UK Prices

• After increasing sharply between February and late July, UK pig meat market prices had a much steadier tone in August and September. In the week ended 20 September the DAPP stood at 135.9p/kg dw, 1.3p off its peak in July but still 27p higher than a year ago. Price levels in recent months have been sustained by a combination of declining supplies in the United Kingdom and other European countries and the weaker value of sterling against the Euro. These price levels have only been exceeded in one previous period – in 1996, when the BSE crisis led to a switch in consumer demand away from beef to other meats.
  
• With throughputs expected to decline further over the next few months, both in the United Kingdom and in other EU countries, there is clearly a potential for further upward pressure on pig prices before the end of the year.

• The average carcass weight of pigs in the DAPP sample has increased sharply since mid-June. Average weights tend to increase seasonally at this time of year but the 2008 increase has been more marked than in most recent years except for 2007, when foot-and-mouth disease (FMD) restrictions led to a backlog of pigs awaiting slaughter. The average carcass weight in the week ended 20 September was the highest since February, when weights were still being influenced by the FMD effect.
  
• There have been further increases in cull sow prices. Nearly all sow meat produced in the United Kingdom is exported, and sow prices have therefore got a major boost from the depreciation of sterling. In addition, Continental European demand is reported to be very strong. The average price in the week ended 20 September was 133p/kg dw, more than double the level at the beginning of 2008. However, the upward trend may be flattening out, as prices dipped slightly in the latest week. Sow prices currently average 98 per cent of the clean pig price compared with the more typical 71 per cent seen in 2005-06.

EU Prices and Trade

• European pig prices moved slightly lower in September, not because of increased supplies but because of sluggish demand. In the week ended 21 September, the EU-27 average reference price was one per cent lower than four weeks earlier although German and Spanish prices were both down four per cent. Lower slaughterings in a number of countries and a buoyant export market are supporting market price levels, and the average EU price was still 19 per cent higher than a year before. However, due to the depreciation of sterling against the Euro, the EU price was 38 per cent higher than a year earlier in sterling terms.
  
• The relative flatness of the UK reference price has had some important trade implications for price differentials. In sterling terms, the UK price is now 4p below the EU-27 price (5p more a year ago) while it is just 5p above the Dutch price (13p higher) and 13p higher than the Danish price (19p higher).

• The EU exported over one million tonnes of pig meat in the first half of 2008, representing an increase of more than 40 per cent compared with a year earlier. In particular, exports of frozen pork to Russia doubled to 142,000 tonnes, aided by the availability of export refunds. Significantly more frozen pork was shipped to Japan and Hong Kong, and the Ukraine has emerged as an important destination. In contrast, less was exported to South Korea and the US than last year.
  
• Trading conditions may change before the end of the year. Export refunds on fresh, chilled and frozen pig meat were removed in August and there are indications that the Russians may take steps to restrict imports of pigmeat shipped above the agreed tariff quota next year in order to protect domestic pig producers. On the other hand, the US dollar has recently strengthened against the Euro, which will have pushed up relative US prices.

UK Slaughterings and Production

• August saw a three per cent increase in slaughterings compared with a year ago, in contrast to the year-on-year declines seen in the previous few months. This was not due to an increase in average weekly throughputs, which declined between July and August, but was the result of FMD restrictions last autumn. This led to Great Britain slaughterings in one week (week ended 11 August) being half the normal level.
  
• There was also a short slaughter week in September 2007 due to FMD restrictions. However throughputs in the other weeks in that month were relatively high as abattoirs struggled to clear the backlog of pigs awaiting slaughter that had built up. Provisional slaughter forecasts for September 2008 are therefore for a three per cent year-on-year decline.
  
• There are likely to be some particularly marked annual declines between October 2008 and February 2009 due to two factors. Firstly, weekly throughputs are trending lower due to the contraction of the breeding herd. Secondly, between October 2007 and February 2008 slaughterings were relatively high because abattoirs were still working through the FMD-related backlog of pigs.

