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AHDB Pig Market Weekly


18 April 2016

AHDB Pig Market Weekly - 18 April 2016AHDB Pig Market Weekly - 18 April 2016


AHDB

UK exports increase again in February

UK exports of fresh and frozen pork increased once again in February, to 17,800 tonnes. This is a 16% increase on the same point last year. The growth was driven by a rise in shipments to Germany (+50%, largely on the back of increased sow slaughterings), China (+24%) and Ireland (+11%). Shipments to the US kept up the pace seen in January, with 700 tonnes of pork exported in February, more than double the amount recorded last year. Another high value market, Australia, received 230 tonnes, nearly ten times as much as a year earlier.

The value of UK exports also increased on the year by as much as 25%, with exports for February totalling £18.4 million. The overall increase in export value was helped by a rise in the average unit price of 8% year on year. In particular, the price that China paid for UK pig meat increased by 18% February to February, perhaps reflecting the inclusion of more higher-value cuts in the mix.

Exports of offal increased by over half in February, compared to a year earlier, to 6,800 tonnes. There were strong sales to a variety of markets, in both Asia and the EU. In January, a sharp rise in exports of sausages and processed pig meat was recorded. However, as expected, these figures have been revised and year to date exports are now down on a year earlier for both categories.

Imports of fresh and frozen pork in February increased slightly (+1%), compared to a year earlier. The overall increase was driven by rises in shipments from Denmark, Spain, France and Poland, outweighing declines from Germany and the Netherlands. Overall pig meat imports were lower, however, as less bacon and ham was imported. Unit prices for imported pig meat remained down on a year earlier, although by just 3%, so the total value of imports was 5% lower at £146.5 million.

Future pig prices – what does the past tell us?

Everyone in the pig industry is well aware that pig prices are low at the moment. In fact, they are at their lowest level since early 2008. However, before that, prices had been at even lower levels for over a decade. Between August 1997 and December 2007, the monthly average pig price was only once above 110p/kg and was frequently below £1/kg.

So, can we expect another decade-long period of low prices or will they pick up as quickly as they have fallen? Of course, it is impossible to be sure about the answer to this question. However, we can look at the lessons of history to see what factors might influence prices in the coming months and years.

UK pig prices

In week ended 9 April, the EU-spec SPP marginally increased, by 0.31p, to 112.55p/kg, making up the loss recorded a week earlier. It is also worth noting that this week was the first full week after the Easter holidays, suggesting that supply is balancing back out with demand somewhat. Despite the week on week increase, the current quote is still over 19p behind the same point last year. However, the gap is narrowing as the price quoted at the same point in 2015 was falling.

The average carcase weight recorded a very slight increase on the week to 83.77kg, maintaining its level above the 83kg threshold seen since the start of the year. Furthermore, the current weight is 1.4kg heavier than the same point last year. Estimated slaughterings were up 2% on the week at 169,000 head, returning near levels last seen before the Easter break. Additionally, estimated slaughterings are also 5% higher than same point last year, although that was a short week due to the later Easter in 2015.

The EU-spec APP also increased in week ended 2 April, by 0.28p to 116.32p/kg, returning to levels last seen in February. The gap between the SPP and APP remains under the 4p threshold at 3.8p, but increased on the previous week as the SPP fell back slightly in week ended 2 April.

Diverging trends were recorded between the two weaner categories in week ending 9 April. 30kg weaners increased by £2.07 to £37.93 a head, the highest price since mid-January. Nevertheless, 7kg weaners decreased by a modest 11p, to £28.53 a head. Compared to last year both 30kg and 7kgs weaners are down on the price for the equivalent week by £6.10 and £4.76 respectively.

EU prices increasing again

Pig prices in the EU have begun to increase again, following a slight backwards movement around the end of February, with most Member States showing a similar pattern. The latest average pig price, for week ended 3 April, was €128.52 per 100kg. While this was a slight decrease on the previous week, it is still an increase of over €4 on the beginning of March. There was an improvement in price recorded in the build up to the Easter holidays as demand was reportedly strong. Nevertheless, with prices still historically low, the EU has stated that it will investigate re-opening Private Storage Aid and look to establish a Meat Market Observatory. These actions may help to further stabilise the EU price, if they come to fruition. However, it is also prudent to remember that some of the pig meat stored during the PSA in January will soon be released onto the market, at a time when it is still under significant pressure.

