Topical commentary on the pig sector from independent consultant Peter Crichton
Although January 2014 finished pig prices have followed their normal seasonal decline, producer margins are better than 12 months ago.
The latest GB euro deadweight adjusted pig price (DAPP) stands at 165.9p compared with 157.68p for the same week last year.
Cereal prices have also fallen sharply – ex-farm feed wheat prices in early February 2013 were £207/t compared with £149/t today.
Forward grain prices on the LIFFE futures market also reflect bearish trends, with March 2014 wheat at £153.3/t and November 2014 at £145.5/t. There are also savings to be made in protein costs, with hi-pro soya currently quoted between £369/t and £372/t.
Currency values heavily influence pigmeat import and export prices and the euro is currently worth about 3% less than a year ago. EU mainland pigmeat is priced at an average of about 126p/kg dw compared with equivalent UK prices in the 165p/kg region.
This increases the threat from much cheaper pigmeat imports, which could seriously undercut domestic pigmeat values when UK pigmeat prices are already under pressure. In turn, relative currency values are reflected in lower cull sow prices, currently in the 100-102p/kg range compared with 102-105p/kg a year ago.
However, one of the main talking points in the industry has been the recent decision by Karro and Cranswick – two major players in the abattoir sector – not to submit their weekly prices to the Agricultural and Horticultural Development Board (AHDB) to feed into the DAPP weekly pig industry index price.
This decision has had serious implications for the pig industry because the DAPP is widely used as a benchmark for finished pig contract price calculations and is also featured in weaner contracts, bonus payments to contractors and, in some cases, the calculation of indoor and outdoor pig rents.
All EU countries have a legal duty to provide Brussels with a weekly pigmeat reference price, which is based on what is described as a “representative sample”.
Although all of the other major DAPP contributors have continued to submit their prices and returns, as far as Karro and Cranswick are concerned, sufficient data can be obtained from their larger pig suppliers and marketing groups to permit representative sample prices to continue to be included in the DAPP and to allow this valuable index price to continue in its present form.
Trade sources say one of the reasons Karro and Cranswick decided to withdraw was because of price distortion caused by the rising number of more valuable Freedom Food pigs included within the DAPP sample.
A significant number of finished pig contracts include the DAPP within their overall pricing matrix and Freedom Food pigs are generally trading at premiums of about 10p a head above the DAPP, compared with 4p a head for Red Tractor.
The publication of a two-tier DAPP which will show separate returns for Red Tractor and Freedom Food pigs may be the way in which this issue can be settled, but as the National Pig Association (NPA) has underlined, it is absolutely vital for the DAPP to continue in its present form – rather than another index price being published – because of its widespread use in so many pig contracts.
Another major challenge facing the industry is the Russian ban on imports of pigmeat and pigs from all EU member states, imposed as a result of African swine fever being confirmed in southern Lithuania.
This could have serious repercussions. The NPA has also called for an increase in biosecurity controls at UK ports of entry, reminding travellers to avoid importing pigmeat products in hand luggage, as this could pose a significant exotic disease threat to the UK livestock industry.
Tips on reducing pig production costs
Margins are improving but more pig producers need to consider further cost-saving measures. These include making better use of renewable energy in a highly competitive market.