Contract prices to suffer in wake of Malton?

By Peter Crichton

CONTRACT pig prices look likely to drop across the board after Malton Bacons decision to opt out of the Meat and Livestock Commissions pricing system.

Malton, the countrys biggest pig slaughterer, announced two weeks ago that it is to scrap the contract pricing system. Now trade sources say the pricing method may also be dropped by other pig slaughterers.

Under the MLC system, prices are calculated on a weekly basis and were designed to iron out the more volatile movements seen in the trade over the years.

The Malton decision was made because, in their words, “the published price does not reflect the true extent of the current depressed price for spot pigs in the UK”.

According to the MLC, the weekly published prices are based on a sample of 35% of the overall UK kill. This represents around 100,000 pigs per week.

The MLC claims that this sample includes 69% of all contract prices reported, 26% of reported spot prices and 5% of auction returns. These figures are then used to calculate an overall index price.

But the index price moves relatively slowly, in spite of more rapid fluctuations in the spot and auction sectors, because a large proportion of contract prices are based on the previous weeks figures.

One analyst described it as rather like the proverbial supertanker: very hard to change course and harder still to turn round.

In response to the Malton Bacon move and other concerns expressed by slaughters, it seems likely that the MLC may take a fresh look at the way in which the index is calculated.

Many weaner and finished pig producers claim that some form of independently produced and nationally published pricing index is vital. They are reluctant to be left in the hands of a few major players who they feel may be able to manipulate and ultimately control the market.

If a revised system of calculating the index price is agreed by the MLC, producers are asking that it is in place by 1 September, when Malton and some other large contract abattoirs may well cease using the old pricing system.

Current spot and contract prices serve to underline the gap between the two systems. The MLC price has dropped by less than 1p to stand at 92.21p/kg for the week ending 6 June, but spot market prices are languishing at 80-85p/kg with few signs of any upturn.

Sow slaughterings remain high, underlining a surge of producers who can no longer afford to stay in production. And to rub salt in the wound, sow prices are at their lowest levels for 20 years.

Recent liveweight quotes have slumped to 30-35p/kg valuing the average 200kg sow at no more than £65.This alone represents a balance sheet loss of £20,000 for an average 200-sow producer. One year ago, equivalent liveweight prices stood at 80p/kg, equivalent to £160 per sow.

Nervous bank managers will be looking at their pig farmers customers viability with even more attention in the light of this drastic drop in values as many loans are partly secured against herd valuations.

Large drops in balance sheet valuations may also attract the attention of the Inland Revenue. Tax advisors say pig farmers must be careful when preparing their year-end figures if the risk of further examination is to be avoided, especially now that Self Assessment has been applied.

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

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