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AHDB Pig Market Weekly


22 February 2016

AHDB Pig Market Weekly - 22 February 2016AHDB Pig Market Weekly - 22 February 2016


AHDB

UK pork imports decrease in December

Imports of fresh and frozen pork to the UK slightly decreased in volume in December, by 1% on the previous year. However, over the same time period, value fell by 18% to £47.9 million, illustrating how the value of EU pork has decreased over the last 12 months, putting pressure on UK prices. The latest figures suggest that the UK buyers are sourcing slightly more of their pork from the domestic market than 12 months ago, as the price of UK pork continues to decrease and become more competitive against the European product. Through 2015, the reverse has been true at times, with UK buyers looking to source cheaper EU product, so this may be an early indication of a shift in this behaviour. During the month, increases seen in import volumes from the Netherlands and Spain were largely negated by a significant fall in German imports.

Sausages once again saw an increase in volumes (+13%), bolstered by increased volumes from Germany, the Netherlands and Spain. Bacon and processed meats saw more modest increases of 2% and 4% respectively, with higher bacon shipments from the Netherlands counteracting reduced volumes from Denmark. German shipments of processed meat supported the increased volumes seen in this category.

 

Overall UK pork exports saw a very modest increase of 1% in December versus the same period last year (to 15,200 tonnes). For the year in total, there was also a slight growth in export volume, of 2%, despite the exchange rate disadvantage UK exporters faced during the year. Ireland and China both saw shipments increase in 2015, by 11% and 10% respectively, whilst the Dutch and Hong Kong markets saw UK pork purchases fall by 8% and 24% in that order.

Although smaller in scale, offal exports showed strong growth once again, compared with December 2014, with almost 43% of all offal exports being shipped to the growing Chinese market.

Brexit and competitiveness in focus at Outlook 2016

Challenges facing the pork sector haven’t been far from the headlines in recent weeks and the UK’s other livestock sectors have faced similar challenges over the last year. This was the backdrop to last week’s AHDB Outlook Conference. Delegates heard from AHDB chairman Peter Kendall about AHDB’s role in helping to seek out new market development opportunities at home and abroad for our products. They also heard how AHDB can help farmers identify where changes could be made to their businesses to help manage the impact of the current economic climate.

The conference also focused on some of the major international political developments which will affect the industry in the coming months. One of these is the referendum on the UK’s membership of the EU and the conference heard from Professor Alan Matthews on the potential implications for the agri-food sector. Prof Matthews’ presentation examined an array of areas, including international trade, agricultural support and regulatory policy. Much uncertainty remains in all these areas about how UK policy would develop after a Brexit and what relationship the UK would have with the EU.

The livestock sector’s global competitiveness was in the spotlight during the presentation by Andrew McLay of Promar, who looked at the impact of Free Trade Agreements (FTAs). His presentation also considered other factors influencing competitiveness, including exchange rates, freight charges and, of course, production costs. His conclusion was that the UK could be competitive on global markets but this might be undermined by the slow pace of negotiation of FTAs by the EU.

Presentations from the Outlook Conference, which also include the latest outlook for the pig market, can now be downloaded from the Outlook Conference page on our website. The entire event was also filmed for the first time this year and videos will be available to watch soon.

UK Pig Prices

The EU-spec SPP fell slightly in the week ending 13 February by 0.53p to 112.89p/kg. Whilst this is the 13th consecutive week of decline, it is at a rate that is starting to slow slightly. Continued reports of heavier pigs meant that supply was still in excess of demand, although reports stated that processors managed a largely hitch-free week and slaughtered planned numbers.

The average carcase weight increased very slightly by 60g to 84.28kg during the same week. Average carcase weights have stayed in excess of 84kg for 5 out of the last 6 weeks and processors have anecdotally been struggling to stay on top of the heavier carcases being presented. The return to more normal weather for the time of year does not seem to have put a brake on growing conditions and weights have not yet returned to more normal levels. Estimated slaughterings rose from the previous week – up 1% to 183,900 head, a 6% increase on the same period a year earlier.

The EU-spec APP declined 0.92p to 117.31p/kg for the week ending 6 February, over 24p behind the same week last year. The gap between the APP and SPP grew slightly to just under 4p, which may mean that there were more premium pigs in the mix that week, as the SPP saw a sharper fall in the same week.
Prices in the weaner market diverged in the week ending 13 February, with 30kg weaners seeing an upturn in price of £1.34 to £37.20 per head, whilst 7kg weaners saw a slight decrease in price of 40p to £29.17. This is likely to be due to the mix of animals involved, with both prices remaining well below their levels of a year earlier. This may infer that there is still little confidence about the direction of the finished market.

