly average price of £49.06 during April was the highest in nearly three years, up by around £1.50 on March and over £3 on April 2012. Rising finished pig prices helped to support the market, with somewhat lower feed prices also helping to provide confidence to finishers. Further modest rises during May took the weekly average to £50.29 for week ending 1 June.

In contrast to the weaner and finished pig markets, the GB cull sow price fell back during April and early May. The monthly average of 103.25p per kg was over 3p lower than in March and nearly 20p down on a year earlier. With exchange rates relatively stable during the month, the price movements are due to the weakness of the EU market. With subdued clean pig prices and reportedly plentiful supplies of sows across Europe and in Germany in particular, sow quotes have been under pressure. This has had a knock-on effect on the GB price, which has remained below its German equivalent since last summer. The falling trend accelerated into May, with the price for week ended 18 May as low as 95.45p per kg.

EU Prices

Having been broadly stable through most of the first four months of the year, the EU pig reference price began to ease back towards the end of April. As a result, the monthly average was just under a euro lower than in March at €170.86 per 100kg. Nevertheless, this was still more than seven euros higher than in April 2012, although this gap was much narrower than it was earlier in the year. The subdued market was partly attributed to lacklustre demand on the EU market as the economy remains fragile. However, several export markets have also been challenging, particularly Russia, where increased production has limited demand for imported pork. Price falls continued into May, with the average for week ended 19 May reaching €164.48 per 100kg, less than three euros up on a year earlier and the lowest level since early June.

Comparative EU Pig Prices
(as at 19 May)

Figures show % changes in 4 weeks to 19 May
Source: EU Commission

Prices in most major producing Member States followed a broadly similar trend to the EU average. Prices in France and Spain began easing a little before those further North, although Spanish prices remained among the highest in the EU. The sharp fall in Italian prices recorded since mid-February ended in mid-April, with prices stabilising at just under €164 per 100kg, over 30 euros down on two months earlier. The key German price was stable through most of April but then fell by ten euros in three weeks in late April and early May.

With UK prices rising and EU ones falling, the gap between the UK and EU reference prices increased from under €10 per 100kg at the start of April to over €20 in mid-May. The gap in the latest week was the highest since January 2011. The UK price is now the highest among significant pig producing Member States.

The average EU weaner price in April was little changed from the previous month at €51.44 per head. This was very similar to the price for the same month last year. In recent years, prices have typically peaked in March or April and this year was no exception, with the high point reached in late March. Since then prices have fallen, gradually at first but more sharply since late April as finished pig prices began to ease. As a result, the price dropped to €46.75 per head for week ended 19 May, around two euros below its level a year earlier.

Sow prices in major EU Member States followed a similar trend to finished pig prices; stable prices from February until mid-April were followed by a significant fall in the weeks that followed. The key German M1 sow price fell from €1.35 to €1.28 per kg for week ended 19 May. This was 14 cents lower than a year earlier. Prices in other major producing Member States, including Denmark, the Netherlands and France followed similar trends, albeit at lower levels.

UK Slaughterings and Pig Meat Supplies

UK clean pig slaughtering in April 2013 totalled 945,800 head. This was around 12,000 more compared with the same month in 2012. This increment was partly because Easter fell further into April last year, leading to two short weeks in the month compared with one this year. England and Wales throughputs increased by six per cent to 764,600 head, whereas Scottish ones continued to ease; they were down on the year by almost a half again this month. Slaughterings in Northern Ireland were down by one per cent over the year.

The total number of sows and boars culled during April amounted to 24,700 head. This was just over one per higher than the previous year. Adult pig throughputs so far this year have been slightly higher than last year. This is likely to reflect increasing producer intentions for a younger, more productive herd. This was also reflected in the number of maiden gilts recorded in the December census, which showed a large increase.

The average carcase weight in April was marginally down from the previous month at 79.0kg but the seasonal decline in weights has been less pronounced this year. At this weight, pigs were over a kilo heavier compared with the corresponding month in 2012 and it represents the heaviest average on record for April. The gradual increase in weight partially reflects changing processor requirements, to compensate for the lower pig numbers that are expected during the year. The rise in the average carcase weight was also similar in Northern Ireland but Scottish pigs weighed marginally less than a year earlier. Due to higher UK slaughterings and carcase weight, pig meat production totalled 78,200 tonnes in April. This was just over two per cent higher than the year earlier.

