UK Prices

• UK market prices eased during November and the first half of December despite a further fall in the value of sterling against the Euro, due to a combination of relatively weak consumer demand and declines in Continental EU prices. Prices recovered slightly in the second half of the month, and in the week ended 27 December the DAPP stood at 131.2 p/kg dw; this was 0.4p less than four weeks earlier but still 21p higher than at the end of 2007.

• In 2008 the DAPP averaged 127.4p, 17 per cent higher than in 2007 and the highest annual average since 1996.
  
  
• Since reaching a peak of 134p/kg dw in mid-September, UK sow prices fell back sharply, to 111p by mid-November. Reduced German demand has been a major cause of the weaker market. With the Pound falling further against the Euro, there was, however, some subsequent recovery through to mid-December. In the week ended 27 December, prices averaged 113p/kg dw, 49p higher than at the beginning of 2008.
  
  
• UK pig producers are estimated to have lost on average around £25/pig in the first quarter of 2008, which led to high sow cullings. Higher producer prices and lower feed costs mean that the rate of loss declined over the following six months. October saw the industry prove into profit with an estimated net margin of £1/head. Provisional estimates for December indicate a profit of £4/head. These estimates are based on spot prices of compound feeds, so producers who bought forward at a higher price are likely to be still operating at a loss.

EU Prices and Exchange Rates

• Foreign exchange markets have been very volatile in recent months due to uncertainties caused by the “credit crunch” and the move into recession by the United Kingdom and other economies. The value of the UK pound has been hit by two cuts in base rates. At the time of writing the base rate is two per cent, the lowest since 1951. However, there are widespread expectations of a further cut in UK interest rates in January. This would take interest rates down to the lowest for over 300 years.
  
  
• The UK pound is moving towards parity with the Euro. At the beginning of January it was worth 1.03 Euros compared with 1.34 Euros a year earlier. Over the same period the exchange rate with the US dollar declined from 1.98 to 1.45.
  
  
• A weaker sterling will discourage imports and encourage exports. But it also means that items that are not produced in the United Kingdom and have to be imported, such as soya, will cost more.

• EU pig meat prices continued to weaken into November, with declines in all of the main producing countries, but markets had a more stable tone towards the end of the month. In the week ended 14 December the EU-27 average reference price was 11 per cent lower than two months earlier, although, due to the depreciation of sterling during this period, it was virtually unchanged in UK terms. Compared with a year earlier the average EU price was still up 11 per cent in Euro terms and 35 per cent in sterling terms.

• Between early October and the beginning of December a positive price premium over the average EU-27 reference price was re-established. However, a more relevant measure of price relativities is a comparison of the UK price with EU reference prices weighted by UK import volumes.
  
  
• The following two charts indicate that there has been a wide range of UK price premia over the past four years. The premium has declined in recent weeks, and, at just 4p in mid- December, is near the low end of this range.

German Pig Numbers

• According to the provisional results of the German November 2008 pig census, total pig numbers were down nearly three per cent compared with a year earlier. In particular, there was a six per cent contraction in the breeding herd to 2.27 million head. In November 2008 there were about 66,000 holdings with pigs in Germany compared with nearly 80,000 12 months earlier.

UK Slaughterings and Production

• Weekly slaughterings moved seasonally higher in November and December but, nevertheless, remained down on a year before. Slaughterings in November were nine per cent lower than a year before while December 2008 slaughterings are provisionally estimated to be down 4 per cent.
  
  
• The marked declines have occurred because between October 2007 and February 2008 slaughterings were relatively high as abattoirs were working through the FMD-related backlog of pigs. There are therefore likely to be further recorded declines through to February 2009.
  
  
• Between the end of November and the end of December, average carcase weights fell by 2kg. This suggests that some supplies may have been brought forward and marketed at lower weights. If this is the case, it could have an effect on January 2009 slaughter levels.

