By Peter Crichton
LAST weeks commentary forecast that Malton would move the 85.5p fixed price on an either/or basis unfortunately proved to be spot on.
The following day Malton producers, who account for a huge 35% slice of the home market, received confirmation of the new price arrangements.
With production costs running at around 90p/kg on the most efficient breeder/finisher units, the new 70p offer is a guarantee to lose over 14 for every pig sold.
However, the new Malton price which applies from 14 September is still one of the best in the industry according to leading marketing groups. They point to current spot prices of no more than 50p for baconers and other semi contract or triple and quad formula prices in the 55-60p range at best.
With the AESA continuing its downward spiral and now standing at just 62.91p, many industry sources expect that Malton producers will reluctantly agree to the new terms rather than face the alternative offered in the 4 September letter.
Those producers not prepared to accept the new price will be able to continue at 85.5p until the end of the three-month notice period but will have effectively self-served their notice now and will have their contracts terminated in early December.
Several large scale producers have indicated that they might just take the risk that in three months time there will be a significant shortage of UK pigs and this could lift spot returns to near the Malton price. They will also have a 15.5p cushion between now and then, which is worth around 11 per pig sold.
Most will probably opt for the safety of the 70p offer, but need also to focus on paragraph five of the Malton letter which refers to the 70p offer being subject to “subsequent reviews as required by market conditions.”
It remains to be seen what would happen if there were a lift in prices over the 70p deal and, in that case, producers themselves might take the initiative and decide to opt out of supplying Malton by invoking the “subsequent reviews clause” themselves.
- Peter Crichton is a Suffolk-based pig farmer offering independent valuation and consultancy services to the UK pig industry