Feed stocks help steady pig sector

PIG PRODUCERS will be pleased that after a year of volatile feed prices due to the Europe wide drought in 2003, the outlook for 2004 appears more settled.

There are indications of good grain harvests throughout Europe and soya prices are at much more moderate levels than a year ago.

New crop feed barley is currently quoted at £54-£57/t ex-farm, compared with £63-£66/t in July 2003.

The feed wheat harvest will be underway within two weeks subject to suitable weather and forward quotes for August delivery are reported at £57-£62/t ex-farm.

Forward prices on the London Futures market are also reflecting an easier trend, at  £68.35/t for January 2005 and £70.35-£73.70/t for May-July.

That compares with ex-farm values of £75/t at harvest last year, and almost £110/t by late December.

Delivered prices for soya have also eased significantly, with Hipro soya at about £150/t, compared with £170 in July 2003.

Although cheaper feed will ease the pressure on pig unit margins it will have a negative effect for those producers selling finished pigs on Deadweight Average Pig Price (DAPP) linked contracts.

A significant proportion of finished pig contracts, which form part of the DAPP calculation, include a cost of production element.

With feed accounting for 80% of producers‘ variable costs the effect of reduced ingredient prices will soon filter through to cost-of-production linked finished pig contracts.

At the same time there are signs that further interest rate rises may be on the cards, with the current rate of 4.5% likely to rise to 5.25% by the end of the year, claim futures traders.

The relative strength of the Pound, at 66p against the Euro, continues to give imported pig meat a competitive edge despite relatively firm European pig meat prices.

With the European pig meat average 9p/kg above one year ago, at 97p/kg, a 7.5% fall in the value of the Euro has eroded much of the potential gains.