Hog prices in the European Union were below U.S. prices from late February through mid-March, but have now averaged narrowly higher than U.S. prices for the past four weeks. However, the spread remains historically narrow, illustrating the continued strong global competitiveness of EU pork.
After climbing to the highest levels since November, the EU average price eased to open April at 127.45 euros/kg, down 10 percent from a year ago and 20 percent below the 2010-2014 average. In U.S. dollars, prices were down 5 percent from a year ago to $65.90/cwt. Prices in the main producing and exporting member states are well below year-ago levels, but Spain stands out with prices down 18 percent while prices in Germany, France, Poland and Netherlands are down 8 to 10 percent and Denmark down 4 percent.
Spain has also been the main driver of larger EU production and exports, with piglet production up 8 percent last year. In the December 2015 survey, Spain’s sow inventory was the largest in the EU and still up 5 percent from 2014. Spain’s pig production is expected to have increased nearly 7 percent in the first quarter of this year, with forecasts calling for a 2.5 percent increase in the second quarter and 6.5 percent growth in the third quarter.
For the entire EU, pig output is expected to have increased 1.3 percent in the first quarter, with projected growth of 1.4 percent and 1.9 percent, respectively, in the second and third quarters. Assuming pork production follows a similar trend, EU pork production is not expected to slow until the fourth quarter. The European Commission’s latest forecast is for a slight (-0.3 percent) drop in EU pork production this year. EU piglet prices have been mostly steady in recent weeks, averaging about 11 percent below year-ago levels, and down 18 percent from the 2010-2014 average.
Earlier this year, we reported that the EU had implemented a new round of private storage aid for pork. The first tranche of stored pork should now be hitting the market, as 90 days have passed since the private storage scheme closed on Jan. 19. Most of the pork – 44,723 metric tons (mt) or 64 percent of stored volume – was booked for 90 days. This includes 23,810 mt of boneless legs, 6,900 mt of bone-in and boneless bellies, and 4,000 mt of fat. Germany and Spain (23 percent each) accounted for the most stored product, followed by Denmark (15 percent) and the Netherlands (12 percent).
The EU’s 2016 pork exports have only been reported through January, but they are off to a hot start – increasing 27 percent in volume (268,259 mt) and 11 percent in value ($538.3 million) from a year ago. Exports to China continued their red-hot pace, increasing 77 percent to 121,598 mt. Hong Kong (26,070 mt, +35 percent) was the second-largest destination, followed by Japan (25,766 mt, +16 percent). Exports also increased to the Philippines (14,024 mt, +27 percent) and the United States (10,117 mt, +10 percent), while the only major markets to trend lower were South Korea (15,223 mt, -41 percent) and Australia (6,816 mt, -17 percent).
Since the EU lost access to the Russian market in early 2014, the Philippines has emerged as a leading alternative destination for EU pork fat. Last year EU pork fat exports were just under 215,000 mt – roughly steady with 2014, but down sharply from the 365,000 mt exported in 2013 (when Russia took more than 70 percent of that total). Over the past two years, Ukraine and the Philippines were the top two markets for EU pork fat, but Ukraine is now likely to have a larger domestic supply since it too recently lost access to the Russian market.
Retaining this important outlet for pork fat is now an even bigger concern for the EU industry, as the Philippines is reportedly moving to reference pricing – a system in which some offal products, as well as fat, are coded as muscle cuts and thus subject to a significantly higher duty level. This will be one of the key issues to watch as the EU and the Philippines enter free trade agreement negotiations, which are expected to launch later this year. The EU recently concluded a trade agreement with Vietnam (which is expected to take effect in 2017 or 2018) and is in the final stages of economic partnership negotiations with Japan. The EU is also expected to engage in initial FTA talks with Australia and New Zealand this year.
Sources: Global Trade Atlas and the European Commission