• Sow cullings were at very high levels in the first three months of 2008, with high feed costs and industry losses being the prime drivers of these trends. Cullings have moved lower since April, and in July were down on 2007 levels. Sow cullings in August and September have remained much the same as in the previous two months, around 4,000 per week but between August and November 2007, there was little sow slaughter taking place because of FMD.

• Harvest worries have been dominating UK agricultural headlines in September. The very late harvest brought on by the ongoing rain has put a question mark on quality and yield potential of the remaining crops in the fields. ADAS reports that as at 17 September, 84 per cent of winter wheat has been harvested, with the remaining crops in the North. Quality reports remain mixed.
  
• However, prices moved lower during the month in response to forecasts of increasing EU and world grain production. At close of trading on 29 November, the November 2008 wheat futures market price had dipped below the £100 mark; at £99.50/tonne, it was £18 low than at the beginning of September.
  
• Influenced by falling crude oil prices and reasonable crops in the United States, Chicago soybean meal prices have been declining. In South America, dry conditions are disrupting maize and sunflower seed plantings. This could mean increased soybean plantings as it is a later sown crop. Soya is traded internationally in US dollars and therefore UK soya prices have not fallen as much as the Chicago price because of a weakening of sterling against the dollar. The average soybean meal price in week ended 26 September (Hipro, ex-mill, Liverpool) was £2662/tonne, 16 per cent higher than a year earlier.

Trade

• The decline in the value of sterling against the Euro this year has had a negative effect on imports, as a result of higher prices in sterling terms but it has had a positive effect on exports. Exports also received a boost from the very high volume of sow meat production, nearly all of which is exported, in the early months of 2008.
  
• UK exports of chilled and frozen pork in the seven months to July were up 10 per cent compared with exports in the same period of 2007. The growth in trade with Germany reflected the increased demand for sow meat but there was also a doubling in exports to Poland. This was mainly chilled fore-ends and bone-in shoulders. There has been an increasing trend for Polish processors to buy cheaper pork produced outside Poland. Prices in Poland are some of the highest in Europe.
  
• The UK imported 12 per cent less pork in January-July. In particular, 15,000 tonnes less pork was sourced from Denmark. Significantly less bone-in shoulder meat has been imported from Denmark this year.

Consumption

• Latest retail data from Taylor Nelson for the four weeks ended 7 September indicate that tighter supplies and higher prices are continuing to impact on sales of fresh pork and bacon. The volume of pork purchases was down 7 per cent but an increase of 14 per cent in the average unit price meant that consumers were spending 6 per cent more. For bacon, volume purchases were down by 5 per cent whereas expenditure was 14 per cent higher due to a 20 per cent increase in average prices. During the latest period, volume purchases of belly (+3%) and pork mince (+2%) were the only pork cuts to see a year-on-year increase.
  
• A recent Mintel report claims that the 'credit crunch' has forced changes in shopping habits. In the last 12 months, 41 per cent of consumers have switched to cheaper brands and 30 per cent have cut down on premium ranges.
  
• Total purchases of processed pig meat products in the latest four-week period were unchanged in volume terms, although higher unit prices meant that expenditure was up 10 per cent. Pig meat products have performed relatively well compared with processed beef products, which declined by 8 per cent in the latest period.
  
• Purchases of sausages increased by 6 per cent in volume terms although average prices were also up by 6 per cent. This suggests relatively strong demand for sausages.

United Kingdom Pig Survey Results

The United Kingdom provisional June 2008 survey results have been released. As expected, the provisional pig breeding herd showed a further decline year-on-year, to 423,000. However, in view of the very high sow cullings in early 2008, the recorded 7 per cent decline may well be an underestimate. In-pig sow numbers declined by 13 per cent, which suggests that there could be some further decline in the breeding herd.

There were also reductions in all categories of slaughter pigs although these reductions were all less than the decline in the overall breeding herd. This is likely, at least in part, to have been a reflection of further improvements in sow productivity.

Further Reading

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You can view the detailed results from the Defra survey of livestock numbers by clicking here.

October 2008