Global Pig Meat Markets Developments
Thursday, December 27, 2012
An analysis of recent market trends in the world's major pig meat exporting and importing countries by David Owens of Bord Bia for the Pig Farmers' Conference organised by Teagasc in the Republic of Ireland in October 2012.
Summary
The market environment for meat is changing considerably at present. Beef production is moving into decline in some developed economies and contributing to firm prices. Global beef supplies that were tight in 2011 have remained so in 2012 with output now declining in the United States and also the EU while only a small recovery is taking place in South America. The global sheepmeat market had an exceptional 2011 with record prices but the market has come back to some extent in 2012. In terms of meat consumption, consumer demand is growing in developing economies but remains under pressure in developed nations.
Globally, pigmeat production had been increasing but in many regions a downturn is now expected, in particular in the exporting countries of North and South America and the EU.
The recent sharp rise in feed ingredient prices, both of cereals and soybeans due to a drought hit US harvest, is pushing pig producers throughout the world into a substantial loss making situation. In the EU, the situation is being exacerbated by the introduction of sow welfare legislation but the extent to which producers will go out of business because of this is not at all clear and will vary from country to country.
By the middle of next year, global pigmeat production can be expected to fall given cutbacks in sow numbers which are now starting to take place. In the EU, market prices are very responsive to changes in supply and pig prices can be expected to move up during the course of 2013 and EU exports to the global market will possibly decline. Global trade of pigmeat benefited from strong demand in importing countries in 2011 and this demand has eased back this year.
Developments for Global Exporters
EU breeding herd falling
The EU pig sector is going through a turbulent period as a jump in feed costs has coincided with requirements to meet sow welfare legislation. Both factors will result in some reduction in sow numbers in the EU but the extent of this is by no means clear. As a result some producers across Europe are downsizing, destocking or exiting the industry. The EU breeding herd had already been in decline since 2011 due to higher feed costs, with last December's pig survey showing a fall of three per cent in sow numbers.
Midyear 2012 herd surveys for a number of countries, representing close to 80 per cent of EU production, have reported a one per cent decline in the total EU pig herd with a further four per cent decline in sow numbers. These surveys were conducted prior to the sharp rise in feed prices, therefore they could be expected to fall further as the year progresses. Higher total pig numbers were evident in the UK, Germany and Ireland, with no change in Romania and Italy. The sharpest decline was in Poland with a 11 per cent fall in overall pig numbers.
EU mid-year 2012 pig herd surveys (% change versus 2011)
(Source: EU Commission)
Romania was the only country to report an increase in breeding pig numbers as expansion has been encouraged by the resumption of exports after their classical swine fever outbreak. All other countries have reported declines in their breeding herd, with significant falls reported in Hungary, Ireland, Sweden, Poland and Italy which fell by 13 per cent.
EU finished pig supplies in decline
After rising in 2011, EU pig slaughterings have already started to decline being down one per cent in the first half of 2012. Supplies for Denmark, Germany, France and the Netherlands up to the end of September were three per cent or 2.6 million pigs lower than in 2011. Together, these nations account for almost half of EU production and this lower supply has had a major impact on the market in recent months. Some of this decline has been offset by higher numbers in Spain, Italy and the UK, however overall EU production will be back this year.
The recent Short Term Outlook from the EU Commission is forecasting EU pig production to fall by three per cent in 2013. Given the decline in breeding pig numbers a greater fall in production is possible next year and also into 2014. Only once in the past 20 years has EU pig production fallen by this amount. The last time, there was a significant downturn in EU pig production was the aftermath of the 1997/98 pig crisis and a look at the data suggests that for a one per cent year on year decline in EU-15 pig slaughterings the EU pig reference price increased by up to eight per cent year on year.
EU pig prices on the rise
Over the two months pig prices have risen rapidly across most of the EU, in response to tightening supplies and strong demand in some markets. Since the start of August the EU average reference price increased by 20 cents per kg or 12 per cent to €1.91 per kg deadweight (dw excl. VAT). This is the highest level recorded since the expansion of the EU in 2004 and was only exceeded during the FMD crisis in 2001, when prices briefly topped €2.00 per kg.
The most recent weekly price is some 23 per cent higher than the same week last year while average year-to-date prices are 10 per cent above 2011. This rise comes at a time of year when prices are normally stable to falling, yet it is required to cover the increased costs of production. Prices have risen in all markets but some of the biggest recent increases have been in Germany, as increasing demand due to better weather coincided with tightening supplies.
It is difficult to predict whether prices will rise further, will remain at their current levels or ease back as the sector is facing unprecedented challenges. However, given the tight global pig supply situation, continuing high feed costs and relatively strong import demand then prices should remain elevated.
EU and German pig prices (cents/kg dw excl. VAT)
(Source: EU Commission)
Good EU export demand
EU pig meat exports in 2011 benefited from strong global demand and competitive prices with shipments (including offal and fats) up significantly by 19 per cent or 535,000 tonnes.
