30 November 2001

UK PRICES UNDER EUROPES INFLUENCE

European pigmeat markets

hold the key to future

domestic pig prices, writes

independent pig consultant

Peter Crichton

ALTHOUGH there is a more buoyant feeling within the UK pig market, domestic prices will still be influenced by the value of the Euro and pigmeat quotes throughout the EU.

Annual UK slaughter numbers for the past 12 months have sunk to the equivalent of 206,000 head/week compared with 255,000/week for 2000 and 299,500/week for 1999.

The UK Adjusted Euro Spec Average (AESA) has shown a generally steadier trend and is currently quoted at 96.03p. This represents a drop of 6p/kg compared with the same period last year.

Feed prices have also risen sharply with ex farm prices of feed wheat of £74/t, compared with £58 a year earlier. Soya is currently quoted at £170/t, down about £5 on the year.

In terms of costs and returns, this autumn sees an already struggling industry having to cope with finished pig returns down by 6p/kg and feed prices up by between 8% and 10%.

The resumption of exports to the EU, under stringent controls, has been welcomed throughout the British pig industry. This has kick-started the cull sow trade, which had almost completely collapsed. Pre foot-and-mouth cull quotes of 70p/kg have still not been regained, but most export abattoirs are quoting 50p/kg.

The trade for non-export sows is also moving up to match these figures. This compares with quotes as low as 20-25p/kg for sows during the F&M restrictive period.

Because of the continuing slide in finished pig numbers, which will be added to by high PDNS and PMWS mortality, there are concerns over further abattoir closures. More processors are now looking to open up partnership deals with producers offering two to three year contracts, linked to a cost of production base.

These will often be known as 50/50 contracts. Half of the quoted price is made up of an agreed cost of production index figure, while the other half is a quoted factory price, often linked to the UK AESA.

This provides producers who breed their own finished pigs with an insurance policy against future sharp falls in pigmeat prices.

However, it will be wise to check the small print to ensure any notice periods in place are two way, rather than just from the abattoir to the producer.

Finishers who buy in store pigs are advised not to link up with these contracts unless they can also procure weaner replacements on a similar basis. They may run the risk of finding themselves in a negative price situation if store pig prices rise sharply in tandem with falling feed prices.

But the influence of the continental market will remain the main factor determining UK pigmeat returns. European pig prices have sharply fallen recently due to poor retail demand and over-supply on some markets.

Dutch quotes have dropped to 78p/kg with France and Spain below this in the 70-76p/kg range. The Danish market is also slipping, quoted at 87p/kg. These figures are now ahead of the UK AESA, so Continental imports have the ability to undercut the home market.

Export opportunities will also be reduced by lower European prices. Unless there is a correction in the value of the Euro, which is currently languishing at 61.3p, the export market will not carry a premium, except for cull sows.

One feature of the EU market that UK producers are attempting to follow is producing heavier carcasses. Some UK abattoirs are now offering regular contracts at up to 85kg deadweight. With feed costs equivalent to 40p/kg deadweight, producers can earn an extra margin by switching their pigs to some of the heavier contract outlets.

Heavier pigs

The downside of the heavy pig will be seen in severe grading penalties and the need for high genetic quality boars to ensure pigs of this weight remain lean. Producers must examine their boar quality and feed formulation to ensure they do not suffer heavy grading penalties.

Other dangerous signs from Europe are a predicted 2% increase in the output of pigmeat across the EU in general, particularly from Denmark and Germany. Predictions of an average German price of about 90p/kg for 2002 are causing alarm, but reports of PMWS in Germany and other Continental countries may help to keep supplies in check.

But with poultry and pork consumption throughout the EU only up by 0.5%, a fall in supply or increase in demand must occur to get EU prices back into the black. &#42

The Continental pigmeat market will determine UK pigmeat returns, says Peter Crichton.

When considering heavier carcass production, check boar quality and feed formulation to avoid severe grading penalties at the abattoir.