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AHDB Pig Market Weekly


23 July 2015

AHDB Pig Market Weekly - 23 July 2015AHDB Pig Market Weekly - 23 July 2015


AHDB

UK pork production continues to grow

The strong growth of UK pig meat production continued in June, with output at 68,500 tonnes, up by 6% compared with a year earlier. This was the 22nd consecutive month with production rising year on year and the fifth straight month with growth of 5% or more. These high supplies continue to put downward pressure on prices at a time when consumer demand remains subdued. The main driver of the increase in production was a 5% rise in clean pig slaughterings, which totalled 812,500 head during the month. A similar rate of increase was seen in England and Northern Ireland, while Scottish throughputs were up by a slightly smaller 2% compared with June 2015.

Clean pig carcase weights averaged 80.5kg during June. This was the lowest average since August 2014 but was still over half a kilo up on a year earlier, contributing to the increased production. Also adding to output was a 7% year-on-year rise in sow slaughterings, the first increase in over a year. This may be just a case of cullings returning to normal after a period of low throughputs. However, given that cull sow prices are still very low, it could be the first sign of producers feeling the effect of the current negative margins.

Developments in the coming months will make it clearer whether this marks a significant change of direction or not.

EU exports down despite Chinese growth

Pork exports from the EU in May 2015 were 14% lower than a year earlier, totalling 114,700 tonnes. This was the lowest May figure since 2010 and came as many of the markets which had been supporting exports since the Russian ban reduced their purchases. To some extent, the reduction in shipments could be attributed to a rise in prices compared with recent months, which meant the gap between EU and US prices narrowed. Increased availability of US pork also helped it to regain much of the ground it had lost over the last 18 months. Of the major buyers of EU pork, only China took more this May than in the same month last year, although it did take substantially more.

 

In euro terms, the average export price this May was less than 1% lower than a year earlier, although there was a much larger fall in US dollar terms, the main currency used in international trade. This meant that exports also fell 14% in value terms, to €273.2 million. The weakening of export markets will certainly have contributed to EU pig prices remaining under pressure in recent months.

There was a similar picture for pig offal, with May shipments down 9% overall but exports to China rising. The fall was largely driven by a halving of trade with Hong Kong, due to logistical difficulties at the port there, which also led to a similar decline in pork shipments. Nevertheless, a rise in unit prices meant that the value of offal shipments was only 1% lower than a year earlier, at €97.5 million.

UK pig prices

UK finished pig prices saw marginal falls in the week ended 18 July, following the increase seen in the previous week. The EU-spec SPP was down by less than a tenth of a penny on the previous week at 133.07p/kg, despite a fall in the estimated number of pigs slaughtered. The gap between the current price and the same week in 2014 continued to fall, to 28p/kg, following sharper price falls seen at this time last year. Estimated slaughterings fell back, being down 4% on the previous week but still above the levels seen in 2014. Carcase weights increased marginally, for the second week in a row, to 80.37kg. However, this is still a low level compared to the rest of the year. As average carcase weights saw a larger increase this time last year, it led to the annual difference falling to less than a quarter of a kilo. The average probe measurement remained stable for the third week in a row at 11.1mm.

 

In the week ended 11 July the APP increased somewhat, following the decline seen in the previous week. The EU-spec APP was up by almost a fifth of a penny at 137.15p/kg, 27p lower than the same week in 2014. The difference between the APP and the SPP continued to fall, dropping below 4p for the first time since mid-April.

Weaner prices were again mixed in the week ended 18 July. The price of 7kg weaners was up over 60p at £33.10 per head, while 30kg weaners were down by almost £1.20 at £43.84. In both cases these reversed the movements of the previous week, as weekly prices continue to be influenced by differences in the mix of animals traded from week to week. Both prices continue to track well below 2014 levels, with 30kg weaners down by £11, while 7kg weaners were down by around £7.50 per head.

Subdued retail sales suppress EU pig prices

As with all commodities, prices for pigs are largely determined by the balance between supply and demand. In the case of pigs, however, it is relatively easy to track supply levels but more difficult to measure demand. In the absence of better sources, total pig meat consumption is usually derived by balancing production, imports and exports. Between 2007 and 2013, EU consumption fell by around 3kg per person but since then it has begun to rise again. However, despite this, retail demand for pig meat in the main markets of the EU has remained under some pressure in 2014 and so far in 2015.