Demand in 2012 on the global market has eased back during the summer after a strong start to the year and so somewhat of stability in EU pork exports seems probable this year as January to July exports this year were slightly ahead of 2011. Lower EU production and higher prices will inevitably put a dampener on exports in 2013 even if the global market moves up.
Exports of pork and processed meats in 2011 were 21 per cent higher and account for over half of total exports. Offals and fats make up the remainder of export volumes, contribute to adding carcase value and were up 24 per cent in 2011. China and Hong Kong dominate this trade with Russia the other significant buyer. Export growth has slowed down so far in 2012 being only showing a marginal increase.
Given the financial difficulties in many EU markets and the high levels of pigmeat consumption in certain countries, demand has eased across the EU this year. Overall consumption is forecast to be one per cent lower in 2012 with further marginal declines next year.
EU-27 pigmeat balance ('000 tonnes cwe)
2009
2010
2011
2012 (p)
2013 (f)
Net Production
21,801
22,663
23,040
22,800
22,050
Imports
34
22
15
18
25
Exports
1,540
1,839
2,174
2,200
1,950
Consumption
20,295
20,846
20,881
20,618
20,325
- per capita (kg/head)
40.6
41.6
41.5
40.9
40.6
p - provisional; f - forecast
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Some information is provided below on our largest export market, the UK and the largest producer and exporter in Europe, Germany.
United Kingdom production to edge down
Production is expected to increase in 2012 by two per cent this year to the highest level since 2000. In January-July, production was up three per cent but the rate of growth is expected to slow down during the remainder of the year. The pig sector has been benefiting from considerable increases in sow productivity, with fewer disease-related problems and strong replacement rates, at a time when the sow herd has been somewhat stable. However, a decline in the breeding herd of up to five per cent is possible this year, according to the AHDB. This will impact on pig supplies in the second half of 2013 with production returning to 2011 levels.
Falling UK Imports
Pork imports increased by three per cent in 2011 but have fallen by 13 per cent in the first half of 2013. Bacon and ham imports in 2011 were down 10 per cent and by a further 11 per cent in January-June 2012. Import prospects for 2013 would suggest an increase but if EU production falls and the EU market tightens with prices rising then a decline seems more probable.
Steady UK consumer demand
Supplies available for consumption increased in 2011 and will remain at a similar level in 2012, but in 2013 if supplies are lower and prices rise at a time when UK consumer spending remains under pressure then consumption may fall.
UK pigmeat balance ('000 tonnes cwe)
2010
2011
2012 (p)
2013 (f)
Production
758
806
824
809
Imports
941
960
940
940
- Pork
402
410
370
350
- Bacon
366
328
290
290
- Processed
173
223
280
300
Exports
186
211
215
210
Supplies for consumption
1,513
1,555
1,549
1,539
Source: AHDB
p – provisional, f - forecast
German production edging down
Pork production in 2011 increased by three per cent given increased availability of domestically reared pigs which in turn reduced import demand for slaughter pigs and weaners for finishing in Germany. To date this year, production has fallen by three per cent reflecting their lower breeding herd and live import levels. German finishers have reduced their weaner demand and Danish and Dutch exporters have found the Polish market more attractive.
Slaughter plants in Germany are very dependent upon imported pigs, which now make up over 20 per cent of the supply. Production developments in 2013 will partly depend upon the ability of finishers to source weaners from outside Germany as some of the smaller breeders in Germany can be expected to cease over the coming months. This will further reduce the German sow herd which in May 2012 was down one per cent on a year earlier.
North American production to decline
In the United States, producers are now in a loss-making situation with rising feed costs and a weak finished pigs market because of increased slaughterings associated with de-stocking and end of the heat wave. This includes producers de-stocking with sow slaughterings in July and August up on normal levels and inevitable fall in the sow herd in the months to come. Some industry commentators suggest that pig producers are heading for record losses of US$60- 75 per pig by the autumn. The USDA is buying pork under the national food programme but its impact will be small. The USDA has been revising down its pork production forecasts for 2013 and in mid-August, it had production down one per cent whereas an increase had been previously expected.
In Canada, a decline in the breeding herd is also expected with producers affected by the turbulence in the US. Recently, the second and fourth largest pork producers in Canada, accounting for almost 70,000 sows, have reported serious financial difficulties.
Increasing North American pork exports
The US was the leading global pork exporter in 2011 with 35 per cent of all trade and with strong global demand last year their volumes increased by 25 per cent. Shipments to Japan were up 19 per cent while exports to China quadrupled. Trade with South Korea last year was more than double 2010 volumes. The upward momentum was maintained in the first half of 2012 even though there were signs of some easing of demand.
The USDA is expecting total pigmeat exports to increase by four per cent in 2012, with volumes remaining steady in 2013. However, given they are looking at lower domestic production levels next year export volumes may actually decline. Canadian exports are also rising, up three per cent in 2011 to 870,000 tonnes with a further rise of six per cent in January-June 2012 helped by increasing trade with Russia and China.
