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United Kingdom Pig Meat Market Update - May 2010

by 5m Editor
11 May 2010, at 12:00am

James Park, senior economic analyst with AHDB Meat Services Economic and Policy Analysis Group, explains the latest trends in pig production in the UK and European Union.

UK Prices

The DAPP continued to increase throughout March to average 142p per kg, four pence higher than at the start of the year but no different from the same month last year. During the first three weeks of April, the DAPP continued to increase to 145p per kilo in week ended 17 April, three per cent lower than at the same time last year.

Average carcass weights remained above 79kg throughout March and during the first three weeks of April. Average probe measurements remained at or just below 11mm throughout March and early April.

Weaner prices continued to increase further as a result of short supply within the market. During March and early April the 30kg GB weaner price increased to just below £55 per head, almost 11 per cent higher than at the start of the year. Despite increasing in value by almost £6 since the start of the year, the weaner price in week ended 24 April was similar to year-earlier values.

Following price increases in the sow market during the first quarter, the average sow price reduced in early April to below 98p per kg, 19 per cent lower than year earlier values. The expectation in the industry is for this situation not to improve in the near future due to the impending holiday periods having an adverse effect on the sector. The German market for sows has weakened with the average price, in sterling terms, two pence lower in March compared with February and April quotations recorded around 99p per kg.

Exchange Rates and EU Prices

Since the start of March, the Euro has depreciated against sterling from 91 pence to 86 pence in mid-April, two pence away from a 52-week low. However, at this value, sterling remains predominantly weak. At the EBLEX/BPEX conference, Tom Vosa of the National Australia Bank forecast that the value of the pound would recover to 78 pence per Euro, albeit not in the short- to medium-term. The impact to the industry of this occurring in the short term could not be overstated. Currency movements have been dominated by a weakness in the Euro rather than strength in sterling. The Euro continued to decrease throughout the first quarter against the US dollar and in mid-April was valued at $1.31, one cent away from a 52-week low.

The increases in the European pig reference prices that occurred in February stopped during March with the average price reducing marginally to just below €135 per 100kg. The reduction continued during the first three weeks of April with the EU-27 average price being marginally higher than €132 per 100 kg. During the end of March and the beginning of April, the Spanish reference price reduced by €5 per 100 kg to €135 per 100kg in week ended 18 April.

UK Slaughterings and Production

Following further revisions by Defra, slaughterings of clean pigs in the UK totalled 705,000 head in March, eight per cent higher than a year earlier and resulting in 2.25 million head throughput during the first quarter of 2010, five per cent more than the same period a year earlier. Estimated slaughterings for the first three weeks of April indicate a lower throughput than in March although slaughterings are remaining marginally higher than year-earlier volumes.

Year-on-year sow slaughterings increased by 2,200 head in March to 18,000 head resu lting in a cumulative first quarter increase of 10 per cent to 55,700 head.

During the first quarter of 2010, 187,000 tonnes of pig meat were produced in the UK, seven per cent more than a year earlier due to higher slaughterings and carcass weights.

The fundamental market conditions remain in place for producers to maintain a positive margin in 2010. The DAPP increased throughout the first quarter of 2010 whilst feed prices remained relatively depressed. The December census data indicated that the breeding herd increased year-on-year and, despite the challenging weather conditions in the early part of 2010, a controlled expansion in the breeding herd is expected. This was indicated by the increased number of gilts in pig recorded in the census statistics, pointing towards an increased number of replacements in the herd and a likely increased productivity leading to a greater production of pig meat in coming months.

However, the number of pigs slaughtered in the UK in 2009 was revised down by Defra to 8.8 million head, four per cent lower than year-earlier throughputs. As a result, the forecasts for 2010 published in April have been revised down. The poor weather conditions in January, which affected growth, productivity and mortality rates, have led to a further contraction in the forecast for 2010 during the second and third quarters of 2010 before a more considerable expansion in throughput in late 2010 and into 2011.

The forecast for 2010 is for two per cent more clean pigs to be slaughtered in the UK, totalling just over nine million head. This is due to an increase in the breeding herd and also an expected increase in the productivity. Second and third quarter slaughterings in 2010 are expected to be similar to year-earlier throughputs, although once the effects of the challenging weather have passed, the final quarter slaughterings are expected to increase year on year.

The forecast for sow slaughterings have not been amended, due to Defra statistics remaining unchanged and are expected to be 200,000 head in 2010, three per cent fewer than in 2009.

Pig meat production is forecast to increase by three per cent to 741,000 tonnes as a result of increased slaughterings and heavier carcass weights.

Imports are expected to edge lower again in 2010, due to a continued unfavourable exchange rate. Exports are likely to increase due to the exchange rate and reduced production in other EU Member States.

Prospects for 2011 indicate a continuation of similar trends within the industry. Productivity is expected to improve, combined with average carcass weights remaining just below 79kg and a breeding herd of 465,000 head, resulting in 9.7 million pigs being slaughtered in 2011.

Feed Prices

In contrast to lower global wheat plantings, the EU is expected to increase planting of wheat by two per cent to 23 million hectares. Total EU-27 production in 2010 is forecast at 134.2 million tonnes, 4.5 million tonnes more than the previous season. In Germany, wheat production is forecast to decrease by more than one per cent to 24.6 million tonnes; whilst 10 per cent of the planted winter wheat crop is reported to have been destroyed by the harsh winter conditions in Denmark. The Black Sea region winter wheat crop is now exiting dormancy and in Ukraine 537,000 hectares of winter grain are to be replanted after the harsh winter. Of the winter wheat crop in Ukraine, 89.3 per cent of the crop is described as in a good or satisfactory condition with 6.3 per cent of the planted area lost over winter.

The International Grains Council has estimated that the 2010/11 global wheat crop is to fall to 658 million tonnes from 675 million tonnes in the current 2009/10 season. However, despite lower production, there is still to be a global wheat surplus of four million tonnes as global wheat consumption is estimated at 654 million tonnes. This surplus adds to an already heavy supply situation in the wheat market, with global ending stocks in 2010/11 now estimated at 199 million tonnes, the highest for nine years.

Fund activity supported global wheat prices in mid-April. However, in the US, support was curtailed by the prospects of heavy global supplies into the 2010/2011 season. Prices in Chicago reduced to $166 per tonne at the start of April before increasing to $179/t at close on 21 April. The UK market has followed the US trend with LlFFE wheat gaining £6.15 per tonne to £101.60 from £95.45 on 1 April. UK physical prices have also followed the US trend with ex-farm prices at 15 April at £94 per tonne, up from £90.60 on 25 March.

In the soybean market, strong demand from China, with expected record imports of five million tonnes in May and June, supported prices in the US. Chicago soybean prices gained $22 per tonne during early to mid-April, closing on 21 April at $365.5 per tonne. Fund activity in the US, as with the wheat sector, added support to prices.

Consumption

The quantity of total meat purchased in the four weeks to 21 March 2010 increased by four per cent, with consumers spending an extra two per cent on product compared with a year earlier. However, the prices paid for fresh and frozen meat in the four weeks to 21 March were two per cent lower than a year earlier, indicating a downward pressure on retail prices.

Overall, pork experienced little change during the four weeks to 21 March compared with a year earlier, although there were larger fluctuations within the category. Quantities and expenditure of bellies, chops and roasts increased considerably although the prices paid were little different from a year earlier. Pork steaks fared less well in the same four-week period with quantities, and therefore expenditure, down considerably compared with a year earlier.

The retail market appears to be, as ever, dynamic as the companies seek to maintain market share and customer numbers through the provision of special offers and promotions.


May 2010