Tight supplies counter weak demand for German pork
The currently tight supply situation in Europe has been well documented, and has pushed the EU average pig reference price skyward in recent months. As the largest European pig producer, Germany has been particularly key to driving this in spite of softer demand for pig meat.
Weekly figures from Germany indicate clean pig slaughter for the year to 21 May was 1.2% behind 2016 levels, at just under 19.5 million head. This comes on the back of a 3% annual reduction in the breeding herd in November last year. Sow slaughterings during the same period have been even further behind year earlier levels (-16%), at 321 thousand head. With the significant improvement to pork prices relative to the same period in 2016, this suggests producers are no longer rationalising their breeding herds. The May census which is normally published at the end of June should give a clearer indication of developments. Production may ultimately begin to stabilise later in the year. Overall, the forecasts from the German market information agency, AMI, published earlier in the year anticipate a 0.4% year-on-year decline in net production for 2017.
However, while domestic supplies have been lower, consumer demand for pig meat in Germany has also been weak. Household volume purchases of pork in the January to March period were down 8% year-on-year, according to the latest data from Kantar Worldpanel. This reflects a trend being seen across the EU, and will be the subject of further AHDB analysis in June. Nonetheless, there was a small (+1%) increase in demand for the traditional German sausage. The barbeque season, which is particularly important for pig meat consumption on the continent, is just beginning in Europe. As such, it will be interesting to see how demand for pig meat plays out over the next few months.
While exports have performed better than domestic pork sales, trade has not been without its problems. Higher prices are reducing the competitiveness of German pork on the global market while trade with China is being disrupted by some plants having their licences suspended. For the first quarter of 2017, total pig meat exports were 3% behind year earlier levels, driven by a drop in offal shipments. Despite the challenges, fresh/frozen pork shipments actually stood on year earlier levels during this period. Increased shipments to the Netherlands countered lower volumes to Italy and China. Whether volumes continued to hold up in April, when domestic pig prices increased even further, remains to be seen. AMI forecasts anticipate little change in German pig meat exports during 2017. With exports of high importance for the German pork market, the international market could ultimately impose a ceiling on how high continental pig prices can rise this year.
Bethan Wilkins, Analyst
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