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AHDB Pork UK Pig Meat Market Update


02 December 2013

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


British Pig Executive Monthly UK Pig Meat Market Update

UK Prices

GB finished pig prices resumed their upward trend in September, having eased back slightly over the summer. The monthly average DAPP topped 170p per kg for the first time ever, having only passed 160p for the first time in November 2012. This was just over 2p up on August’s average and was over 17p higher than last September. The rise was again largely the result of increased retailer demand for British pigs, combined with relatively tight supplies; pig numbers in September were close to year earlier levels. Prices continued to rise into October despite slightly higher throughputs, reaching 172.04p per kg by week ended 19 October. However, with the rate of increase slower than last year, the annual gap had fallen to around 14p, its lowest level so far this year.

Throughout September, carcase weights were well over a kilo higher than a year earlier, mitigating the tight supply situation to some extent. Weights were lighter last year as producers marketed pigs earlier to offset high feed costs. This year’s average weight during September, 79.9kg, was similar to the same month two years before. From mid-September, average weights topped 80kg and they have remained at this level into October, still well above year earlier levels. Probe measurements remained high, averaging 11.3mm in September and as much as 11.5mm in early October.

The weaner market has been finely balanced since mid-July with prices ranging between £53 and £55 per head. September’s average price of £54.03 was the highest level since June 2010 but was only a few pence higher than the previous two months. The stable market comes despite strong finished pig prices and lower feed costs meaning that returns to finishers are potentially good. Further upward movement is reportedly being prevented by a lack of finishing accommodation, which is keeping demand for weaners in check. Prices reached a peak in early October but have since eased back slightly to stand at £54.25 per head for week ending 26 October.

With only two companies currently killing sows on a commercial scale, no GB prices have been available since mid-August. Reports suggest that prices have fallen back since early September in response to a weakening export market and are now at a similar level to October 2012. This is despite estimated sow throughputs being at a more normal level than last year when they were inflated in response to high feed prices.

EU Prices

Recent weeks have seen a reversal of fortunes in the EU pig market. Having risen steadily since May, the EU average price reached a peak in the first week of September at over €195 per 100kg. This was the highest level it has reached apart from during the FMD outbreak in March 2001. However, since then the price has fallen back by nearly €16 in six weeks to stand at €179.83 in week ended 19 October. The change of trend has been driven by a reported increase in the supply of pigs in recent weeks, relieving the tight supply situation which had prevailed over the summer. This is partly because pigs whose growth was slowed during the heat of the summer are now coming to market.

The recent price fall was initially most apparent in northern Member States, precipitated by a drop in the German price, which fell by €14 in the three weeks to 22 September, although it has since stabilised. The exception was Denmark, where robust export markets kept prices steady through most of September, although the price there did drop back slightly at the start of October. Further south, prices remained stable or even increased until late September but have since matched the falls seen a few weeks earlier further north. For example, the Spanish price, the highest among major producers, was stable until week ended 15 September but then fell by €22 in five weeks.

The UK was one of the few Member States where prices were still rising. As a result, having briefly been below the EU average, the UK price re-established its premium in September, with the gap opening up to nearly 16p per kg in the latest week. However, this was still smaller than the premium before EU prices started rising in May, when the gap was over 20p per kg.

In the period between July and early September, EU weaner prices increased by over €2 per head, meaning that, at around €48.50 per head, breeders received €3 more compared with the same period in 2012. A strengthening finished pig market combined with lower feed costs encouraged the demand for weaners at a time of year when prices are normally falling. After a few weeks of stability, there was a modest fall in weaner prices from late September, on the back of the easing in the EU finished pig market. However, prices remained similar to last year’s level, at €46.87 per head for the week ended 19 October.

As is normally the case, EU cull sow prices have broadly followed the trend of the finished pig market in recent weeks. The key German M1 sow price peaked at €1.57 per kg in early September but had lost nine cents by week ended 12 October, although this is still well above its level for most of this year. However, it is below the high levels recorded last autumn, when the price peaked at €1.62 per kg in mid-October. Prices elsewhere have largely followed the German trend.

UK Slaughterings and Pig Meat Supplies

UK pig supplies were only marginally up on the year as slaughterings were almost unchanged in September at 789,100 head. Throughputs in England and Wales rose by six per cent compared with September 2012. However, reductions in other regions offset this increase. Scottish throughputs continued to decline (down 59 per cent) after last year’s plant closure. In addition, two per cent fewer animals were slaughtered in Northern Ireland compared with a year earlier. The year-to-date figure and the third quarter figure also showed similar trends, with throughputs at a similar level to same periods in 2012.

The number of sows and boars culled in September was 20,000 head, down 15 per cent from the 2012 level. This represents a return to more normal levels from the inflated slaughterings last year. Total adult pigs slaughtered in the first nine months of this year totalled 192,400 head, 6,600 fewer compared with January to September last year. This came despite numbers having been higher in the first half of the year; the third quarter kill was down nearly 9,000 head on a year earlier.

