Briefing note on the UK and European pig meat sectors

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Key trends

UK and European production is forecast to trend lower at least until the middle of next year as a consequence of negative net margins for much of 2008.  Pig meat consumption in the United Kingdom is also lower because the rapidly weakening Pound has led to a decline in imports. Higher retail prices have hit retail consumption in volume terms, although consumption is still higher than last year in value terms.  Sterling may decline further next year as there is a widespread expectation of further cuts in base rates.  Consequently, total consumption could decline further in 2009.

Feed prices have fallen sharply in recent months, leading to positive net margins from October (based on spot compound prices). But futures markets are currently predicting an increase in the 2009/10 year.  Weaker sterling is also holding up soya prices in UK terms.

Key pig meat indicators

Pig price movements

Since peaking in the autumn, the average EU Reference Price has fallen back considerably.  In early December it was 13 per cent lower than three months earlier (in Euro terms).  The UK price has also fallen, but by a smaller amount; in sterling terms it was just four per cent down on three months earlier.  However, the decline in sterling means that in Euro terms it was 10 per cent down on three months earlier.

EU and UK pig meat reference prices

The above chart shows that   a positive UK price premium has recently been re-established.  However UK price competitiveness can be measured more meaningfully by weighting national prices on the basis of UK import volumes from the respective countries. The following chart shows that the UK price premium on this basis is 11p/kg, considerably more than the unadjusted premium of 4p.

Adjusted EU prices

Seasonality of pig prices

The relative flatness of UK prices is in part due to differences in domestic market conditions, and also because weaker sterling has hit imports and encouraged exports.  However UK prices have smaller seasonal variations than the overall EU market, as the following chart (based on 2006-08 data) shows.

Seasonality of pig prices

There are a number of national differences in seasonality, including:

  • While prices in most countries reach a seasonal peak in August and September, Spanish prices peak earlier –in July
  • Seasonally low prices mainly occur in January or February.  Once again, Spanish price movements are atypical – reaching their low point in November.  This will be associated with the end of the holiday season.  Italian prices also do not conform to the European norm, with the low point occurring in May.
  • The seasonal range in prices is generally between 20 and 30 per cent of the average, with Poland and Spain being at the high end of this range.  The United Kingdom range is considerably lower than in any of the other major producing countries.

National differences in price seasonality

Seasonality of meat purchases

The following table shows the seasonality of retail meat purchase volumes in Great Britain.  Clearly the old adage about eating pork when there is “an R in the month” is still true to some extent, with pork consumption at its low point in the summer.  Roasting joint purchases have a particularly strong seasonality.

Bacon consumption is also lower in the summer, although to a lesser extent than pork.  December is the peak month for consumption, helped by Christmas demand.

Other processed products have a total different seasonality to either fresh pork or bacon.  Product lines which are suitable for barbecues or picnics – such as ham, sausage rolls and pork pies – peak in the summer months.  Consumption of processed products is lowest in December as consumers switch to fresh meat.

Seasonality of meat purchases

EU supplies and trade

EU-27 net production in 2008 is forecast at 22.5 million tonnes, down 1.5 per cent on 2007, but still the second highest level on record.  Production could decline by a further three per cent in 2009.

Production has been generally falling since mid-year, and this trend is expected to continue in the first half of 2009. There are expected to be particularly marked declines in eastern Europe, with Polish production falling by 15 per cent and Hungarian production by eight per cent.  Dutch production is forecast just one per cent lower in this period although Danish production could be five per cent lower.

Exports to third countries are currently estimated at 1.23 million tonnes in 2008, the second successive year there has been a decline.  The weak dollar, at least in the first half of 2008, improved the competitiveness of US exports.

EU production trends

Tony Fowler

Economic and Policy Analysis Group

16 January 2009