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AHDB European Market Survey

02 May 2012

AHDB European Market Survey - 27 April 2012AHDB European Market Survey - 27 April 2012

The steady increase in EU cull sow prices which has been recorded over the last year continued through most of the first quarter of 2012 with prices reaching levels last seen in 2008.


EU Cull Sow Price Rise Continues

The steady increase in EU cull sow prices which has been recorded over the last year continued through most of the first quarter of 2012 with prices reaching levels last seen in 2008. Prices did dip early in the New Year due to a combination of reduced demand over the holiday period and falling clean pig prices. Since then, prices have increased sharply, driven by tight supplies in some of the main producing Member States while demand from manufacturers remained robust.

Cull Sow Prices in Selected Member States, 2011-12

Tight supplies are probably partly linked to the forthcoming ban on the use of sow stalls. In advance of the ban coming into force at the start of next year, some producers will leave the industry, liquidating their herds when they do so. Therefore, these producers are retaining sows rather than replacing them with gilts.

During the first quarter of 2012, German sow slaughterings totalled 226,000 head, down 18 per cent on the same period of 2011. As a result, by week ended 15 April, the German M1 sow average price was up 13 per cent since the turn of the year at €1.45 per kg. This is 18 per cent higher than the price a year earlier.

Prices in both the Netherlands and Denmark followed a similar trend to the German market. In Denmark, sow prices increased by 15 per cent from the start of the year to reach €1.16 per kg, 23 per cent higher than year earlier levels. As in Germany, first quarter sow slaughterings in Denmark were down significantly; at 82,000 head they were 20 per cent lower year on year. Sow prices in the Netherlands were up by 16 per cent since the New Year to stand at €1.33 per kg, 23 per cent higher year on year.

In contrast to Germany and Denmark, sow slaughterings in the UK continued at a high level. Throughputs in the first three months of 2012 totalled 65,000 head, around five per cent higher than AHDB estimates for the first quarter of 2011 and nearly 20 per cent up on 2010. Nevertheless, with most British sow meat destined for the export market, prices have stayed close to those in Germany. By week ended 15 April, the UK price was €1.48 per kg, 10 per cent higher in euro terms than at the start of January and 27 per cent higher than a year earlier.

Currency Update

Recent weeks have seen sterling continue to strengthen against both the euro and the US dollar. By Tuesday 24 April, the pound hit highs against the euro not recorded since August 2010 with one pound buying €1.23, and pushed to a five-month high against the dollar at £1=US$1.61. The pound also experienced a gradual strengthening against both the Australian and New Zealand dollars from mid-February, rising to £1=AUS$1.57 and £1=NZ$1.98 respectively.

Sterling-Euro Exchange Rate

For the same quantity of goods, an increase in the value of the pound relative to other currencies means UK exports become more costly while imports become less expensive. As such, this reduces the relative competitiveness of exports while increasing competition from foreign products in domestic markets.

The appreciation in recent weeks has followed growing confidence in the UK economy and increased demand for the currency as investors have sought protection against the ongoing turmoil in the Eurozone. The most recent strengthening followed news that the Bank of England’s Monetary Policy Committee had voted in favour of maintaining current levels of quantitative easing, without the need to further increase bond purchases, suggesting that the UK was perhaps on the road to recovery. In comparison, the euro has continued to be held back by concerns over the Eurozone’s ability to contain the sovereign debt crisis. A report last week from Moody’s Investors Service indicated that fiscal problems in Spain and Italy have driven their borrowing costs beyond sustainable levels with no lasting solution in sight.

The value of the pound saw a slight fall against all major currencies on 25 April as markets reacted to news that the UK economy had returned to recession following two successive quarters of contraction. The pound fell roughly half a percentage point against the euro and a quarter of a point against the dollar. According to preliminary figures released by the Office of National Statistics, the UK economy contracted in the first quarter of 2012 by 0.2 per cent. This followed on from the fourth quarter of 2011, when the economy shrank by 0.3 per cent.

Contrasting Trends in South Korean Pork and Beef imports

South Korean pork imports increased by 17 per cent in the first quarter of 2012 compared with a year earlier. This continues the trend of 2011 as a whole when pork imports were up 68 per cent on 2010, largely due to the effects of the FMD outbreak and resultant major shortages of domestic product (see EMS 12/05). The average unit price of imports in the first quarter of 2012 was up around a quarter in both US dollar and Korean won terms.

South Korea Pork Imports, Jan - Mar

The growth was largely the result of increased shipments from the EU, which were up 48 per cent on the same quarter last year; the EU market share went up from 35 per cent to 44 per cent. Imports from Germany rose nearly five-fold while trade with Poland was up by 175 per cent. Shipments from Spain and the Netherlands were also up on the year. This growth in trade can be partly attributed to the weakening of the euro against the won contributing to the strong price competitiveness of EU product. In contrast imports from non-EU markets were largely unchanged. Shipments from the United States increased five per cent but trade with Canada and Chile fell.

Forecasts made by the USDA in March indicate that South Korean pig meat imports will fall by 18 per cent in 2012 as a whole but they would still be considerably higher than in 2010. This reflects the fact that while domestic pig meat production is forecast to recover by 17 per cent in 2012 it would still be 12 per cent lower than in 2010. However, import levels will still partly depend upon Government policy towards imports of tariff free product (see EMS 12/15).

Beef imports into South Korea in January to March 2012 totalled 64,000 tonnes, down eight per cent on the same quarter last year, with falls from all key supplying nations. This followed a rise of 18 per cent in 2011 as a whole as shortages of pig meat encouraged consumers to switch to beef. From January 2012, Canada has been able to resume shipments to South Korea ending a ban imposed in 2003 because of the outbreak of BSE there. However, in the first quarter of 2012 less than 300kg of Canadian beef reached Korea. In 2002 Canada supplied 14,000 tonnes.

In brief...

.… EU export refunds on beef and veal and pig meat have been cut with effect from 20 April 2012. These take into account changing global market conditions. For live cattle and fresh/chilled and frozen beef they have been reduced by one third by Commission Regulation 343/2012. For pig meat all refunds on prepared pig meat products have been set at zero which brings them in line with chilled and frozen pork (Commission Regulation 342/2012). For the new export refunds see pages 9 and 10 below.

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