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Contract Follows Spot Up

by 5m Editor
28 March 2011, at 10:28am

UK - Something of a two-tier market is developing with contract prices following spot rather than the other way round which was previously the case, writes Peter Crichton.

Most spot bacon was traded today in the 140p/kg region and more than this for Freedom Food and niche pigs, which represents an increase of around 14p from the dark days in early February following on the heels of the German dioxin scare.

A pig shortage has been on the horizon for many weeks and it should have become apparent to even the most dimwitted members of the industry that they were soon going to be looking for, rather than at pigs. This trend is likely to continue as we enter April with most of the country on holiday attending barbecues, alfresco street parties and the like.

Earlier this week spot buyers were anxiously ringing round to secure the numbers of pigs they knew they would need and as a result it was inevitable that prices would continue on a fairly stiff upward track gaining 3p–4p.

Despite this however, much to the disappointment of many in the industry, Tulip and Vion added a mere 1p to their squeak prices and it was a case of "could do better" in school report terms, whereas Woodhead who have long been trailblazers put on 2p and Cranswick were even bolder with a 2.5p rise.

On the other side of the coin with feed prices where they are, many producers are still losing around 310 per finished pig, even allowing for the recent pig price increase. Unless we can see contract prices move into the 155p+ territory, these losses will continue to mount and supplies will become even more scarce to the detriment of the whole United Kingdom pig industry supply chain.

The DAPP has also reflected improving prices rising to 135.6p this week and even though only around 50 per cent of the UK kill are included the DAPP calculation further price rises will continue to feed through, especially in the spot sector.

The euro is also continuing to move in the favour of the industry closing on Friday worth virtually 88p compared with 83.3p at the start of the year.

Those with an O-level in economics will know this has the effect of increasing the value of pigmeat imports with reports circulating that imported carcasses are now available in the meat markets at over 160p/kg ex head and feet, which means that United Kingdom equivalent deadweight prices are doing little more than level pegging with their foreign counterparts.

Although processors have been very quick to complain about imports going "cheep", providing European Union mainland pigmeat prices continue to move ahead this should effectively put a much firmer base into the United Kingdom market as well.

Further evidence of the benefit of a firm euro and increasing European Union mainland pigmeat prices was provided in the cull sow market where quotes continue to rise and sellers were able to negotiate prices of up to 106p for large loads on a delivered in basis and 100p now represents a base price for small lots via collection centres.

Some life is appearing in the weaner market where the latest Agriculture and Horticulture Development Board 30kg ex-farm average quote has risen to 341.18/head, but it remains overshadowed by the spectre of very high feed prices and the cost of rearing a piglet from 7kg-110kg is now estimated at 375/head, which means that baconers need to be netting around 3115/head to show a margin.

Although these are slightly more encouraging times, there is still a long way to go before producers and their bank managers start to breathe easy with reports circulating of yet more producers being forced to leave the industry due to lack of cash.

The sooner the retailers can be persuaded by the processors to pay more for United Kingdom pigmeat the better and it still seems a very unfair situation where everyone in the supply chain is making money apart from the producers and the retailers are still keeping the lion share of the profits.