• In 2008 as a whole, UK clean pig slaughterings are provisionally estimated to have totalled 9.15 million head, 1 per cent lower than in 2007. Sow and boar slaughterings in 2008 are estimated to have increased by 12 per cent to 234,000.

Productivity Trends

• Since 2003 and 2004, when the impact of PMWS on sow productivity was at its height, there has been a considerable recovery in average sow productivity. Provisional results for 2008 indicate that the average number of pigs slaughtered per sow was 20.0, compared with 19.5 in 2007. The falls in average productivity that occurred between 1999 and 2003 have now completely been reversed.
  
  
• Productivity can also be expressed in terms of the amount of pig meat produced per sow per year. This has shown a relative improvement compared with the first series because of increases in average carcase weights. Consequently the amount of pig meat produced per sow in 2008 was at a record level of 1.534 tonnes. This compares with about 1.37 tonnes in the late 1990s.
  
  
• The amount of pig meat per sow in the UK is however lower than in other European countries. InterPIG sample results for 2007 show that the average amount produced per sow in the EU (excluding Italy) was 1.88 tonnes. The Netherlands, Denmark and France all produced more than 2 tonnes per sow. There is therefore still considerable room for improvement in the UK industry.

Feed Prices

• The final 2008 HGCA Cereals Quality Survey results confirm a decrease in wheat quality compared to last season due to unfavourable weather conditions during the last part of the harvest. This is likely to result in much higher feed wheat availability this year in the domestic and export markets. The weak pound is helping to support export demand into Europe and some third countries.
  
  
• UK delivered feed wheat prices increased slightly during November and December, partly due to the depreciation of sterling. In the week ended 19 December feed wheat prices averaged £97.50/tonne, 43 per cent lower than a year earlier. The LIFFE feed wheat futures market is indicating higher prices next year, especially after the 2009 harvest; the May 2009 futures price is currently £111/tonne while November 2009 is £120.
  
  
• Soya prices in mid December averaged £244/tonne (ex-mill, Liverpool), 13 per cent lower than a year earlier. However, if the exchange rate against the US dollar was still at the same level as in early August, it is estimated that the price would have been about £190/tonne.

Dioxin in Northern Ireland Feed

• On 6 December, amid fears of pig meat being contaminated with dioxins, the Irish authorities announced the recall of all products slaughtered in the Irish republic since 1 September 2008. However the recall policy has since been amended to exclude products where it can be demonstrated that they did not come from pigs exposed to contaminated feed.
  
  
• Nine pig farms in the Irish Republic were identified as feeding contaminated feed. They represent about eight per cent of Irish pig production. However, the pigs kept on these farms are slaughtered at meat plants that in total account for about 80 per cent of national; output.
  
  
• In 2007 the Irish Republic exported 83,000 tonnes of fresh and frozen pork. The UK was the main destination, accounting for 45 per cent of total exports. In addition, 26,000 tonnes of processed hams, shoulders and pieces (including canned products) were exported, with the UK accounting for around 90 per cent.
  
  
• Given the exceptional circumstances, and the difficulties experienced in the Irish Republic in marketing pig meat not originating from contaminated premises, an APS scheme was opened for the Irish Republic only. However, due to the knock-on effects on the Northern Ireland market, a Northern Ireland APS was adopted a week later.

Consumption

• Retail pork purchases in the four weeks ended 30 November were just 9.5 per cent lower than a year before. Demand for roasts has been particularly poor since the autumn, and in the latest period consumption in volume terms was down 24 per cent on a year earlier. In contrast, sales of chops were one per cent higher. Despite the decline in the volume of purchases, retail expenditure was up six per cent as a result of a 19 per cent increase in average retail prices.
  
  
• Bacon purchases increased compared with the previous four-week period, and were also 4 per cent higher than a year ago. As with pork, retail prices were higher than last year, leading to a 14 per cent increase in retail expenditure.

January 2009