Abattoirs follow Maltons lock-in lead

By Peter Crichton

LAST weeks news that pig processor Malton Bacon is inviting producers to lock in to a fixed price for the rest of the year has triggered similar announcements by other abattoirs.

With the potential demise of the All-Average Pig Price (AAPP) as a major pricing mechanism, other options are limited, according to many producer groups.

With Signet, the Meat and Livestock Commissions consultancy arm, quoting production costs for an average breeder/finisher of around 100p/kg deadweight, those producers who sign up a fixed price deal could be agreeing to take a loss of £10-£15 per pig for the rest of the year.

That translates to a total of over £30,000 for a typical 250-sow bacon producer between now and December. But before signing producers need to be aware of what alternatives are available.

Some abattoirs are continuing to offer AAPP-type contracts, but without any make-up to the base price, and also including an offal deduction clawback.

Once grading and other bottom-line deductions are allowed for, a quoted price can soon be devalued by 4-6p/kg. The result is that a AAPP flat price of 90p/kg represents a banked return of just 85p/kg – and the same applies to fixed-price “contracts” too.

Because of the self-tracking nature of the AAPP in the next 6 months it, too, could fall to 80-85p/kg if the present trend continues.

The small print of some of the fixed-price offers reveals one little gleam of hope, however. Some contracts refer to “minimum” fixed price, which at least allows for an upward recalculation if the price slide is reversed.

Other offers, such as the Malton Bacon contract, are tied to a fixed figure only. But for those producers who have the choice, the “minimum” price agreement represents a better bet.

Other alternatives are to sell on a weekly factory spot price. Although this will be more of a lottery than the fixed-price system, there is at least the chance to share in any future upturn.

To try and iron out all the variations of different benchmark prices across the market, “Triple and Quadruple” contracts are still available to some finishers. These are based on a calculated average price constructed from spot returns, AAPP values, auction prices and factory base returns.

  • Peter Crichton is a Suffolk-based pig farmer offering independent valuation and consultancy services to the UK pig industry

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