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EU Pork Update: Will Persistently Low Prices Curb Production?

EU-Pork-plus-VM-exports

The red-hot pace of the European Union’s pork/pork variety meat exports slowed somewhat in May to 204,259 metric tons (mt), falling 12 percent year-over-year as larger volumes for China (78,982 mt, +35 percent) were offset by smaller exports to all other major destinations. January-May export volume was still up 5 percent to 1.1 million mt, but export value fell nearly 15 percent to $2.44 billion.

For pork muscle cuts only, EU exports totaled 663,257 mt – up 3 percent from a year ago but 5 percent lower than in 2013, when the EU was still exporting pork to Russia. Per-unit export value was down 19 percent year-over-year in U.S. dollars, but was basically steady in euro terms.

Sluggish pork demand within the EU, where more than 90 percent of EU pork is consumed, is also contributing to persistently low pig prices. While prices stabilized over the past two weeks, last week’s average of $71.86/cwt was down 31 percent from a year ago (down14 percent in euros). Prices are also down 12 percent from the five-year average, and although prices could see some upward movement into late August, the seasonal trend is for lower prices from September through the end of the year.

EU-US-Hog-price-ratio

EU average hog prices exceeded the U.S. average from February through early May, but fell below the U.S. price for the past 11 weeks. Last week EU prices were 8 percent (or $5.96/cwt) below the United States, again largely reflecting the weaker euro. Another indicator of ample supplies and a pessimistic outlook in the EU pig sector: EU piglet prices are down 21 percent from a year ago and down 15 percent from the five-year average, at 36.33 euros/head.

Although European producers are benefiting from lower feed prices, this sustained period of low prices has led to increased speculation about whether producer losses will translate into smaller production next year – including a recent feature in Bloomberg Business and a Wall Street Journal article focused on the financial woes of French producers.

In its quarterly short-term outlook, the European Commission projects some slowdown in pork production in the second half of this year, but is still forecasting a 2.8 percent increase for 2015 (to 23.4 million mt) and a nearly 1 percent increase in 2016 (to 23.6 million mt). Similar to the challenging situation when new animal welfare rules were implemented, which was during a time of high feed costs, producer losses will likely mean the smaller, less efficient producers exit the industry. But if larger producers expand and become even more efficient, total production remains relatively steady.