Danish breeding herd starting to fall

Provisional figures from the 1 January pig census show that the number of pigs in Denmark remained stable in 2015, ending the year at 12.7 million head. This follows growing numbers recorded in 2013 and 2014. However, there was some movement in the number of breeding and young pigs. Declines were particularly prevalent for in-pig sows (-3%) and in-pig gilts (-4%), whilst maiden gilts saw a 10% increase to 221,000 head. This would infer that there is rationalisation of the breeding herd occurring and the falling pig price may be delaying the serving of some maiden gilts in an effort to tighten supplies. This streamlining of operations in the industry suggests falling optimism amongst producers.

2015 was a very challenging year Europe-wide for pig prices, and Danish producers have seen their prices fall from a high of DKK1,026 (€138) per 100kg in June 2015 to DKK909 (€122) per 100kg in January 2016 – a decrease of 11%. Danish prices have stabilised in the New Year, aided by the Private Storage Aid (PSA) scheme, during which the Danes stored 12,000 tonnes of pork.

Whilst the number of slaughter pigs in Denmark was slightly reduced (-2%), there was an increase in the number of young pigs, suggesting that there may be a small rise in Danish production in the first half of 2016 as these go through the system. Production levels are then forecast to tighten in the second half of 2016, as the effects of the rationalisation of the breeding herd start to hit. Potentially this could provide some support to prices in the second half of the year, depending on developments elsewhere in Europe.

Producer share of retail price hits new low

Farmgate pig prices fell once again in January (down over 7p/kg month on month), to the lowest level since April 2008 at 121.59p/kg. Despite the fall in farmgate prices, the average retail price stayed the same as December. This meant that the percentage share of the retail price received by the producer in January declined further, to the lowest level in well over a decade, at just under 32%. Compared with January 2015, farmgate prices have fallen by 16%. Over the same time period, the average retail price has only fallen by 1%. This has resulted in the percentage share received by producers falling by 5 percentage points from January 2015 to January 2016.

Retail pork prices by cut in January recorded diverging trends, based on prices collected by AHDB Market Intelligence. Fillet of pork, loin chops and diced pork all recorded an increase of 3% on the month, while minced pork rose by 2% and fillet end leg and loin steaks both increased by 1%. However, traditional pork sausages (-4%), boneless leg (-3%) and boneless shoulder (-2%) all recorded price decreases. Compared to January 2015, average retail prices showed more of a variation. While fillet end leg and pork fillet were 7% and 6% more expensive in January compared to the same point last year, traditional pork sausages and boneless shoulder were 5% cheaper. Other cuts recorded smaller price movements.

Feed market update

UK feed wheat futures prices (May-16) closed £1.30 up on the week at £106.80/t on Tuesday. May-16 Chicago wheat and maize futures prices also closed up on the week. UK grain exports have started to accelerate. In December, the UK exported over 250Kt of wheat, the highest monthly figure since February. Wheat exports totalled just under 988Kt over the six month period July-December. This is not quite reaching the “1Mt by Christmas” mark that the market talked about but is still 50Kt more than the previous year. Exports of barley in the first half of the season were also higher than previous year. The data also showed that the UK imported less maize in December but season to date imports are at 969Kt, which is 31Kt more than the same point in 2014/15.

May-16 Chicago soyabean futures prices closed up on the week on Tuesday at $324.27/t, a total increase of $5.60. Following a similar trend, Paris rapeseed futures (May-16) also closed up. As at Friday, UK rapemeal (34%, ex-mill Erith) for March delivery was £142/t, a drop of £3 from the previous week. Brazilian soyameal (48% ex-store Liverpool) for March delivery recorded a weekly decrease of £4, to £257/t, on Friday. Heavy rains in Brazil due to El Nino have caused a bottleneck in the number of ships waiting to load soyabeans and maize. The total volume waiting to be exported was estimated at 9.73Mt (approximately 163 ships). This time last year only 4.1Mt or 66 ships were waiting to be loaded.

EU pig prices hold steady

Pig prices in the EU have been largely stable over the last few weeks, after firming slightly at the start of the year. The latest average price, for week ended 7 February, was €128.59 per 100kg, virtually unchanged from the previous two weeks but nearly €3 higher than the first full week of the New Year. Even so, as that price was the lowest since April 2005, EU producers remain under considerable financial pressure. The slight improvement in recent weeks must be partly attributable to the Private Storage Aid, which was open for three weeks during January, but prices have remained steady since then. This suggests that supplies may be beginning to tighten, although that may be little more than the usual seasonal trend at this stage. Further signs of tightening supplies come from weaner prices, which have increased by 12% since the New Year, although rising prices are normal at this time of year.

In sterling terms, the rise in EU pig prices has been exaggerated by the weakening of the pound against the euro. The latest price is equivalent to 98p/kg, its highest level since October and over 5p up since the start of January. This means the gap between EU and UK prices has narrowed to below 15p, the lowest it has been since October 2013. This could reduce the pressure on the domestic market from imported pork, potentially helping to stabilise the GB price, particularly if the pound continues to weaken.

The general stability of the EU market was replicated across the major producing countries, with only modest movements recorded. The Dutch and Belgian prices did fall slightly in the latest week but this was offset by small rises in countries such as France and Poland.

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