In sterling terms, the EU pig price has also been rising over recent weeks, although it fell slightly in the week ending 3 April. It now stands at 102p/kg, back to levels last recorded in October 2015. The improvement in the EU pig price, coupled with the continued decline of the UK price and the weakening of sterling against the euro, has resulted in the UK premium now sitting at around 10p/kg. This is the lowest level recorded since September 2013 and could mean less demand for imported pork, helping to support the UK market.

Producer share of retail price levels in March

Having fallen markedly over recent months, the share of the retail pork price received by producers was fractionally higher in March. Both farmgate and retail prices were about 1% lower in March than in February but the fall for the latter was marginally the larger. The net result was that producers’ share was just over 30%, still among the lowest percentages on record. This is five points lower than in March 2015 and 11 points down on two years before. Over that time, pig prices have fallen by nearly 30%, while retail pork prices have dropped by just 3%, based on a weekly survey carried out by AHDB Market Intelligence.

The reduction in retail prices in March was mainly due to cheaper leg and shoulder cuts, which were down by 2-3%. Prices for most other cuts monitored were only slightly different from February, apart from diced pork which was 2% more expensive. Compared with March 2015, prices for leg cuts were still higher (+2% for boneless leg, for example), as were pork fillet (+4%) and minced pork (+6%). In contrast, shoulder prices were down by 5% on a year earlier, while loin chops and diced pork were also cheaper. Other prices had moved by smaller amounts compared with a year before.

Feed market update

Further weakening of sterling against a number of currencies last week helped UK wheat futures to somewhat resist greater falls recorded by international wheat markets. On Tuesday, UK feed wheat futures prices (May-16) closed down on the week at £104.35/t, a total decrease of £2.10. May-16 Chicago futures prices recorded a larger decline Tuesday-Tuesday, while May-16 Chicago maize futures prices closed up. In February total pig feed production was up 3% compared to the year before, according to Defra. This takes season to date (July-February) usage to 1.3Mt, 3% ahead of the same point last season. Barley inclusions in February increased by 13% compared to a year earlier, while wheat usage fell by 1% year on year. In its latest world supply and demand report the USDA increased its forecasts for global end of season stocks for both wheat and maize, as well as for soyabeans.

May-16 Chicago soyabean futures prices closed up on the week on Tuesday, while Paris rapeseed futures prices closed down on the previous Tuesday. On Friday, rapemeal (34%, ex-mill Erith) was £158/t for April delivery, an increase of £2 on the week. Similarly, soyameal (hi-pro, ex-store east coast) recorded an increase on the week of £4, at $250/t on Friday. In February rapemeal inclusions in animal feed decreased by 10% compared to a year earlier, while soyameal usage increased by 11%, in line with trends for the season so far. China’s Ministry of Agriculture has announced it plans to reduce the country’s maize area in some parts of the country by 3.3Mha by 2020. The aim is to boost soyabean sowings to try to meet domestic human demand.

Mercosur trade offer could open up EU pork market

Reports circulating around the EU over the last week suggest that EU negotiators are preparing to offer some South American countries import quotas for selected agricultural products. A draft of the EU’s offer to Mercosur, due to be tabled next month, reportedly includes an offer of a tariff rate quota for pork. This would allow the Mercosur countries to supply 3,000 tonnes of prime pork cuts and 9,250 tonnes of lower quality pork to the EU, provided it was Ractopamine-free. This would be subject to a €83/tonne levy but this is well below current tariffs, which range from €467 to €869 per tonne, depending on the cut involved.
The offer is part of the reopened negotiations with Mercosur, a block of five countries established in 1991, which covers Argentina, Brazil, Paraguay, Uruguay and Venezuela. Negotiations over a Free Trade Agreement (FTA) between Mercosur and the EU had been stalled for some time but the election of a new government in Argentina at the end of last year has allowed them to recommence. Among the Mercosur countries, only Brazil is a significant pork exporter.

If fully utilised, the new quota would more than double EU pork imports, which totalled just 8,000 tonnes in 2015. However, the quantities involved are small relative to overall EU supply levels, so would probably have little impact on the market. Nevertheless, there may be some concern that the offer to Mercosur could set a precedent for negotiations with the United States over the Transatlantic Trade & Investment Partnership. The US is a much larger pork exporter than Brazil and would like access to the EU market. At the moment, there are no clear indications of what the EU might be prepared to offer the US.

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