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Spot and Contract Too Far Apart

by 5m Editor
10 October 2009, at 6:42am

UK - It was a case of “back to the future“ when spot pig prices took a sharp drop today as processors tried to narrow the gap between imported pigmeat which retailers have been buying in increasing volumes and the value of the (better) British product, writes Peter Crichton in his Traffic Lights commentary.

There has been much discussion within the industry about recent announcements by Vion and Cranswick to adjust their DAPP -related contracts and although some producers are crying foul, unfortunately until Great Britain prices move closer to those in Europe, despite a strong euro, this is probably the only alternative to kickstart sales and avoid a further build-up of overweight finished pigs in the crucial run-up to the Christmas period.

Because most pigs are sold on DAPP-related contracts and the major players who contribute to the DAPP have had little space for any cheaper spot pigs over the past months, the DAPP has fed off itself and hardly moved, causing an even greater problem as contract prices lose touch with what retailers are prepared to pay.

The decision by Vion to switch 25 per cent of contract pigs onto a spot basis and by Cranswick to remove the DAPP-plus premiums previously paid mean that a lower level of prices will now feed into the DAPP and the correction that the processors have been crying out for should be achieved.

Curiously however, six months ago when the DAPP stood at 140p and spot at 150p, not a squeak was heard.

But on a more serious note, something clearly needed to be done to try and redress the balance between spot and the value of British contract pigs. But we are better off than we were a year ago when the DAPP stood at 136p and spot prices were several pence below this.

In the future perhaps it would be better for all abattoirs handling over (say) 500 pigs/week to feed their prices into the DAPP to provide an industry wide index price? Answers on a postcard please.

Although a wide range of spot quotes was heard today, depending on who you are and where you were, the general consensus was that 134p proved an average base price with some of the warmer-hearted buyers still prepared to pay in the 140p region to “regulars“.

The DAPP incidentally shed 1.19p to 148.47p, but bigger drops are expected in the weeks ahead.

The euro continues to improve in value and closed worth 92.6p up from 91.8p a week earlier. However because of sow prices in Europe falling more quickly than the euro was rising, cull sow quotes were generally 2p down in the 112–114p range, but no need to settle for less than this.

The weaner market continues its steady retreat with the AHDB 30kg ex-farm average now standing at 351.71/head reflecting unease over the state of the finished pig market until next spring and further moderate increases in feed costs which have seen the ex-farm feed wheat price move up to circa 393/tonne mainly due to currency changes rather than being supply/demand related.

It will be disappointing if finished pig prices continue to slide as producers who were looking to re-equip and update their units may put these plans on hold, especially as the banks are still being very fickle about lending us our (the taxpayers’) money!