UK and European Producer Prices

• The upward trend in UK pig prices stalled in early August. In the week ended 2 August, the DAPP peaked at 137.4p but it was slightly lower in the following two weeks. In the week ended 16 August, the DAPP stood at 137.0p/kg dw, 0.6p more than four weeks earlier and 27.2p higher than a year ago. 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.
  
• UK producer prices in 2008 have benefited from the weaker value of sterling against the euro, relatively strong consumer demand for pig meat in the first quarter and tightening supplies since April. More recently, rising European prices have had a positive impact on UK prices. However, poor weather in the UK and limited barbecue demand is likely to have had some negative impact on prices in August.

• 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.
  
• Retail prices have also increased significantly since the beginning of 2008. However, there was a more stable tone in August. The average retail pig meat price in the week ended 16 August was 41 per cent higher than a year before compared with a 25 per cent increase in the producer price over the same period.
  
• Cull sow prices are continuing to increase. The average price in the week ended 16 August was 125p/kg dw, 13p more than four weeks earlier and 64p above the level at the beginning of 2008. Sow prices currently average 91 per cent of the clean pig price compared with the more typical 71 per cent seen in 2005-06.
  
• 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. However the further increases since May have been mainly due to tighter sow meat supplies than earlier in the year.
  
• European pig prices continued to move higher in July but overall were little changed in the first half of August. In the week ended 17 August, the EU-27 average reference price was two per cent higher than four weeks earlier and 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.
  
• Lower slaughterings in a number of countries are supporting market price levels. In addition, western European countries have benefited from increased eastern European import demand for pig meat and live pigs.

UK Slaughterings and Production

• Clean pig slaughterings in July were down four per cent on a year earlier. Overall slaughterings in January-July were one per cent lower than last year, although there was a downward trend between the first quarter (+2%) and the second quarter (-3%).
  
• Provisional results for August suggest a six per cent increase in slaughterings compared with a year ago. This is not due to an increase in abattoir throughputs but is the result of foot and mouth disease (FMD) restrictions last autumn, which led to Great Britain slaughterings in one week (week ended 11 August) being half the normal level. Slaughterings in September may also show a year-on-year increase, as FMD restrictions also led to a short slaughter week in September 2007.
  
• However there are likely to be some particularly marked annual declines between October 2008 and January 2009 due to two factors. Firstly, weekly throughputs are trending lower due to the contraction of the breeding herd. Secondly, between October 2007 and January 2008, slaughterings were relatively high because abattoirs were trying to reduce the backlog of pigs created by the FMD movement restrictions in August/September.

• Sow cullings were at very high levels in the first three months of 2008, a strong indication that the June 2008 livestock survey will record a further contraction in breeding sow numbers. High feed costs and industry losses were the prime drivers of these trends. Cullings have moved lower since April, and in June/July, they were very similar to 2007 levels.

• Sow cullings in August remained much the same as in the previous two months, around 4,000/week, but for several weeks in August 2007, there was no sow slaughter taking place because of FMD.

Feed Prices

• Latest forecasts for EU grain production indicate a 14 per cent increase in the 2008 harvest. The weather has generally been good in west and east Europe, but not in the north (including parts of Poland and Germany) where it was drier through to June. The forecasts are still subject to change depending upon weather conditions, although significant increases in yields seen inevitable. The suspension of set-aside has also resulted in an increase of about five per cent in the area planted.
  
• Cereal prices moved lower in July in response to the improved harvest expectations as well as competition from Black Sea supplies on the EU market. Futures prices have also moved lower for the 2008/09 and 2009/10 seasons, although prices are still higher than in the seasons preceding 2007/08.
  
• Wet weather in July and August led to some concerns over the quality of this year’s harvest in the United Kingdom and there have been some sharp daily fluctuations in prices as well as differences between UK regions. The ex-farm price in mid-August in East Anglia, at £122/tonne, was £10 lower than a year earlier.

Consumption

• Retail consumption of pork and bacon in the four-week period ended 13 July was significantly lower than a year earlier. Clearly this was to a large extent due to lower supplies and much higher prices. But it was also due to atypical consumption patterns a year ago. June 2007 was the wettest month on record, and July was much the same. The very wet weather impacted on meat consumption patterns in a number of ways, most notably a switch from processed products to fresh meat consumption.
  
• TNS data for the period ended 13 July indicated a decline in retail fresh pork purchases of eight per cent in volume terms compared with a year earlier. However a 15 per cent increase in average retail prices meant that the value of expenditure was actually 12 per cent higher. Higher bacon prices (+17%) meant that while volume purchases were down four per cent, there was a 12 per cent increase in expenditure.
  
• Latest data for the four weeks ended 10 August indicate that both pork and bacon purchase volumes remain lower than last year, although higher average retail prices mean retail expenditure is increasing sharply. For pork, volume purchases were down by six per cent whereas expenditure was 10 per cent higher.
  
• Purchases of belly, which grew strongly last year, have continued to move higher in 2008. In the latest four-week period they grew by 10 per cent. Mince purchases were also higher (+8%) but purchases of all other cuts were lower in this period.
  
• Wet weather across much of Britain during the latest period will not have helped consumption of barbecue and picnic foods. Consumption of sausages, sausage rolls and ham were all slightly lower although there was some pick-up in consumption of pork pies.

September 2008