UK Prices

The downward trend in the DAPP reported in September continued into October with the monthly average for October at 138.6p per kg, almost five per cent lower than a year ago and eight pence per kg lower than its peak in June. The weekly DAPP continued to move lower in the first three weeks of November, although at a slower rate. By week ended 20 November, the average price had fallen two pence since the end of October to 136.4p per kg. Due to relative weakness of the euro against sterling, as result of ongoing economic problems across Europe, processors are able to source imports of lower-priced manufacturing quality pig meat and this is likely to have been a factor in the weaker market prices, rather than any fall in consumer demand.

Average carcass weights of pigs in the DAPP sample have increased seasonally since July to reach just over 80kg in October. Carcass weights are now at the same level as a year earlier. Improved growing conditions during the late summer period aided growth rates, which has led to the increase in the average carcass weight in recent months. However, the average probe measurement in October was almost one per cent higher than a year earlier levels at 11.5mm, indicating that heavier carcasses were having an adverse affect on producing lean pigs. Since June this year, the probe values have been exceeding year earlier measurements more frequently, largely as a result of good growing conditions in the summer.

The weakening finished trade has been reflected in a declining spot price for 30kg weaners. The weaner market in Great Britain has weakened since May. Weaner prices have reacted more rapidly than the DAPP to the rise in feed costs. In October 2010, the weaner price at £43 per head was 16 per cent lower than the same month last year and £12 per head lower than its peak in May 2010.

Sow prices across most Member States fell in October after increasing in September as competition for sows had intensified. The GB average sow price in October at just above 96p per kg was 14 per cent lower on the same week last year and prices weakened further in the first two weeks of November to average 93p per kg in week ended 13 November. The Netherlands sow price was markedly higher in September, largely due to competition in the processing sector. However, prices fell in October to just above 88p per kg, although this was marginally higher than with a year ago. The German sow price averaged 104p per kg, down four per cent on corresponding month last year.

Exchange Rates and EU Prices

Across Europe, the average pig producer price was €1.38 per kg in October, a reduction of five per cent compared with September. By week ended 21 November, the EU pig reference price had fallen by six per cent since early September to average €1.37 per kg (£1.17 per kg). However, compared to the week earlier, there were marginal price increases in some major pig-producing Member States. Prices in Germany and France increased almost one per cent on the week to average €1.45 per kg (£1.24 per kg) and €1.27 per kg (£1.08 per kg) respectively, while prices in Spain and Denmark remained at a similar level to the week earlier.

The declining EU finished pig price has had a knock-on effect on the price of weaners sold for finishing. The average EU weaner price in October was 15 per cent lower than in the corresponding month a year earlier. However, in week ended 21 November, the value of weaners in Germany and France increased week on week to €41 (£31) and €23 (£19) per head, although prices are still considerably below what they were earlier in the year. Feed costs have risen considerably for both breeding and finishing enterprises during this time.

The increased value of the euro against the US dollar and a recent easing back in demand is now having an adverse effect on EU pig meat trade with third countries, in particular Russia and Japan, and so also affecting EU pig prices. The euro is currently valued at US$1.38, an appreciation of eight per cent since the middle of August. Since the low point in June, the euro has moved up steadily. Exports to Russia during the first seven months of 2010 totalled more than 170,000 tonnes, 67 per cent higher than a year earlier and, more importantly, exceeded 76 per cent of the annual Russian quota. As a result, the EU will have limited opportunity to export to Russia during the last part of 2010.

The forecast increase in EU pig slaughterings in the final quarter of 2010 and first quarter of 2011, combined with subdued EU consumer demand and lower global demand for EU product, will lead to excess supply of European pig meat in the coming months. This has been signalled in the EU pig reference price forecast, indicating that the EU pig reference price will remain below €135 per 100 kg through to the second quarter of 2011.

UK Slaughterings and Production

The October slaughter data for the UK suggests that the regional trends are similar to last month and show that the increase in slaughterings continued across all regions. UK pig slaughterings totalled 947,000 head during October, four per cent or 38,000 head more than the corresponding month a year ago.

Throughputs at abattoirs in England and Wales at 733,000 head were three per cent higher year-on-year and accounted for 77 per cent of total UK throughput. Following the trend during the year in October, the largest proportional increase came from throughput at abattoirs in Northern Ireland, where slaughterings increased 13 per cent year-on-year to 157,000 head. Slaughterings of clean pigs in Scotland increased by four per cent year on year to 57,000 head.

