Contract pig pricing is king, MLC survey finds

By Peter Crichton

MORE pig producers are turning to contract selling as their best marketing option, according to the results of a recent Meat and Livestock Commission survey.

Current MLC figures indicate that about 70% of all pigs are now sold on contract and over three-quarters of this sample were on a single price linked to the All-Average Pig Price (AAPP).

The balance of contracted pigs were sold on a multi-faced formula such as “Triples”, a price calculated using the AAPP, factory spot prices and auction prices. These often have a trip mechanism where the producer price automatically receives the highest of the three prices if there is a variation of more than (say) 5% between the individual figures.

Most of the AAPP based contracts these days are calculated on the higher United Kingdom Adjusted Euro Spec Average rather than the lower UK Spec price because the majority of UK abattoirs now dress their pigs to EU standards.

The MLC survey also reveals that larger meat plants tend to favour the single price system while smaller operators are more likely to favour spot and auction returns.

But with only 5% of the UK herd now sold through the auction market, and over 80% of producers now FAB registered, the days of the live auction appear numbered.

This is not only because of the FAB requirement that all pigs travel direct for slaughter but also because of the reluctance of many of the larger abattoirs to buy in the auction ring due to welfare, traceability and the loss of any FAB status.

Although live auctions only account for a very small proportion of overall throughput they still provide a valuable barometer and early warning system of impending price variations. The loss of this outlet will further limit the options available to producers and result in less price competition throughout the industry according to livestock auctioneers.

With many contracts now due for renewal, it will be interesting to see if this leads to more producers signing up and making a long term commitment on a regulated price basis to one particular abattoir.

Some producers have called for long term fixed price contracts, which are popular in the USA, to allow farmers to “lock-in” to a price rather than suffer the variations of the market.

Abattoir sources say that they can only see this happening if retailers are also prepared to buy on a similar long term basis which currently seems unlikely with so many sources of cheap pigmeat available in many part of the EU.

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