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UK Pig Meat Market Update - November 2008

by 5m Editor
5 November 2008, at 12:00am

UK pig meat market prices have been steadier since August, according to the latest report from AHDB Meat Services for the British Pig Executive, produced by Tony Fowler, Senior Economic Analyst.

UK Prices

  • After increasing sharply between February and late July, UK pig meat market prices have been much steadier since August. In the week ended 25 October the DAPP stood at 135.6p/kg dw, 0.8p less than four weeks earlier but still 26p higher than a year ago. Price levels in recent months have generally been sustained by a combination of declining supplies in the United Kingdom and other European countries and the weaker value of sterling against the Euro. However, heavier supplies in some EU countries in October have put some downwards pressure on price levels.
  • 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 prices to increase further. However, the impact of the credit crunch on consumer demand may have a negative influence on price levels.

  • UK pig producers are estimated to have lost on average 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, to an estimated £3/pig in September. Provisional estimates for October indicate a profit of £1/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.

  • Since reaching a peak of 134p/kg dw in mid-September, UK sow prices have fallen back. The average price in the week ended 18 October was 118p, still 54p higher than at the beginning of 2008.

EU Prices and Production

  • EU pig meat markets weakened in October, with declines reported in most member states. There were a number of factors driving these price movements. Increases in supplies were reported in some countries, in particular Spain and the Netherlands. There was weaker retail demand caused by recession fears, and export sales were sluggish. In the week ended 26 October the EU-27 average reference price was seven per cent lower than four weeks earlier. Compared with a year earlier the average EU price was still up 21 per cent although due to the depreciation of sterling against the Euro, the EU price was 36 per cent higher than a year earlier in sterling terms.

  • The relative flatness of the UK reference price in October means that the UK price is now above the EU price again, after being lower since May. In sterling terms the UK price was 8p above the EU-27 price in the week ended 26 October (2p lower in late September) while it was 16p above the Dutch price (9p higher) and 21p higher than the Danish price (17p higher).
  • Recent production forecasts published by the EU Commission indicate declining output in most of the major producing countries. EU-27 production in the fourth quarter of 2008 is forecast to be five per cent down on a year earlier while production in the first quarter of 2009 is forecast six per cent lower. Production forecasts for individual countries can be found by clicking here.

  • Production falls of these magnitudes would normally be associated with higher producer prices. However, the extent of any increase may be limited if world economies move into recession, due to potential reductions in both domestic demand and export demand. Another factor that adds extra uncertainty to future trading conditions is the foreign exchange market. Exchange rates have been very volatile in recent months, as the following table shows. A negative change means that sterling has fallen against that currency. So, for example, the US dollar has recently strengthened against the British Pound (and the Euro), which will have pushed up relative US prices.

UK Slaughterings and Production

  • Weekly slaughterings have trended lower since the first half of 2008 but are currently well down on a year ago due to the impact of FMD in 2007.

  • There was a short slaughter week in September 2007 due to FMD restrictions. However throughputs in the other weeks in that month were relatively high as abattoirs struggled to clear the backlog of pigs awaiting slaughter that had built up. Slaughterings in September 2008 were four per cent down on a year before. October 2008 slaughterings are provisionally estimated to be 10 per cent lower than in October 2007.

  • There are likely to be some particularly marked annual declines between October 2008 and February 2009 due to two factors. Firstly, weekly throughputs are continuing to move lower due to the contraction of the breeding herd. Secondly, between October 2007 and February 2008 slaughterings were relatively high because abattoirs were still working through the FMD-related backlog of pigs.
  • Sow cullings were at very high levels in the first three months of 2008, with high feed costs and industry losses being the prime drivers of these trends. Cullings have moved lower since April, and in July were down on 2007 levels. Sow cullings since July have shown little change, and are currently just under 4.000/week. But between August and November 2007 there was little sow slaughter taking place because of FMD.

Feed Prices

  • Crop estimates for the UK show a record wheat harvest of 17.5 million tonnes, an increase of 32 per cent on 2007. This was due to a record yield of 8.4 tonnes per hectare, combined with a 13 per cent increase in wheat area to 2.1 million hectares. Excellent planting conditions in autumn 2007, as well as strong cereal prices and the reduction to 0 per cent set-aside, contributed to the high wheat area planted. Initial industry results show that the earlier harvested wheat was generally good quality and that the quality of the barley crop has been generally excellent, with plenty of quality malting grains available, although the heavy rain affected the quality of the later harvest and incurred drying costs.

  • The latest EU-27 wheat crop estimate for 2008 was raised in October to 139.5 million tonnes, 1.9 million tonnes above the September estimate and 25 per cent more than in 2007.

  • Increasingly good supply estimates mean that cereal prices have fallen significantly in the past two months. November 2008 UK LIFFE wheat futures have fallen by £10/tonne since the beginning of October, closing at £90/tonne on 24 October). UK delivered feed wheat prices followed the futures lower and, at £91/tonne in the week ending 24 October, were 40 per cent lower than a year earlier.

  • The EU commission announced on 16 October that they were planning to reintroduce import duties in the EU-27. Tariffs were suspended on most grain imports in December 2007, amid rising prices and dwindling supplies with the import duty suspension extended in June 2008 for the 2008/09 season. However, the large 2008 crop has boosted grain availability and prices have fallen sharply.

  • Influenced by falling crude oil prices and reasonable crops in the United States, Chicago soyameal prices have been declining. In South America, dry conditions have prevented growers planting the intended wheat and sunseed crops and have instead turned to increased soyabean plantings. Soya is traded internationally in US dollars and therefore UK soya prices have not fallen as much as the Chicago price because of a weakening of sterling against the dollar. The average soyameal price in week ended 17 October (Hipro, ex-mill, Liverpool) was £237/tonne, 6 per cent higher than a year earlier.

Trade

  • The decline in the value of sterling against the Euro this year has had a negative effect on imports, as a result of higher prices in sterling terms, but it has had a positive effect on exports. Exports also received a boost from the very high volume of sow meat production, nearly all of which is exported, in the early months of 2008.

  • UK exports of chilled and frozen pork in the eight months to August were up 13 per cent compared with exports in the same period of 2007. The growth in trade with Germany reflected the increased demand for sow meat, but exports to Ireland (+9%) and Poland (+85%) were also higher.

  • The UK imported 15 per cent less pork in January-August. In particular 24,000 tonnes less pork was sourced from Denmark. Significantly less bone-in shoulder meat has been imported from Denmark this year.

Consumption

  • Latest retail data from Taylor Nelson for the four weeks ended 5 October indicate that tighter supplies and higher prices are continuing to impact on sales of fresh pork and bacon. The volume of pork purchases was down seven per cent but an increase of 16 per cent in the average unit price meant that consumers were spending nine per cent more. For bacon, volume purchases were down by two per cent whereas expenditure was 18 per cent higher due to a 20 per cent increase in average prices.

  • Total purchases of processed pig meat products in the latest four week period were up one per cent in volume terms, although higher unit prices meant that expenditure was up 10 per cent. Pig meat products are performing relatively well compared with processed beef and poultry products, which have both been declining over the past few months.

November 2008