Brazil
In Brazil, producers were reported to be losing between US$30-50 per pig with the recent escalation in feed costs and a weak finished pig market. Pork production has been increasing in Brazil in spite of the problems that some producers have been facing since last summer. Production was up six per cent in 2011 with a further rise of four per cent in January-July 2012 but some downturn is expected.
Brazilian exports under pressure
Brazilian exporters have been under some pressure due to market access issues as the Russian authorities imposed restrictions in June 2011 on product from plants in southern Brazil. Pork exports fell as a result in 2011 and only recovered slightly this year. Russia accounted for 49 per cent of its exports in 2010 but this was down to 25 per cent in the first seven months of 2012 although it remains their largest market. Shipments to Hong Kong have been increasing but it has only just started shipping to China this year (1,900 tonnes in January-July).
Major Global Import Markets
Chinese import demand
China is becoming a key player on the global pigmeat market with its high import requirement, however, market demand can be variable. Chinese pork imports in 2011 were up 135 per cent to 467,000 tonnes. The United States accounted for 54 per cent of these imports, while the EU accounted for 35 per cent. This year, imports have grown further with volumes in January-July 2012 double those of a year earlier at 312,000 tonnes. Shipments this year from the EU are up 130 per cent while US imports were up 87 per cent.
After reaching a peak last December, the month-on-month Chinese import pork figure has fallen and in June and July shipments were nearly 60 per cent lower than the December figure although still up 35 per cent on a year earlier. Not only have imports eased back but so has the average import price which having reached a peak of US$2,100 per tonne at the end of last year was down 17 per cent by April 2012 and subsequently has moved up but only to a limited extent only.
Chinese monthly pork imports
China's changing domestic market
Chinese producer prices have fallen significantly since the start of the year on the back of strong import volumes and domestic supplies. Prices had fallen to the extent that since April, the Government has purchased pig meat for storage according to an agreed formula when the pig price/maize price ratio falls to below six. This comes under the Government pork price monitoring system to ensure a stable pork supply on the market and to protect farmers against market volatility. There are indications that domestic demand for pig meat has also edged back with even processing companies under pressure from tight margins while some have shut down. Chinese consumers have become more cautious about their spending with the food service sector in particular suffering.
Import demand in China to build up again
The recent sharp rise in global feed prices is having an impact on Chinese pig producers even though an excellent Chinese harvest, which will reduce import demand for feed. Despite the Government market support, producers have moved into a loss-making situation and many smaller ones (that account for 30 per cent of Chinese pork production) are culling their sows. Some local commentators are forecasting a modest downturn in production by early next year.
However, contradicting this, the USDA are predicting that Chinese pork production will rise by two per cent to 52.7 million tonnes, while consumption is expected to also increase by a similar level to 53.1 million tonnes, which is expected to drive on import volumes further. Either way China will continue to have a major impact on global trade over the coming year.
Japan and South Korea import demand now falling
Import demand in both countries was firm in 2011 in response to domestic shortages but these have eased in 2012 and coupled with some fall in consumer demand, imports have fallen this year. There were especially marked shortages in South Korea with production down 25 per cent in 2011 as a result of the FMD outbreak of late 2010 and early 2011. In Japan, production fell by two per cent given the 2010 FMD outbreak and then the tsunami and earthquake before recovering slightly this year.
Japanese pork imports in 2011 were up five per cent in 2011 to 793,000 tonnes with shipments from the United States, the largest supplier with a 41 per cent market share, up nine per cent. The EU was the second largest supplier (28 per cent market share) and shipments were up seven per cent in 2011. In January-July 2012, pork imports were down two per cent and although US shipments were unchanged imports from the EU were down 10 per cent mainly due to lower volumes from Denmark.
In South Korea, imports increased by 68 per cent to 487,000 tonnes last year. The EU was a major beneficiary with all major EU suppliers experiencing a marked rise in trade. Some zero duty tariff quotas were extended into 2012 but shipments in January-July 2012 were down 24 per cent on a year earlier although still up 45 per cent on January-July 2010. Both the United States and the EU signed free trade agreements with South Korea in 2011 and this should boost their pork trade in the longer term.
Steady Russian import demand
Import demand has been steady helped by good consumer demand although imports are somewhat restricted by tariff quotas, which were reduced in 2012. In 2011, pork imports were up two per cent to 657,000 tonnes but were down three per cent in the first seven months of 2012.
Russia remains a critical market for the EU, accounting for up to a quarter of total EU exports. The EU is also the largest supplier to Russia with a 51 per cent market share in 2011 although our market share has fallen this year as EU shipments were 10 per cent lower.
The TRQ quota for pork in 2012 of 400,000 tonnes (down from 472,100 tonnes in 2011) plus trimmings of 30,000 tonnes will remain as it already satisfies WTO commitments. The quota tariff rates on pork has been reduced to zero per cent having previously been 15 per cent (minimum: €0.25 per kg) within quota and reduced to 65 per cent (from 75 per cent) outside it.
