By Robert Harris
LEADING pig processor Malton Bacon has slashed its ex-farm pig price by over 11%, throwing the industry into confusion and threatening to slow the recent fragile recovery in fortunes.
The price Malton pays producers for pigs has fallen 23p/kg since mid-September. This latest move constitutes a U-turn by the Unigate subsidiary, with prices once again tracking the adjusted Euro-spec average value. The company, which accounts for over 35% of the UK kill, broke away from AESA-based prices in May, claiming they no longer reflected true pig values.
However, the change cost Malton £5.5 million, and the debt was rising by £500,000 a week, according to managing director Max Hilliard.
The new price has been set at 62p/kg deadweight, about 0.5p/kg above the latest UK AESA. This is 8p/kg less than the 70p/kg fixed price established only last month, which itself was the result of a 15p/kg cut.
In a letter to producers, Mr Hilliard stated that Maltons 70p contract base price had been worth an extra £8 a pig on average compared with AESA values.
“I am sure you will appreciate that our financial support can only be stretched so far,” he wrote. “Therefore with effect from the week commencing October 19 we will have to reduce our contract base price to reflect more closely the current level of the AESA.”
The price, which Mr Hilliard says reflects that paid by Maltons competitors, will change weekly. On more optimistic note, he adds that prices appear to have bottomed out and are firming.
But Maltons influence is such that other buyers prices and the spot market, where baconers are now worth 60-65p/kg, could be affected, says Grenville Welsh, chief executive of the British Pig Association.
He admits he is perplexed by Maltons decision. “We realise that Malton has been paying more than its competitors. But to introduce a swingeing price reduction against the market trend is incomprehensible. It is going to set back the recovery we had hoped to see before Christmas, and will hit producer confidence even harder.”
Maltons move – the third change in five months – could mark the end of contracts, and producers should be on their guard, says independent consultant Peter Crichton: “Contracts appear to have been substituted with supply agreements.
“This may be part of a new process, where abattoirs can change prices at a whim. If that is the case, they should not be surprised if producers also duck and dive.”
He believes spot and AESA values could still edge up to 70-75p/kg by the end of the year. “There is room for a small price rise without increasing imports.”