 

This combination of apparently higher consumption and subdued retail sales, which is also apparent in the UK, suggests that an increasing proportion of pork is destined for more price-sensitive markets like foodservice or processed products. This combination explains why EU pig prices fell so sharply during 2014 and why they have remained stubbornly low this year.

Brazilian exports fall in first half of 2015

In the first half of 2015 Brazil exported less than 195,000 tonnes of pork, 4% lower than a year earlier. However, the average price of exports increased compared to a year earlier during the period. Over the six month period, the value of exports was up by 3% at R$1.5 billion. This was largely due to the continued depreciation of the Brazilian real, with prices in US dollars actually falling by over 20%, helping to ensure that Brazilian pork was competitive on most export markets.

 

Despite the overall decline in export volumes, shipments to the two largest markets, Russia and Hong Kong, actually increased. Volumes going to Russia rose by 14% as it looked to Brazil for its pork following imposing bans on shipments from Europe, Canada and the US last year. This meant Russia accounted for just under half of all Brazilian shipments, with volumes up 14% from last year. Shipments to Hong Kong increased by 6% and exports to the region could rise further in the second half of the year as the Chinese market has recently reopened to Brazilian pork. Much of the decline in exports was due to lower volumes going to secondary markets like Singapore, Angola and Uruguay, and other countries of the former Soviet Union, such as Moldova, Ukraine and Georgia.

Feed market update

It has been a fairly bearish week for global grain prices, mainly due to the rapidly advancing US winter crop harvest and ample global supplies. Nov-15 UK feed wheat futures closed at £123.50/t on Tuesday, down £2.75 on the week. The recent decline in UK feed wheat futures has more than undone the rally that was seen at the beginning of the month. Although some weather issues do remain across the globe, markets now appear to be more relaxed towards them. The EU maize crop remains in focus, with Strategie Grains highlighting that weather conditions are becoming really unfavourable for the crop across France, Italy and Hungary. With the prospect of reduced feed grain supplies in the EU this season, EU maize prices have risen relative to wheat, which should support feed wheat demand.

Oilseed prices also trended lower during the last week, likely in response to easing weather risks in North America. Coupled with strong global supplies of soyabeans, the strength of the pound continues to weigh on UK prices. On Friday, UK rapeseed (Nov-15 delivery, Erith) was £273/t, £7 lower than a week earlier. Brazilian soyameal (48%, ex-Store, Liverpool, Jul-15 delivery) was down by £2 at £304/t. Chinese soyabean imports were the second highest on record in June, spurred by low South American prices. If China is stocking up on cheap South American soyabeans, we may see a decline in its demand for the US crop later this year. So far, new crop US sales to China are the lowest since 2007 and if this trend persists, soyabean (and other oilseed) prices could decline further, especially as another large harvest is expected.

Weak euro puts pressure on UK prices

At the end of last week, the pound reached its strongest level against the euro for nearly eight years. One euro is now worth less than 70p, around 8p less than at the start of this year and almost 18p below the latest high in the summer of 2013. The recent uncertainty over Greek debt and its implications for the long-term stability of the euro have created pressure on the currency’s value. In addition, expectations that UK interest rates will start to rise in the next 12 months have added to sterling’s strength. With few expecting much to change in the coming months, it seems likely that the euro will remain weak.

 

Over the last decade, there has been a fairly close relationship between the exchange rate and the GB pig price, particularly once it has been adjusted to take out the effect of inflation. There is little doubt that the weakness of the euro has contributed to the fall in pig prices over the last year. If this doesn’t change, pig prices will struggle to recover to the levels seen in recent years. The euro was regularly below 70p between 2004 and 2007; during this period, the pig price was consistently below 140p/kg, even when converted to today’s prices.

Cull sow prices are even more directly affected by the exchange rate, given most sow carcases are exported to the Eurozone. Again, this means there is little prospect of a recovery in prices, which have recently been at their lowest level since 2007 – the last time the exchange rate was at similar levels.

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