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AHDB Pork UK Pig Meat Market Update


28 June 2013

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


British Pig Executive Monthly UK Pig Meat Market Update

UK Prices

The steady rise in finished pig prices, which began in March, continued throughout May and into early June. As a result, the monthly average EU-spec DAPP hit an all-time high in May at 164.06p per kg, over three pence higher than the previous record set last December. At this level, prices were over 15p up on May 2012. Rising prices are normal at this time of year as supplies begin to tighten. This year, demand for British pigs has remained strong, despite indifferent weather and relatively low EU prices, as retailers continue to source more of their supplies from closer to home. Prices continued to strengthen into June, with no sign of prices stabilising as we approach the time of the traditional peak in early July. By week ended 15 June, the EU-spec DAPP had reached 166.41p per kg, 17p higher than the same week last year and 11p up on the low-point in early March.

Although falling seasonally, carcase weights have continued to track well above year earlier levels. The average weight of pigs in the DAPP sample in May was 78.98kg, around half a kilo heavier than last May. This comes despite the cold weather earlier in the year, which will have impacted on growth rates. It can be partly attributed to processors looking for heavier pigs to offset tightening supplies. Weights have remained above seasonal norms into June.

The strong finished pig market has helped to push weaner prices higher, with the easing of feed prices also providing support. Rises during May were relatively modest but the monthly average of £49.84 for a 30kg weaner was a little under a pound higher than in April and over five pounds up on May 2012. It represented the highest monthly average since July 2010. The upward momentum increased into June, with the average price reaching nearly £52 per head by week ended 22 June, its highest level in nearly three years.

Unlike clean pigs and weaners, the cull sow market remained subdued during May, reflecting the situation on the EU pig market. With consumers still lacking confidence, demand for pigs was running behind supplies. This hit demand for GB sows and the average price fell to 97.91p per kg, over five pence down on the previous month and 19p below last May’s average. With EU prices showing some signs of life in early June, as better weather conditions meant the barbecue season could hit full swing, sow prices began to recover. By week ended 15 June, the average price had risen to 101.23p per kg.

EU Prices

A combination of subdued demand in the EU, challenging export markets and plentiful supplies of pigs led to some easing of pig prices across the EU during the spring. As a result, the average reference price during May was €165.45 per 100kg, the lowest figure since the same month last year and less than three euros higher than it was then. Towards the end of May, the average price briefly fell below its level a year earlier for the first time since October 2010. The cold weather contributed to lacklustre demand with the start of the barbecue season delayed. With temperatures improving somewhat, prices began to pick up again from the middle of the month and, with supplies reportedly tightening, the increases accelerated in early June. By week ended 15 June, the average price had risen to €170.91 per 100kg, close to its level for most of the first four months of the year.

Comparative EU Pig Prices
(as at 16 June)

Figures show % changes in 4 weeks to 16 June
Sources: 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 but also began to recover slightly earlier, moving up from mid-May onwards. Prices in northern Member States largely took their cue from Germany, with prices low but stable during May but starting to move up from the beginning of June. Italian prices were broadly stable, following the sharp falls earlier in the year.

With UK prices rising and EU ones falling, the gap between the UK and EU reference prices increased from an average of €12 per 100kg in April to over €22 in May. However, the recovery in EU values meant the gap began to narrow again and was back under €20 by mid-June, despite further upward movement in UK quotes.

The subdued pig market had a knock-on effect on weaner prices. As a result, the seasonal fall which is normally apparent from March onwards was more pronounced this year. This meant that the average price during May was €46.97 per head, down over four euros on the previous month and two euros lower than last May. The German price fell particularly sharply, dropping from over €59 per head to €53 between late April and early June. EU prices stabilised into June, with pig prices back on the up and feed prices easing, and by the middle of the month they appeared to be back on an upward trend.

As is typically the case, EU sow prices followed the trend of the finished pig market, with quotes falling during May. The key German M1 price averaged €1.29 per kg in May, around five cents lower than in April and 15 cents down on a year earlier. Prices fell even more sharply in the Netherlands and Denmark. Any recovery was slower than for the finished pig market with only modest signs of upward movement apparent by mid-June; the German price still stood at €1.28 per kg for week ended 16 June.

Uk Slaughterings and Pig Meat Supplies

UK clean pig slaughtering in May totalled 739,600 head, which was two per cent or 14,700 head down on a year earlier. This was the largest year-on-year fall in nearly three years. Throughputs were up two per cent in England and Wales to 597,500 head. However, the rise failed to offset the decline in other regions, with Scottish throughputs continuing at the lower level seen since the closure of its largest abattoir last year. The kill in Northern Ireland was down nine per cent due to lower production and imports of live pigs.