Based on the DAPP sample, estimated GB clean pig slaughterings in the first three weeks of May remained slightly above year earlier levels. Supplies have tightened somewhat since earlier in the year but this is the normal seasonal trend. So far, there is little sign of the lower pig numbers expected due to the lower breeding herd recorded in the December census.

UK pork imports continued to decline, with the total in March seven per cent lower compared with the same month in 2012. Germany, the Netherlands and Belgium shipped one, nine and 22 per cent more on the year respectively. However, these increases failed to mitigate the impact of a drop of nearly a quarter from the primary supplier, Denmark; Irish and French imports were also lower than last March. Tight supplies were a factor but subdued demand, partly due to increased retailer preference for UK-sourced pork, coupled with six per cent higher average prices also held the market back. As a result, the value of pork imports was only marginally down £56.2 million.

Cured meat imports, including bacon and uncooked ham, were down 16 per cent year on year in March. The total for the month reached 21,000 tonnes. A large decline, of nearly 40 per cent, in Danish supplies was again the main factor that affected trade. While Irish exports were significantly up on the month, the small share in the market, three per cent, meant that the impact on total bacon supplies was minimal. Processed products, including sausages, were also shipped in lower quantities; shipments from Ireland and the Netherlands were particularly affected, perhaps reflecting their involvement in the horse meat revelations earlier in the year. March’s trend is reflected in the cumulative figures for the first quarter of 2013, with pork imports down by one per cent, cured by eight per cent and processed pig meat by nine per cent.

On the contrary, UK exports were generally stronger in March, as the amount of pork shipped rose by more than a quarter on the year. This meant the total in March amounted to 15,500 tonnes. Shipments to the main market, Germany, were down five per cent but exports to many other EU Member States increased; notably Ireland and Denmark were up by 10 and 90 per cent. In addition, the 2,200 tonnes sent to China pushed the total up, although demand from Hong Kong came down by almost a fifth. In the first three months of the year, both the quantity and value of UK pork exports rose by 22% and amounted to 43,000 tonnes and £53.5 million respectively.

While cured exports in March recorded a 40 per cent annual decline, this was lower than in most recent months. Sausage shipments more than doubled but other processed exports were down. However cured and processed meat account for a small share of total exports. Offal exports are more important and growth in this category continued again in March as total shipments were up by almost a half. Growth was driven by higher shipments to other EU Member States, including Germany and Belgium.

Feed Prices

The LIFFE wheat new crop futures price (November 2013) closed at £178.15 per tonne on Wednesday 22 May, recovering slightly from the close two days earlier of £176, the lowest closing price since October 2012. The latest closing price represents a monthly decline of £6.35 per tonne and prices ranged between £176 and £185 during the month. The Chicago new crop maize price was little changed on a month earlier, although it had varied somewhat during the month.

On 10 May the United States Department of Agriculture (USDA) released its initial assessment of global supply and demand for the 2013/14 season. These forecasts provide a benchmark for the season ahead but should be treated with caution as performance is heavily dependent on weather conditions, particularly as some crops are yet to be planted. Global maize production in 2013/14 was forecast at a record 966Mt but is dependent on a record US crop, as well as historically sizeable crops in South America. South American production remains highly speculative at this stage, as planting will not begin until late in 2013. Record wheat production of 710Mt is also forecast as a rebound in production in the Former Soviet Union and EU more than offset a decline in the US.

News of improved US weather has recently pressured prices due to improved planting progress but rain has now returned to the US which could slow planting of the remaining area. However, prices recovered on news of increased demand from China and from US ethanol producers.

Defra revised its UK cereals supply and demand estimates for 2012/13 (Jul-Jun) on 23 May. Wheat imports are forecast at 2.54Mt; this is in excess of anticipated usage of imported grain and hence imported wheat is expected to make up a higher proportion of total end-season stocks, which are seen at 1.94Mt, up 29 per cent on 2011/12. Grain consumption in animal feed is forecast to be significantly higher as the wet summer and autumn and delayed spring have stimulated feed demand. Imported maize usage is forecast to increase by more than a third year-on-year due to competitive prices.

In its global supply and demand report, USDA projected global soyabean production for the 2013/14 season at a record 285.5Mt, up 16.4Mt on the previous season. Nevertheless, the Chicago soyameal futures price (July 2013) closed on 22 May at $485.70 per tonne, up by $46.90 on a month earlier. In the UK, the Hi-pro soyameal (ex-store East coast) price as at Friday 17 May also increased by £15 per tonne compared to a month before.

