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AHDB Pig Market Weekly


09 February 2015

AHDB BPEX Pig Market Weekly - 9 February 2015AHDB BPEX Pig Market Weekly - 9 February 2015


AHDB

EU maintains two thirds share of Chinese imports

Chinese pork imports decreased by 3% on the year in 2014, bucking the trend of the previous four years. Imports totalled 564,000 tonnes, still above 2012 volumes. China’s growing population continues to show a preference for pork as a protein source. However, the ability of its suppliers to deliver has altered. For example, the US, the single largest pork trader with China, shipped almost 2% less pork on the year, as contamination concerns remain, particularly around the use of Ractopamine, and US production was affected by PEDv. In contrast, the EU as a whole increased its annual deliveries marginally to 368,700 tonnes, accounting for 65% of the market. This can be attributed to growth from Spain and Denmark as well as the UK, in its second full year of trading here, evening out reductions from Germany, France and Poland. At 27,500 tonnes, the UK was the fourth largest EU supplier to China in 2014 (and sixth largest overall) with a market share of nearly 5%.

As overall volumes fell, unit prices also dropped on the year by 2%, despite global pork export prices increasing sharply overall. This partly reflects the mix of products destined for China, many of which have low value elsewhere, but may also give an indication that the prices Chinese consumers are prepared to pay may have peaked for now. The total value of pork imports fell by 5% to RMB6.5 billion (£635 million).
Pig offal imports increased marginally on the year but remained below the volumes of 2012. Asian consumers have a strong preference for offal and cuts deemed less desirable in the West. As such, China continues to be a profitable market for these products, which have little value on domestic markets in North America and the EU. However, this growth appears to have been underpinned by decreasing unit prices, falling by an average of 7% in 2014.

Pig farm business incomes slip in 2014/15

According to latest forecasts from Defra, the average farm business income (essentially the same as net profit) for specialist pig farms in 2014/15 is set to slip back slightly from the year before. However, at £51,500, the provisional estimate for the current year still represents the second highest income in the last six years. The decline of 21% was the largest proportional fall for any type of farm but most sectors are projected to have recorded declining or static incomes this year. The only exception is grazing livestock farms, which have the lowest average income, despite small rises this year.

Specialist pig farm incomes have been hit by falling pig prices, with an average drop of 7%, partly offset by improved productivity and heavier weights. A decline in stock values, given lower weaner and cull sow prices, has also contributed to the overall reduction in farm business incomes. However, input costs are also projected to be lower, particularly for feed which is the main cost for pig farms. This has limited the fall in farm business income and helped ensure that the overall position of pig farms has stayed relatively strong.

UK pig prices

The EU-spec GB SPP in the week ending 31 January was 139.06p per kg. This is 0.84p back on the week, despite a lower throughput. This has bought estimated slaughterings back to a similar level to last year for this week, after reports of ample supplies in recent weeks. Carcase conditions, which also contribute to production volumes, remained consistent on the week, with carcase weights and probe measurements not changing from 82.9kg and 11.3mm respectively. The weakening euro against the pound is likely to heighten the differential between prices on the two markets, regardless of early indications of some reversal in the rapid downward price trend on the continent. This will mean that EU prices continue to exert some downward pressure on the UK market.

For the week ended 24 January the EU-spec GB APP averaged 143.26p per kg, back 0.80p on the week. Thus, the gap with SPP in the same week was amplified to 3.36p.

The weaner market continued to be thin in the week ended 31 January, returning to its downward trend. 7 kg weaners were priced at an average of £33.79 a head, back 36p on the week. This cancels out last week’s slight rise and brings the price back to the lowest recorded since the series began in mid-2013 and £8 behind last year. The outlook for finished pig prices remains under pressure, despite the bearish feed market outlook. 30kg weaners also followed this trend, down £2.50 to £44.60 a head, the second largest weekly drop in four months. While this price is up 22p from the lowest point of 2015, it represented almost £11 less for the producer than a year ago; the January average stands £10 back on the year, demonstrating the volatility of this market.

EU cull sow prices fall below €1 per kg

The beginning of 2015 has so far continued the downward trend of EU cull sow prices reported in the second half of 2014. This has largely been led by Germany, where sow meat is used in the processing of traditional products. Prices here have dropped 36 cents from a peak in May 2014 to the end of the year. With a further 5 cents lost through January 2015, the price now stands just above a euro at €1.01 per kg. There is usually a seasonal pattern around the end of a year as processors increase production prior to Christmas and then reduce their capacity over the festive period. However, no recovery is apparent yet in 2015 trade. The continued drop in price can, in part, be considered demand-driven, due to product not going to Russia, with the impact on finished pig prices adding to the direct effect on sow meat demand.

