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Bethan Wilkins

Analyst

AHDB Pork Market Intelligence

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In-depth: EU influence on GB pig prices

Home \ Prices & Stats \ News \ 2018 \ January \ In-depth: EU influence on GB pig prices

Back in 2016, AHDB published analysis of the key factors affecting GB pig prices in the long-term. This showed that historical prices could be modelled fairy closely using factors such as exchange rates, UK and EU production levels, import and export volumes, and global commodity prices. With the SPP reaching a new high in July, before moving into a steady decline, what factors does the model suggest had most influence on these dynamics? And, what might this mean for GB prices in 2018?

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According to the model*, EU pig meat production proved to be the most influential factor explaining both the rise and subsequent fall in modelled GB pig prices last year. Pig meat production had been strong in Europe at the end of 2016, but a tight supply situation subsequently unfolded in the first half of the year which was price supportive. However, towards the end of the year production picked up again, which began to apply downwards pressure to prices.

The influence of EU production on modelled GB prices is particularly interesting when considering that the impact of UK production levels alone was actually negligible. This emphasises how integrated the UK pig meat market is with Europe as a whole, which is perhaps unsurprising given that the EU supplies around 60% of pig meat consumed in the UK.

The significance of the EU market for the UK pig industry was also highlighted by the importance of the sterling: euro exchange rate. The overall decline in the value of the pound throughout the first eight months of the year contributed to the rise in modelled GB pig prices. Conversely, some strengthening of sterling influenced the subsequent weakening in the price.

Looking forwards, for 2018 the latest the EU commission forecasts anticipate a modest increase in EU production this year. Based on the model, this might be expected to weaken prospects for GB pig prices this year. However, this will of course also depend on how other factors develop, including those not accounted for by the model. Significantly, there is no consumer demand indicator due to a lack of consistent long-term data for this measure. Recently, UK demand for pork seems to growing, which could mean the price outlook is more favourable than might otherwise be anticipated.

*Previously, this analysis included both the price of imported pork and EU pig prices as inputs into the modelled pig price. However, as these two factors will likely be partially dependant on actual GB prices, they have been removed from the model on this occasion. The resulting model is a slightly poorer fit for GB pig prices in the long term, though still reasonable. In fact, during 2017, GB pig prices are modelled more accurately when import and EU pig prices are not included.

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Bethan Wilkins, Analyst

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