The number of sows and boars culled during May totalled 19,000 head. This was only marginally above the level a year earlier. Despite lower export demand leading to reduced prices, increasing producer intentions for a younger herd kept the numbers up. Sow cullings in the first five months of this year were slightly up compared with the corresponding period in 2012.

The average carcase weight in May reached 78.4kg, around 400g higher compared with the same month in 2013. With the seasonal decline in weights less pronounced than in recent years, this was the second heaviest average weight recorded for May. With feed prices having come down slightly, producers were happier to add some extra weight on their animals, with processors also looking for heavier pigs to offset tightening supplies. Despite the small increase in the average carcase weight, lower throughputs meant that the total pig meat production was almost two per cent below the level a year earlier at 60,700 tonnes.

Based on the DAPP sample, estimated GB clean pig slaughterings in the first two weeks of June were a little higher than the same period in 2012, meaning the year to date figures still show a small rise in throughputs. However, supplies in the coming months are still expected to be a little tighter than they were last year, given the fall in the breeding herd during the second half of last year.

UK pork imports bounced back in April as three per cent more entered the supply chain at 27,600 tonnes. Frozen imports were up by more than a quarter, offsetting a small fall in fresh/chilled shipments. The figures suggest some recovery in demand for imported products, although the later Easter may have reduced volumes last year. While Denmark maintained its position as primary supplier, imports from the country were down 10 per cent. However, the decline was mitigated by a seven per cent rise in German imports and even larger rise in Dutch and Irish shipments, which jumped by 29 and 20 per cent respectively. The average import price came up by seven per cent, which meant that value of total imports increased by nine per cent to £57.6m.

Cured meat imports were little changed from last April, with a total of 18,800 tonnes. There was a small contraction from the main suppliers; volumes from the Netherlands and Denmark were down three and five per cent respectively. Together they account for nearly 80 per cent of the total import market. These reductions were balanced out by increases from other smaller suppliers, with a notable increase from France. Imports of sausages showed a similar trend with only a marginal increase in supplies while other processed shipments recorded a 14 per cent decline.

The export market continued to strengthen, as pork shipments exceeded 15,000 tonnes, up 22 per cent on the year. For the first time, China became the leading destination for UK exports, taking 16 per cent of total UK exports. Reports suggest these included increasing volumes of primal cuts as well as fifth quarter products. Amongst the EU markets, Germany and Ireland purchased three and nine per cent less UK pork respectively. In contrast, exports to Denmark doubled. The export price per unit was 11 per cent lower than last April but the total value of pork shipments still came up eight per cent to £17.5m.

Exports of cured pig meat in April were only marginally down on the year, standing at just below 1000 tonnes. Sausage shipments fell seven per cent below the year earlier level and other processed export were down by almost a fifth. Developments in pig offal exports slowed this month, with only a nine per cent growth on the year. Offal shipments were held down by lower demand from Belgium and the Netherlands, despite higher exports to some other EU Member States and to China.

Feed Prices

The LIFFE wheat new crop futures price (November 2013) closed at £170.50 per tonne on Thursday 20 June, a monthly decline of £5.50. Prices ranged between £165 and £179.25 during the month with the former the lowest price since August 2012. The Chicago maize new crop futures price (December 2013) settled at $220.67 per tonne on 20 June, compared to $204.82 a month earlier.

Over the last month, weather and reports of improving crop conditions across the Northern Hemisphere have been the major price drivers. With big crops still expected globally next season, the weather will continue to be critical in the next few weeks as crops form yields and harvest progresses. Also, the market awaits the US quarterly grain stocks and crop plantings reports, to be published on 28 June, which have been market movers in the past. 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.

In its latest revisions, the USDA put 2013/14 global wheat production at 696Mt, down 5Mt from the previous estimate but still up 40Mt on 2012/13. The US winter wheat harvest remains relatively slow but, despite this, production is expected to increase on higher yields than previously expected. However, production estimates were revised lower for Ukraine, Russia and the EU. The FAO, on the other hand, estimates global wheat production at 702Mt, an increase of 43Mt on 2012/13.

Global 2013/14 maize production is currently estimated by the USDA at 963Mt, a downward revision of 3Mt from the previous estimate but 107Mt above the 2012/13 estimate. The revision was mainly due to the expected decline in average yields in the US on the back of later planting. Furthermore, it is worth bearing in mind that the late planting means the crop is likely to be less resilient to any threat from extreme heat in July.