Other significant EU markets have all decreased on the year as at 25 January; prices in Denmark and France fell by a third to €0.66 per kg and €0.74 per kg respectively. The Dutch price has fallen by a quarter to €0.78 per kg on the year, a loss of 13 cents in the last quarter of 2014. Despite this, French prices have fallen below the Dutch in this quarter, losing 47 cents since a peak in July. As the cheapest market, Danish prices are now around 35 cents below the German price, although this does not include any annual bonus payments. With the euro weakening sharply in recent weeks, the GB sow price, which needs to follow trends of the EU market to remain competitive, is likely to be falling even faster in sterling terms.

The far-reaching effects of low oil prices on agriculture

The fall in nearby Brent crude oil futures to under $50/barrel, from over $115/barrel in mid-June, is likely to have far reaching effects on agriculture both in the UK and worldwide. Despite currency movements, crude oil prices in sterling terms have also lost over half their value since June. This has come on the back of strong increases in world oil production. Oil prices affect farmers’ margins through links with both input and, to a lesser extent, output prices. On top of this, the potential effects on the wider global economy could be noticeable and, if it is an indicator of slowing global growth, could mean a slower pace of growth for agricultural products, including pig meat. On average, however, and for the UK and Europe particularly, lower oil prices themselves are expected to benefit economic growth.

For livestock sectors, the effects of lower oil prices on grain and oilseed prices have a significant influence on feed costs, which represent over half the cost of production. It is through this channel that lower oil prices will have a greater impact on margins, rather than through lower energy costs. However, while it is straightforward to assume that oil-induced movements in grain prices will mean lower feed prices, the impact from oilseeds is more complex. If increasing liquid fuel consumption supports the demand side of the vegetable oil market, due to biofuel mandates, the incentive to crush oilseeds would be supported. All other things being equal, this would increase oil meal supply, putting downward pressure on the price of these key feed ingredients.

To read more about how the fall in oil prices may influence agricultural markets, click here.

Feed Market Update

After dropping to a 4-month low in the middle of the week at £122.50/t, UK May-15 wheat contracts bounced back on Tuesday (3 Feb) increasing £3.55 over the day to close at £126.05/t; overall this was down £1 from last Tuesday (27 Jan). Recent data indicate a 1.3% decline in UK compound feed demand so far this season (July-November). While consumption of compound feed is up for pigs and poultry, this is offset by lower usage by cattle and sheep. As a result, in the January UK supply and demand estimates, wheat demand for animal feed is estimated 176Kt lower than November’s estimate. However, as maize and barley have become more price-competitive against wheat in certain regions, usage estimates for both were increased.

UK rapemeal (34%, Ex-mill Erith, December delivery) was £189/t on 30 Jan, down £1 on the week before. On the same date Hi-Pro soyameal (Ex-Store East Coast delivery) was £330/t; this was £11 higher than the last recorded price on 16 Jan. Informa Economics raised its estimates of 2014/15 Argentine corn and soybean production but left its soya production estimate for Brazil unchanged at 93.5 Mt. Informa put Argentine soybean production at 57Mt, up 1.5Mt from last month.

To read more about the latest developments in the feed market click here.

PEDv shaped 2014 for Japanese industry

At the end of 2014, Japan further strengthened its position as the world’s largest pork importer as its own production was hugely disrupted by widespread outbreaks of PEDv. Consequently, imports increased by 12% on the year to 829,400 tonnes. Imports particularly increased in the second and third quarters of 2014 but decreased marginally in the last two months of the year as stock levels were high and consumer demand was subdued. Unit prices were up an average of 4% on the year, following an increase in the gate price as domestic prices rose rapidly. As such, in conjunction with increasing volumes, the total value of pork imports in 2014 was ¥456.4 billion. However, the yen has continued to weaken against the dollar, dropping prices in dollar terms. With further PEDv cases confirmed in January 2015, no stability is expected in the short term for this market.

In contrast to last year, the EU had a larger market share at 38% as the US share dropped to a third, owing to a reduction in its own production due to PEDv. Canada remained the second largest country provider, with an increase of 4% on the year as a whole. However, its volumes decreased slightly in the second half of the year as more pork was sent to the US and Mexico. Chilean product also decreased, as it was diverted to Russia. Conversely, Brazil continued to establish its trade with Japan in the second half of the year, albeit at low volumes. European contributions to the mix increased, as the value of this trade went over €1 billion for the year, led by Denmark delivering 135,000 tonnes, up 19% on the year. Spanish shipments almost doubled to 65,500 tonnes. Large increases also came from the Netherlands, Hungary, Austria, Germany, France, Ireland and Italy but Polish deliveries decreased after ASF was confirmed there.

 

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