Producer Prices

United Kingdom producer prices strengthened significantly during October due to continuing supply shortages, seasonally stronger retail demand and processors buying for the Christmas market. The average UK price in the week ended 25 October was 106p, up 8p on the seasonal low point in early September and 17p higher than a year earlier.

Little change was recorded in weaner prices during October, with prices of 30kg pigs averaging around £34.

Supplies of cull sows have continued to decline this year, with weekly slaughterings in the range 4,000-4,500 compared with 5,700 a week in the first quarter of 2003. However, despite this, cull sow prices drifted down slightly, to end the month at 58p/kg dw, 1p lower than at the end of September. The export market has been hit by increased manufacturing pig meat supplies and low prices in the Continental EU and also by a recent strengthening of sterling against the Euro.

Comparison of UK and EU Pigmeat Reference Prices (a) Price based on EU dressing specification adjusted to cold carcase weight. These are gross prices before deductions for transport, etc. MLC estimates that the typical deduction in the UK is 4.5p/kg compared with an EU average of 2.6p.

The gains which EU prices saw in September were lost in October, when the EU market went into sharp reverse. The undersupply situation that had arisen in September due to the impact of the hot summer weather disappeared. The EU Reference Price in the week ended 26 October averaged 13 per cent less than a month earlier. In sterling terms, the EU price fell to 86p/kg, having briefly risen above 100p in September. A particular driving factor behind the current slump in prices is the increased availability of low-priced pig meat from Spain. Spanish prices are now the lowest in the EU, having fallen by 30 per cent in the past three months.

Most major pig producers recorded sharp declines. Prices feel by 18 per cent in France, 15 per cent in the Netherlands and 13 per cent in Germany. The increase in Dutch prices during September had bought prices to within 2p of the UK price at the end of the month, but by the end of October the UK price was 24p higher.

Firmer British pig meat prices at a time of declining prices in other EU member states have led to a rapid change in the UK:EU price relationship. The UK premium over the average EU price disappeared during September. This was the first time that the UK price had been below the average EU price (other than in 2001, when there was an FMD-related ban on UK exports) since 1999. However, by the end of October the UK price was back to 18p above the EU average

EU Pigmeat Prices

Slaughterings

Clean pig slaughter levels have been well below corresponding 2002 levels since January. This has arisen in part from a lower breeding herd but more importantly from poorer sow productivity. Defra slaughtering statistics for September indicate that UK throughputs averaged around 182,000 head while preliminary MLC estimates for October indicate that average weekly throughput increased to around 187,000 head.

A number of factors are likely to have contributed to lower productivity this year, including:

• Reports of some sporadic increases in PMWS incidence in the early part of 2003.
• Some disruptions to breeding patterns and performance arising from a significant number of producers depopulating and then repopulating last year.
• A developing sow infertility problem since last autumn, which affected clean pig slaughter levels in the April-June quarter.

Since the middle of the year there has been some recovery in productivity, as these factors have become less acute. But the extent of the recovery so far is likely to have been held back by increased mortality and poorer growth rates, arising from the hot summer weather.

Estimated GB Sow Productivity Trends (a) (a) Defined as monthly clean pig slaughter annulaised and divided by estimated breeding herd 7 months earlier. Ratio's are deseasonalised and smoothed. Adjustments made to take account of Swine Fever in 2000 and FMD in 2001

The hot summer weather is also likely to have a longer-term impact on the UK pig meat sector. The heat affected conception rates, which is likely to have a negative effect on slaughter levels in the spring of 2004.

Consumption

During the latest 4-week period (ended 12 October) there was a further seasonal increase in volume purchases of fresh pork and bacon. However purchases remained down on the year before. In the 12 weeks to 12 October, pork purchases were down by six per cent and bacon by three per cent. Higher retail prices led to expenditure on pork being one per cent higher than last year while bacon expenditure was unchanged. The continued decline in UK pig meat production meant that there was a marked shift in the relative importance of home-produced and imported bacon, with purchases of British bacon down 22 per cent on a year earlier.

Changes in retail purchases and expenditure Source: Taylor Nelson Sofres

Purchases of processed pig meat products have been growing. Purchases of frozen pork products were up 13 per cent while there were also increases in pork sausages (+11%), sliced cooked pork (+5%) and ham (+5%).

World Markets and Trade

This section is based on information contained in the October 2003 edition of the USDAs “Livestock and Poultry: World Markets and Trade”. The complete publication can be found at http://www.fas.usda.gov/dlp/circular/2003/03-10lp/toc.htm.

Competition among major exporters is expected to intensify in 2004, particularly in Japan where excess supplies of frozen pig meat appear likely. Brazilian exports meanwhile continue to grow.

United States: Pig meat production is forecast to increase by half of 1 percent in 2004, with increased imports of Canadian live pigs offsetting the impact of the downturn in the breeding herd.. The Country-of-Origin-Labelling (COOL) provision, due to be implemented at the end of September 2004, remains a complicating factor. Japan continues to be the most significant importer of U.S. pig meat. While Japanese demand for U.S. fresh/chilled pig meat has fallen, U.S. exports of frozen meat, propelled by a favourable exchange rate relative to other suppliers, have sustained the recent U.S. growth in the Japanese market.

Canada: The Canadian industry has been hit by multiple incidents, affecting demand. Earlier in the year, an outbreak of the Sudden Acute Respiratory Syndrome (SARS) severely injured the Hotel and Restaurant Industry (HRI) in two of Canada’s most populous cities. This was followed by the BSE situation, which suspended cattle and beef trade in May 2003. Weakening consumer demand, due to falling beef prices, led to a decrease in Canadian slaughter and a diversion of slaughter pigs south to the United States.

Brazil: Feed costs are projected to increase only very moderately over the next year, as the 2003/04 Crop Plan will continue to subsidise cereal production. Since 2000, Brazilian exports have grown 300 percent, from about 8 percent of total production to an anticipated 25 percent of production in 2004. Low production costs and extremely competitive exchange rates have favoured Brazilian exports, particularly in the Russian market. After trade disruptions in early 2003, due to reported outbreaks of Aujeszky’s Disease, Brazilian exporters managed to regionalise disease status to the municipal level. Continuing efforts to insulate major exporting areas from repeated disruptions have enabled pig meat shipments to continue. Brazilian efforts to reduce dependence on the Russian market appear to be gaining momentum, although Brazil has yet to negotiate full entry into the Japanese market.

European Union: After a projected decline of 16 percent in 2003, EU pork exports are forecast to decline by a further 4 percent in 2004. The relative appreciation of the Euro, and a Russian TRQ system that has largely favoured Brazil, places European exports at a clear disadvantage.

Russia: Imports are projected to decline by 25 percent in 2003. This trend is expected to continue in 2004, as the Russian pork industry works to rebuild domestic production. Russian imports for 2004 are forecast to decline by a further 12 per cent.

Source: BPEX - 30th October 2003