Of the planted US maize area, 92 per cent is seen to have emerged as at 16 June, compared to 100 per cent last year and the five year average of 97 per cent. Furthermore, 64 per cent of the crop is seen to be in a good/excellent condition, similar to the same time last year. Despite the delayed plantings, the weather has favoured the crop so far.

The Chicago soyameal futures price (July 2013) closed at $491.20 per tonne on 20 June, up from $479.80 a month ago, while UK prices also increased. The Hi-pro any origin soyameal (ex-store East coast) price as at Friday 21 June increased over the month by £4 to £400 per tonne.

The USDA currently forecasts global 2013/14 soyameal production at 189Mt, up from 181Mt in 2012/13. As a result, ending stocks are expected to increase from the depleted 2012/13 level. US soyameal exports were revised higher for 2012/13 as importers had to rely on US exports for longer than usual due to the slow arrival of South American supplies. South American soyameal exports are reported to not have gained the momentum required to deal with the supply shortage seen in many importing countries. Longer term, global soyabean and meal prices have the potential to fall in the autumn, as South American supplies might still remain in the market when the US crop becomes available.

Total Cost of Pig Production Compared with the DAPP

Source: AHDB Market Intelligence

Pig producers are back in the black for the first time in nearly three years, according to latest AHDB provisional estimates of the cost of pig production. Average costs in June were estimated to be around three pence lower than revised estimates for the month before, standing at just over 164p per kg. With the DAPP passing this level at the end of May and heading higher still in June, producers stand to make a significant positive margin for the first time since the autumn of 2010.

Estimates for recent months have been revised upwards following the receipt of updated physical performance data which show the impact that the adverse weather earlier in the year on herd productivity. Costs have declined significantly since the start of the year as global cereal and oilseed prices have eased back as prospects for the 2013/14 season have improved. Nevertheless, costs will need to remain low relative to prices for a sustained period if producers are to recover the losses made in recent years.

Consumption

According to the latest figures from Kantar Worldpanel consumer spending on pork was five per cent higher in the 12 weeks to 12 May 2013 than in the same period last year. This growth was mainly driven by an increase in the average price; the amount of pork bought by GB shoppers was similar to last year. Fresh pork has seen some notable switching into lamb and this has impacted all pork roasting joints, with the exception of loin. The amount spent on bacon remained in line with last year but there was a two per cent fall in the quantity purchased by shoppers. Purchases of sausages also dipped but an increase in average price, as shoppers traded up from standard tier sausages into premium, meant consumer spending remained positive.

Over the latest four-week period pork recorded a year-on-year increase in volume purchases, the first in nine months. Sales of sausages also rose, driven by the growth within premium tiers. The improved weather and opportunity for barbecues has also helped improve sales performance. Meanwhile, sliced cooked ham saw growth in both expenditure and the quantity purchased over both the 12- and 4-week periods.

Over the past few years the out-of-home (OOH) market has come under pressure as consumers have been focused on managing household expenditure. The latest NPD Crest data, for the year to March 2013, values the total OOH market at £49.5 billion, up 0.5 per cent, with traffic fairly static following several years of falls. Quick Service Restaurants (QSR) are the bright spot within the sector; they remain the only channel to grow over the past few years and now account for just over half of visits in the OOH market. This growth has mainly come from burger and coffee outlets, both recording two per cent growth in the last year.

Trends in Retail Meat Purchases (period ended 12 May 2013)

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

Breakfast is the one meal that has recorded strong growth over the past 12 months with traffic at the weekend outperforming that of weekdays. There has also been stronger growth in the number of people eating breakfast on the premises rather than eating off site. The growth in breakfast has helped boost servings of associated products, with bacon and sausages up eight and five per cent respectively.

Over the past year, red meat servings increased two per cent but in the first quarter of this year servings were down three per cent. These were heavily impacted by the reduction in beef and in particular beef burgers. Burgers had seen uplifts over the course of the past year, boosted by the continued growth of QSRs. However, the latest dip was caused by the media activity surrounding horsemeat during the first quarter of 2013. Bacon has recording strong growth over the past 12 months and this has continued into the latest quarter, driven by QSR where it has enjoyed double digit growth. Ham has seen a slight recovery recently helped by the improved performance of ham sandwiches within pubs and QSR channels.

The foodservice sector remains highly competitive with outlets competing hard for growth. Heavy targeting by QSRs and pub operators on the breakfast occasion has shown growth is possible. However, for a significant sales recovery to take place, growth would be needed at other times of day, when spending is higher. However, drawing consumers into these meals can be challenging at a time when they remain heavily price focused and are making careful choices on when and where they dine. The latest Mintel report on the ‘eating out decision process’ highlighted that just over 60 per cent looked at menus and prices online and 41 per cent look for restaurant deals.

June 2013

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