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Will UK Pig Prices Stay Low?

UK - Stephen Howarth, specialist manager in AHDB Market Intelligence, has tried to model the relationship between pig prices and various other factors in order to determine whether we can expect another decade-long period of low prices or whether they will pick up as quickly as they have fallen.
calendar icon 15 April 2016
clock icon 1 minute read

Of course, it is impossible to be sure about the answer to this question. However, we can look at the lessons of history to see what they might be able to tell us.

The results show that, based on the model, the price should have increased in January and gone up still more in February, but didn’t. This could mean that there is scope for prices to rise from their current low level.

Mr Howarth said: “Our analysis covers the time period from 1995 onwards, which includes periods of high and low prices, of relative stability and of extreme volatility.”

The factors modelled include:

· Exchange rates of the pound against the euro & dollar
· Consumer Price Index
· UK and EU pig meat production and change on year
· UK imports and exports of pig meat
· Crude oil price
· Global food prices and cereals prices
· Seasonality factor
· EU pig prices
· Unit price for imported pork

He said: “While these factors are thought to cover most of the main influences on the UK pig market, there is no consumer demand indicator. This is due to the lack of a consistent long-term monthly data series covering demand for pork.

“Modelling prices based on these factors allows us to explain well over 90% of the historic variation in GB pig prices. While there are some short-term deviations, there are few periods when the actual price was significantly different from the modelled one.”

Using historical data of this kind to predict future prices relies on the assumption that historic relationships between factors will continue to hold true. While, this may be the case, there could be new issues which will influence how the modelled factors and pig prices relate to one another.

He said: “The model shows the pig price decline over the last two years can largely be explained by the factors analysed. However, based on the model, the pig price should have increased in January, when in reality it fell again, so it was too low according to the model.

“Current indications are that the modelled price should have increased further in February, although some of the model variables are not yet available for that month. The main reasons why the model should have shown an increase are the weaker pound and the firmer EU price (in sterling terms).

“History suggests short-term deviations from the model do happen but typically correct themselves fairly quickly. If that is the case again, we might see some price recovery in the months ahead.

However, this relies on there being no factors missing from the model which might impact on prices.

“There are instances in the past, for instance during the 2001 FMD outbreak and around the 1996 BSE scare, when the model has temporarily broken down. While there are clearly no disease issues of this kind at the moment, things such as the apparent reduction in consumer demand for fresh pork, the Russian import ban and the WHO/IARC report, could be contributing to the current lower than expected prices. Therefore, there remains some uncertainty about the future level of pig prices.”

To see the report, click here.

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