Contact

Photo of How long will the UK price premium remain eroded?

Bethan Wilkins

Analyst

AHDB Pork Market Intelligence

email

Email Bethan

T: work 024 7647 8757

How long will the UK price premium remain eroded?

Home \ Prices & Stats \ News \ 2017 \ July \ How long will the UK price premium remain eroded?

The UK pig price premium over the overall EU price has been narrowing again since February.

In historic terms, the difference between the UK and EU average pig reference price has been particularly narrow since the middle of May, averaging just 7p/kg. In contrast, between 2013 and 2015, the difference averaged over 20p/kg.

The usual relationship between EU and UK pig prices has been disrupted since the devaluation of the pound following the Brexit vote last June. The EU reference price even exceeded the UK price for 17 weeks. However, sharper price declines on the continent last winter saw the status quo temporarily restored. Moving into 2017, EU prices have increased sharply from March onwards following a significant tightening of supplies. This has narrowed the UK premium again.

undefined

Consequentially, the competitiveness of UK pork compared to EU product has been increasing again, both domestically and on the continent. While supplies have been tight in the UK, total pig meat exports to the EU during May were 14% higher year-on-year, potentially aided by the more competitive prices.

Looking forwards, how long the UK and EU pig reference prices can continue to converge is uncertain. EU prices have stagnated in recent weeks, driven by Northern Europe where demand has been quiet and even falling on the key German market. Margins have been squeezed in European processors lately, despite rising retail prices, and this is not sustainable. Already, for week ended 9 July, the EU reference price dropped by just under a penny. However, so far the UK price has continued to climb and if this trend continues, the premium could open up again.

Nonetheless, demand for pigs in the UK may fall as the summer holiday period gets underway, and some easing of the tight supply is also expected. On top of this, if the EU market does show a further downturn, this could then dampen momentum on the UK market. These factors could limit the extent to which the UK premium can open up in the coming weeks and months.

undefined

Bethan Wilkins, Analyst

bethan.wilkins@ahdb.org.uk, 024 7647 8757