By Peter Crichton
ATTEMPTS by pig processors Avonmore Meats and Dalehead Foods to stabilise prices could put a ceiling on returns if there is a surge in spot prices when UK supplies start to dry up.
There is a shortage of pig numbers looming and with current sow numbers down 150,000 on this time last year a shortfall could be seen as early as March and values should rise.
But with the AESA slipping over 2p to stand at 66.02p for the week ending 9 January, most producers are now loosing over 30p/kg (£21/pig) as it is hard to bank more than 95% of AESA.
Pig industry financial advisers are pointing to the fact that if there is a recovery many producers will need to claw back theses losses and will need a premium of at least 20p over break-even costs for the next 12 months to achieve this.
For these reasons floor and ceiling contracts may be less attractive than they first appear for those with long term losses to pay off.
However, for producers still in a reasonably strong financial position these contracts present an excellent opportunity to hedge against future losses and to maintain the ongoing viability of their units.
Since the 28 May Malton announcement last year to put their producers onto a fixed rather than an AESA based price, the UK pig contract buying system has been in disarray.
This lead to most other large abattoirs ditching similar AESA-based contracts and using a combination of spot and index linked pricing arrangements.