UK Prices

So far in 2011, the DAPP has been below year earlier levels with the monthly average for January over two pence lower year on year at 136.7p per kg. Carcass weights were up slightly on the year at 80.26kg and probe measurements somewhat reflected these heavier weights increasing 0.1mm to average 11.2mm in January. In week ended 19 February the DAPP stabilised at 135.1p per kg, with fewer pigs sourced from the cheaper spot market. Average weights for week ended 19 February were down marginally to 80.39kg.

Weaner prices continued to be significantly below year earlier quotations. The 30-kg GB weaner price reduced marginally in January compared with the previous month to just below £42. Compared with January 2010 the price was about 16 per cent down. This continued the fall that began in the second half of 2010, which coincided with increased feed costs. Prices were stable in early February but by week ended 26 February, they had fallen further back to below £41.

GB sow prices fell sharply in January, down 11 per cent on the previous month, largely as a result of the dioxin scare which originated in the German market. With most of the UK sow trade destined for Germany falling demand led to producers being advised to withhold sows for processing. Consumer demand in January reportedly fell by 10 per cent compared with a year earlier. However, in February the GB sow price rebounded and as of week ended 12 February GB sow prices continued their upward trajectory recovering 5.5p per kg on the week to average 84p per kg, almost at a similar level to pre-dioxin crisis levels.

Sow prices across continental Europe also recovered in the last week of January and have since steadily increased. As of week ended 19 February, sow prices for Denmark, Germany and the Netherlands were up sharply on the January monthly average prices.

Exchange Rates and EU Prices

The average EU reference price for pigs was fairly volatile since the start of January as a result of the dioxin scare. As of week ended 23 January, the EU average reference price dropped six per cent since the start of the year to €132 per 100kg deadweight. Given the high levels of dioxin that were first detected in Germany and the strong ties which exist between the German and Dutch pig industries, it was these two countries that recorded the largest fall in price. German pig prices fell by 22 per cent to €118 per 100kg deadweight while pig prices in the Netherlands fell by 15 per cent to €115 per 100kg deadweight.

The EU average reference price, however, strengthened in February as demand started to return and coinciding with the implementation of the private storage aid (PSA). PSA came into force on 1 February, designed to support the market through removing product from the market on a temporary basis. In week ended 19 February, the EU average reference price was nine per cent higher at €146 per 100kg deadweight than for the week ended 23 January. In week ended 26 February, PSA was removed by the Commission (see industry news section).

In week ended 19 February, the EU average reference price for pigs was seven per cent higher than the corresponding price a year ago, largely due to upward movements in the reference prices in Poland and Denmark which were both up 12 per cent on the year and France and Spain which were up 11 and 10 per cent respectively. The UK was the only major EU pig producer to record a slight drop in price compared with the same week last year, down one per cent year-on-year in Euro terms.

The reference price premium which the UK has over the European average dipped significantly from 21p per kg in week ended 23 January to eight pence per kg in week ended 19 February. Such a reduction in the price gap should underpin the UK price in order to maintain a premium for higher animal welfare standards which are prevalent over many other Continental European producing states. In addition, with the UK and EU reference price being closer to parity there should be less incentive for retailers to import cheaper product.

In week ended 26 February, private storage aid was suspended with retrospective actions on applications made from 22 February. During the few weeks it was available applications for approximately 139,000 tonnes had been made.

More than 60 per cent of the requests came from Germany (28 per cent), Spain (21 per cent) and Denmark (13 per cent). There was a fairly even split between short and medium-term storage.

The last private storage aid scheme ran from 29 October 2007 to 4 December 2007 with 97,000 tonnes contracted for storage.

UK Slaughtering and Production

UK clean pig slaughterings in January 2011 totalled 906,000 head, seven per cent or 62,000 higher than in the corresponding month a year ago. Pig meat production increased by eight per cent year-on-year as carcass weights were higher.

Over 77 per cent of pigs killed in the UK were killed in England and Wales in January, the same level as a year earlier. Slaughterings in England and Wales and Northern Ireland were up on the previous year by 43,000 and 19,000 head, respectively. However, slaughterings in Scotland declined marginally year-on-year.

UK imports of fresh and frozen pork during 2010 totalled 363,000 tonnes, an increase of almost one per cent compared with 2009. The main countries of origin were Denmark, the Netherlands, Belgium and Germany. Shipments from Denmark and Germany were down marginally however shipments from the Netherlands and Belgium were up 22 and 11 per cent respectively.

The vast majority of these imports were made up of fresh pork, which accounted for over four-fifths of total imports. Imports of fresh pork were up seven per cent in volume terms, the value of these chilled imports increased nine per cent to £561 million as unit prices rose two per cent over the same period. In contrast, frozen imports decreased 20 per cent to 64,000 tonnes over the same period. Fresh imports increased at the expense of frozen as the UK imported more higher value cuts.

Imports of processed cuts were down in 2010 with boneless pork cuts, declining eight per cent to 129,000 tonnes. In contrast, imports of both bone-in cuts and carcases were up eight and two per cent, respectively.

Imports of bacon were down three per cent to 312,000 tonnes. The two main countries of origin – Denmark and the Netherlands – were down six and two per cent, respectively and accounted for 81 per cent of UK bacon imports. Shipments from Germany were up 15 per cent but only accounted for 12 per cent of UK imports.