Year-to-date UK pig slaughterings in the first 10 months of 2010 were five per cent higher than year-earlier levels at 7.8 million head. For most of 2010 average carcase weights have been higher than last year and as a result, pig meat production over the same period was six per cent higher.

Imports of pork into the UK continued to fall year on year as domestic production remained high. In the first nine months of 2010, total fresh and frozen imports declined four per cent compared with the corresponding period a year ago. This was largely due to shipments from Denmark in the nine-month period falling by 20 per cent year on year as Denmark continues to divert its exports to other EU markets, in particular to Germany. As a result, imports from Denmark accounted for only 25 per cent of all UK imports in January to September 2010, compared with 29 per cent in the same period in 2009. This fall was partially offset in volume terms by increased imports from the Netherlands. Shipments from the Netherlands rose considerably, by 43 per cent year-on-year. Similarly, Belgium also increased its deliveries by eight per cent to become the third largest supplier fresh and frozen pork to the UK ahead of Germany. Reduced shipments from Germany, France and Spain also contributed to the fall in imports during the first nine months of the year.

In contrast to fresh and frozen imports, UK imports of bacon during the period increased by over three per cent to 237,000 tonnes. Denmark remained the main supplier, despite shipments falling by almost one per cent. The Netherlands and Germany increased their deliveries by eight per cent and 20 per cent respectively. The volume of processed ham imported increased by two per cent to 65,000 tonnes while imports of sausages decreased by almost six per cent, largely due to a decline in Irish sausage imports of 54 per cent.

Pig meat exports continued to show strong year on year growth. The latest trade data indicates that exports of fresh and frozen pork in the first nine months of 2010 increased by 27 per cent, despite an appreciation of sterling in the second and third quarters of the year. However, volume of fresh and frozen exports were only eight per cent higher compared with 2008. Increased exports so far this year have been predominately to Germany and the Netherlands, where shipments increased by 14 per cent and 51 per cent respectively. Exports to Ireland also increased considerably during this period and as a result the proportion of pork delivered within the EU increased from 76 per cent in 2009 to 83 per cent in 2010.

Feed Prices

With most Northern hemisphere crops now into their winter dormancy period, external market factors continued to be the principal drivers of world wheat prices in November. The US dollar strengthened to its highest levels for two months as investors opted for 'safe havens' in response to European debt concerns. The stronger US dollar put pressure on US world wheat prices as it made products priced in dollars less competitive.

UK wheat futures prices closed at their highest levels for two years on Friday 26 November at £177 per tonne for January delivery, up over £8 per tonne week on week due to concerns over availability in the second half of the season (January to June 2011). Concerns have arisen partly due to the strong export pace of UK exports, fuelled by the good quality of UK wheat and a relatively large discount to French values.

The continuation of high grain prices maintained high costs of production within the pig sector. Estimations for November indicate that the average cost of pig meat production is 18p per kg higher than the DAPP. Futures prices exceeded £180 per tonne for May and July 2011 delivery in week ended 26 November indicate a continued challenge to the industry.

Consumption

Between September and October 2010, the producer pig price fell by two per cent to 139p per kg, the lowest price since February 2009. With the average retail price remaining at the same level month on month, the proportion of retail price received by the producers during October decreased by one per cent to 38 per cent. In October last year, producers received over 40 per cent of the final retail price.

Sales of pork declined one per cent in the four weeks to 31 October although the longer term trend is still positive. Household demand for pork so far this year has been firm despite the difficult economic environment.

With attractive promotions, household purchases of pork increased by four per cent on the year to 41,000 tonnes according to the latest Kantar Worldpanel data covering the 12-week period ended 31 October. The rise in volume purchases was a result of a combination of an increase in the purchase frequency and households buying more pork on each shopping trip. There was a four per cent fall in the average retail price offsetting some of this increase in volume purchases and as a result, expenditure only increased marginally to £191 million.

Over the 12-week period, there were increased purchases of almost all cuts of fresh and frozen pork with the exception of frying/grilling chops and loin roasting joints. Increased consumption of pork was driven by higher purchases of shoulder roasting joints, which were up one-third compared with the corresponding period in 2009. Strong promotions on this cut continued in the major multiples. Household purchases of frying and grilling steaks also increased significantly year on year while purchases of pork belly rose three per cent compared with the corresponding period a year ago.

December 2010