Carcase weights in the latest month reached 79.6kg, the highest since February. Lower feed costs have allowed farmers to add more weight to their animals. As a result, pigs in September were 1.8kg heavier than the same month in 2012. Given the stability in supply combined with an increase in weights, pig meat production in September totalled 65,700 tonnes. This was an increment of two per cent compared with the same month last year.

Based on the DAPP sample, estimated GB clean pig slaughterings in the first three weeks of October were three per cent up on the year. Nevertheless, supplies in the coming months are expected to remain tight as the impact of the fall in the breeding herd last year continues to be felt.

UK pork imports weakened again in August, down by 1,500 tonnes compared with the same month in 2012. At 28,100 tonnes, this represented a reduction of five per cent on the year. Germany maintained its position as the main supplier from the previous month; imports from the country increased by 30 per cent year on year. However, this increase was offset by lower imports from other key suppliers. Danish pork volumes were down by 27 per cent and Irish supplies by 40 per cent from the previous year in August, while Dutch shipments were almost unchanged. Total imports for the year to date fell marginally to 225,800 tonnes but the value rose by seven per cent on the year to £466.7m.

Lower shipments from Germany (down 12 per cent) and the Netherlands (down 30 per cent) meant that UK cured pig meat imports fell to 19,500 tonnes. This was 14 per cent lower compared with the same month a year earlier. Sausage shipments declined by just one per cent on the year. This was largely on the back of less Irish and Polish product despite increased German and Dutch supplies. In contrast, 13 per cent more processed product was imported into the UK, with a significant rise from Danish suppliers.

Pork exports from the UK increased by six per cent compared with August last year. This was partly a result of increased demand on the back of tight supplies across the continent. Irish purchases rose by a notable 41 per cent, making it the largest market during the month, but the UK shipped 27 per cent less to Germany. There was a notable contribution from non-EU countries, in particular from China and Hong Kong, both up by around a third. Frozen pork exports were more popular among the Asian markets and total frozen shipments in August rose faster than fresh at 12 per cent on the year. The unit price for pork exports was up almost ten per cent, which meant that the value of the export market in August totalled nearly £20 million. This was 17 per cent more than in August 2012.

Exports of cured pig meat in August increased by over a fifth but supplies were still short compared with 2011 levels (down 72 per cent). Similarly, processed shipments strengthened and sausage exports were little changed from the same month last year. In contrast, offal exports were 22 per cent lower in August compared with a year earlier. While purchases from Hong Kong and China remained strong, the market was mainly affected by lower demand from the continent.

Feed Prices

The UK feed wheat Nov-13 futures price closed at £165.65 per tonne on Thursday 24 October, a £12.65 increase on the closing price a month before. Global wheat prices have increased recently due to strong demand and supply concerns in some major producing regions. Maize prices, on the other hand, have continued to fall due to good crop prospects across the globe. Therefore, the spread between the Chicago wheat and maize prices has been widening recently.

In the UK, 2013 wheat production is seen by Defra at the lowest level in over ten years (provisionally 12.1Mt), while barley (7.1Mt) and oat (975Kt) crops are the largest since 1997 and 1973 respectively. Although the UK wheat crop is lower, quality has been good. This implies that there will be more rationing of the amount of wheat that goes into feed rations as opposed to the human and industrial sector. UK feed wheat and barley prices mirror the global picture, with a recent widening spread between the prices. The AHDB/HGCA early balance sheets for wheat and barley estimate that 15 per cent less wheat and 11 per cent more barley will be used by the animal feed sector. Furthermore, the greater availability of oats has resulted in a decline in price, meaning oats will also be a contender in the competition for cereals into feed rations in 2013/14.

Globally, if the recent widening gap between wheat and maize prices continues, more maize will be used in feed rations in place of wheat. In the UK, the bigger barley and oats outputs have resulted in cheaper crops compared to wheat, therefore more barley and oats will be used in feed rations this season. The extent to which the substitutions will be made will be dependent on the nutritional requirements of the end-user. Also, if UK feed wheat remains at premium levels to European maize, additional maize imports should be expected.

The Dec-13 Chicago soyameal futures price closed at $469.58 per tonne on Thursday, a three per cent increase on a month earlier. However this price declined earlier in the month due to the seasonal US harvest and reports of better than expected yields. More recently, the soyameal price increase has been driven by strong Chinese demand, with the USDA reporting big export sales. As at 20 October, 63 per cent of the US soyabean crop had been harvested, good progress bearing in mind that planting was delayed. This generally creates a bearish outlook for prices, as harvest is seen to progress well with good yields.