Exports of UK fresh and frozen pork during 2010 were up 28 per cent compared with 2009, totalling 133,000 tonnes. The value of these exports increased by 31 per cent on the previous year to £151 million. The majority of these shipments were destined for Germany, Ireland and the Netherlands, all of these markets recorded significant year-on-year increases. Chilled, boneless shipments to Ireland were up 10,000 tonnes, representing an increase of 88 per cent year on year.

Exports of bacon were up 15 per cent on 2009 totalling over 24,000 tonnes. Shipments to Ireland increased 12 per cent and accounted for 46 per cent of total bacon exports. The next two main destinations were the Netherlands and Denmark, which together accounted for over 35 per cent of bacon exports.

In total, bacon and pork exports represented 21 per cent of total UK pig meat production during 2010.

Overall, the UK remains a net importer of pig meat, with a deficit of 230,000 tonnes for pork and 288,000 tonnes for bacon. This is a long-term trend where pork consumption has increased over the last 15 years but the domestic breeding herd – and with it, production – declined considerably.

Feed Prices

The political and social unrest in North Africa created a wave of risk aversion in grain and oilseed markets. During the week ending 25 February, institutional investors looked to reduce exposure to these markets. The downward pressure on prices was intensified by the fears that global economic growth, and hence demand for grains and oilseeds, would slow in the advent of continued unrest in North Africa and the Middle East. Over the two-day period to 23 February, the Chicago wheat futures price fell from $303 per tonne to as low as for $265 before finishing at $280 by the end of 23 February. This sell-off prompted losses across the board but also acted as a prime buying opportunity for the main global wheat importers. Tenders from Saudi Arabia and Tunisia showed that there is still and underlying tight supply and demand balance of quality wheat around the world.

The sharp fall in prices at the end of February is unlikely to turn into a prolonged downtrend as the underlying fundamentals of global grain markets, most notably US maize stocks, are still tight. The USDA released projections for the season ahead and whilst most of the numbers were as expected the figures forecast the continuation of a tight stock availability for both maize and soybeans in the US market as well as the pattern of strong demand to continue through to 2012.

Soybean harvesting in South America began with progress in Brazil and the Argentine harvest due to start in March. After a prolonged period of dry weather for Argentine beans, which raised doubts over yield potential, beneficial rainfall in recent months alleviated concerns somewhat and the market was waiting for real yield information.

Reports from Brazil suggest that the crop could be a record of over 70 million tonnes. The potential for a record Brazilian crop and a better-than-expected Argentine crop eased supply concerns in the soybean market. Harvest pressure was lowering cash prices in South America with export business moving to Argentina and Brazil from the US. China remains a key destination but recent growth in exports is slower than recent months as heavy buying in late 2010 occurred. This was partly due to the anticipation of a poor South American crop and a lull in activity due to the Lunar New Year holidays, which slowed first-quarter buying pace. Even though the current pace is slow, over the longer term, China's demand for soybeans for the oil and meal content remains very strong.

Consumption

There was little change in the retail price spread between December and January 2011. Retail prices for most pork cuts fell in January compared with the previous month with the exception of fillet end legs, which increased two per cent and minced pork and boneless legs which were unchanged. However, loin steak, loin chops and fillets of pork were down one per cent, three per cent and two per cent, respectively. The majority of cuts were cheaper than they were a year previously. The two exceptions were loin steaks and traditional pork sausages, which increased in price by three and eight per cent, respectively. Minced pork recorded the largest decline in price and was almost three per cent cheaper than in January 2010. All other cuts declined by up to two per cent year on year.

As of week ended 19 February, boneless legs and fillet end legs had fallen by five per cent and seven per cent, respectively. Loin steaks and minced pork prices were unchanged on the previous month. In January the price of fillet of pork and loin chops were up one per cent and two per cent respectively.

According to the latest Kantar Worldpanel data, during the four-week period ended 23 January, purchases of fresh and frozen pork went against the trend in 2010 and were lower year-on-year. This fall has been attributed to a post-Christmas hangover as consumers had stocked up during the bad weather in December and so may have needed to make fewer purchases in January.

At 15,000 tonnes, volume purchases were down over one per cent, despite the retail price continuing to fall which reinforced pork’s position as the cheapest of the main red meats. With prices down over three per cent, expenditure on pork at £67 million was down nearly five per cent on the corresponding period a year ago. Market penetration also fell with only 37 per cent of households making purchases compared to 39 per cent a year ago. Those households that continued to make purchases did so in greater in volumes albeit less frequently.

The decline in volume was driven by significant declines in sales of shoulder and loin roasting joints, down 24 and 15 per cent, respectively. These were somewhat offset by a 26 per cent increase in leg roasting joints and a 10 per cent increase in frying and grilling steaks. Purchases of pork belly and chops were down seven and three per cent, respectively.

Bacon sales improved year-on-year in the four-week period, with volumes up five per cent. Household purchases of chilled ready meals increased over 40 per cent and purchases of sliced cooked meats rose five per cent. Other processed products suffered with volumes of sausages, pork pies and sausage rolls falling year on year.

Over the course of the 52 weeks ended 23 January, the quantity of fresh and frozen meat purchased increased two per cent with pork and bacon purchases increasing two and six per cent, respectively.