Soyameal prices have followed the soyabean market which is still tight in the short-term on diminishing old-crop stocks and continued strong demand. With the report of Argentine farmers’ reluctance to sell their soyabean crop, because of an unfavourable exchange rate plus port workers going on strike, Brazil remains the dominant source of soyabeans into the international market. Therefore, there is little to no competition for Brazil, given that the US is pretty much out of the market for now. The US old crop export commitments are now at 100 per cent of the USDA’s May 2012/13 US export estimate.

Total Cost of Pig Production Compared with the Dapp

Source: AHDB Market Intelligence

Latest AHDB provisional estimates of the cost of pig production in May show that costs were little changed from the revised estimate for the previous month at a little over 164p per kg. The estimates put costs somewhat lower than the recent peaks but they are still very high by historic standards. Compared with May 2012, costs are over 8p per kg higher, despite improvements in herd productivity which have mitigated the rise.

With the recent rises in pig prices, these estimates suggest that producers are approaching the point when they will break even or even re-enter the black. However, with losses over the last two years approaching £100 million, margins will need to improve further and be sustained for the finances of the industry to recover. With some easing of feed costs in recent weeks and prospects for the forthcoming harvest still looking positive, production costs are projected to be lower during the remainder of the year. However, there is still considerable uncertainty in these figures, given the vulnerability of feed prices to weather conditions.

Consumtion

In the 12 weeks to 14 April, consumer spending on pork increased four per cent on a year earlier, according to figures from Kantar Worldpanel. Over the same period, the amount of pork purchased declined two per cent as higher prices continued to lead consumers to switch to fresh lamb, which has been heavily promoted. Pork loin joints continued to perform strongly, with sales up 40 per cent, supported by an ongoing increase in household penetration. Most other cuts suffered volume and value declines.

Bacon and sausages followed a similar pattern as expenditure increased but amounts purchased dipped. Sales of bacon rashers and steaks, however, were up on the year. An 11 per cent price rise meant that sausage purchases declined six per cent year on year, with fewer people buying them and buying smaller amounts. Sliced cooked ham purchases remained similar to last year but a small decrease in average price resulted in expenditure being one per cent lower than a year earlier.

In the latest four weeks, the picture for pork looked more positive, with purchases up one per cent year on year and spending up four per cent. Contributing to volume growth were loin and leg joints and marinades. Spending on bacon was fairly flat but total purchases recorded a slight uplift due to strong performance from steaks and rashers. Meanwhile, sausage sales continued to decline but spending increased, driven by price inflation. Sliced cooked ham purchases declined three per cent over the period, while the expenditure decline accelerated to five per cent.

Trends in Retail Meat Purchases (period ended 14 April 2013)

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

At the start of the recession, there was large growth in breakfast consumption in the home, as consumers tried to save money. This has now plateaued, with in-home breakfast occasions similar to last year. The recession has also affected breakfast choice – more consumers are choosing their breakfast because it’s ‘filling’, in order to avoid spending money before lunch time.

Cooked breakfasts have also seen an increase over the last year, with total consumption up four per cent. Bacon, which is present at nearly two-thirds of cooked breakfasts, has benefited from this trend. Over the last three years, it has seen steady increases in consumption. Figures for 2012 were up two per cent compared with the previous year, with both bacon sandwiches and rashers making gains at this mealtime. Growth has come entirely from weekends, which account for more than two thirds of bacon breakfasts.

Sausages, eaten at just under a quarter of cooked breakfasts, have not seen the same growth. Consumption in 2012 was similar to a year earlier. Again, weekends have shown good uplifts, but declines seen during the week have counteracted this.

Out of home breakfasts have also seen a recent increase, with a seven per cent rise, despite a relatively sluggish foodservice market overall. The growth at this occasion has been apparent across most types of outlet. The most popular out-of-home breakfasts are cooked breakfasts, hot rolls/sandwiches and pastries, meaning that both bacon and sausages have performed well. Bacon was up 12 per cent on the year, while sausages were up seven per cent. Sausage sandwiches, however, were down on the year.

There is a growing trend for consumers to eat at work or school, so there has been a trend for convenient, easy-to-eat format products being developed for this occasion. A third of consumers eat breakfast ‘on the go’, so products that can benefit from this have an opportunity. Consumers who do purchase their breakfast out of the home choose their venue based on its location, with low price and fast service also being key factors in outlet choice.

May 2013

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