The Hi-pro any origin soyameal (ex-store East coast) nearby price as at Friday 18 October was £391 per tonne, down from £404 as at 20 September. However, rapeseed prices have increased due to the expectation of higher demand. The European Union has placed a restriction on biodiesel imports from Argentina and Indonesia but the extent to which this will influence rapeseed prices remains to be seen. It is expected that it could create more demand for EU rapeseed oil, thus creating more meal, but the degree of the price movement could be capped by competition from soya oil and sunflower oil.

Latest AHDB/BPEX provisional estimates show that the average cost of production in October was little changed from the previous month at 147.5p per kg. This was the lowest monthly average since December 2011 but the rate of fall has slowed due to some stability in prices for compound feed. At the latest estimate, costs incurred by the producers were, on average, 16p per kg lower compared with October 2012. However, while the cost of inputs utilised during the month is down, pigs being sold during October will have been fed during a life cycle when prices were more expensive. A new report on production costs and their relationship to prices and margins in the supply chain has been published on the BPEX website and it can be downloaded by clicking here.

The finished pig market strengthened as prices passed 171p per kg in recent weeks. This means UK farmers received a higher price for their pigs at a time when their cash outflow was reduced, particularly by a lower feed bill. Given that the feed costs currently account for 61% of total costs, the recent easing of prices has significantly improved the situation of producers. However, the cumulative losses of producers since the start of 2011 are still estimated at over £125 million. Therefore, margins will need to remain favourable for a sustained period before producers feel confident enough to make the investments necessary to improve the efficiency of the industry.

Consumption

The amount of pork sold in GB was nine per cent lower than a year earlier in the 12 weeks to 15 September, according to Kantar Worldpanel. As a result, spending fell, despite average price rises of eight per cent. Although most of the decline was due to fewer shoppers buying pork, a reduction in the amount bought per trip suggests that pack sizes are decreasing as retailers aim to meet price points. Bacon has struggled, with chops, steaks, joints and rashers all recording volume declines but premium rashers continued to make gains. Meanwhile, spending on sausages was up 14 per cent, driven by price increases; consumers are continuing to switch from standard sausages to premium, contributing to the higher prices paid. Sliced cooked ham showed encouraging growth, helped by the warmer weather.

The grocery market is currently undergoing fairly significant change. The hard discounters (Aldi and Lidl) have recorded strong growth over the last few years; this growth casts a shadow over the top four retailers. Hard discounter sales were up 24 per cent in the 12 weeks to 15 September, well ahead of total retailers’ growth of four per cent, according to Kantar Worldpanel. The hard discounters now account for nearly seven per cent of the market. Attracting more customers has underpinned their success, with shoppers also spending more per visit. Growth has come across all demographics, with even high earners spending significantly more at the discounters this year. Younger shoppers have been key, spending 71 per cent more than last year, but the typical shopper remains slightly older and less affluent than the market average.

Although price may have initially attracted new shoppers with squeezed budgets, quality perceptions have improved, helping to retain them. According to research from IGD, 80 per cent of discount shoppers think that products are similar to or better than supermarkets' standard private label; a similar number think that quality at the discounters has improved. Even among non-discount shoppers, nearly two thirds think that discounter products are better than supermarkets' budget ranges. These figures help to explain why almost half of shoppers now regularly shop at discounters, with one in ten doing their main grocery shop there.

At the discounters, fresh and chilled growth is ahead of total food, with fresh red meat sales growing faster still. As consumers increasingly feel discounters can offer quality, the low price points become very attractive. Compared to the average across the top four multiples, pork is eight per cent cheaper on average, although this varies by cut. A recent YouGov report highlights shopper’s concerns over the price of meat, with many shoppers expecting to cut down their consumption. Discounters’ low prices may help keep consumption steady.

Fresh pork has made volume gains of 25 per cent at the hard discounters, accelerated by the strong performance of marinades, steaks and shoulder joints. Marinades account for 18 per cent of pork sales, with barbecue ribs doing especially well. Processed pig meat has also performed well, with bacon purchases up 10 per cent, a very different picture to the five per cent decline at the top four multiples. At the major retailers, sausage volumes were down six per cent, while at the discounters, growth stands at 24 per cent. Poultry has a larger share of the protein market at the hard discounters than at the top four, likely due to prices, demographic preferences and the ease of cooking poultry. However, poultry has shown slower volume growth than red meat.

One major supermarket has recently announced it will be keeping many of its prices in-line with the discounters, demonstrating growing concern over the threat they pose. The key question is whether the discounters’ growth can continue; will consumers switch away once budgets are relaxed? IGD research indicates that shoppers expect to continue shopping at discounters even when their economic circumstances improve. The UK grocery market has recently had only a small discount channel. However, the current discounters still have some room to grow if they are to reach KwikSave’s peak market share of 10 per cent in the mid-1990s. For the time being, continued strong gains look likely, with announcements of new stores emphasising the discounters’ growth ambitions.

November 2013

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