Peter Crichton’s commentary for October 17, 2014

It was another difficult day for sellers with prices remaining under pressure, mainly due to excess pigmeat supplies and much lower prices throughout much of mainland Europe. And although the recently created SPP looks respectable at 153.98p, this is probably, in some cases, 20p above equivalent spot quotes.

For this reason, producers with contracts need to keep them locked away in a safe and also check the small print to ensure that if processors are going to serve notice, they honour the notice period of the contract, which is why it was put there in the first place.

A combination of very low European pigmeat prices and a relatively strong £, despite all the recent gyrations on the world stock exchanges, as well as indifferent retail demand, with shoulders still hard to clear, means that a buyers’ market has developed throughout the slaughter sector.

Although bacon contracts tied to mixtures of the SPP, weekly spot prices and weekly announced prices are about 150p/kg, plus premiums for Freedom Food, these prices look as though they are going to remain under pressure until they move closer to European levels.

A glance at the calendar reveals that there are probably only another eight clear trading weeks between now and Christmas, which is another good reason why producers may need to accept what they consider to be a “bad” price now, rather than pile on too much weight that could be hard to clear over the Christmas and New Year period. As many of us know from experience, January and February can also be difficult selling months.

Although the euro gained a little ground, trading on Friday with 79.42p compared with 78.73p a week earlier, this did nothing to help on the cull sow front where export abattoirs bids have been at stand-on levels with most sows traded in the 78-80p/kg range.

A relaxation of the Russian embargo would work wonders, but the latest news from Putin-land has been reports that Russian farmers are being encouraged to set up 60 intensive, high-output pig farms that will obviously make the country less reliant on imports and could post another future challenge for the European pig industry as a whole.

Weaner prices are also demonstrating the wide gulf that has opened up between the spot and contract values, with the latest AHDB 30kg weaner average quoted at £48.97/head and 7kg at £37.58/head, although there are reports of spot weaners and piglets trading, in some cases, at £3-4 below these levels, and buyers are few and far between, mainly due to their concerns over finished pig values 10-20 weeks hence.

Feed prices have also tended firmer for some ingredients, with the latest UK ex-farm spot wheat quote at £107/t and slightly firmer futures prices on the LIFFE market with November feed wheat traded at £117/t and March 2015 at £123/t.

Although historically high yields for UK cereals have been confirmed, not to mention a surplus of global grain, weather-related harvest problems for the US maize crop may have bullish price indications.

Protein prices have remained largely unchanged, with HiPro soya quoted ex-store East Coast for October delivery at £318/t and rapemeal ex-Kent mill store at £158/t, but with feed ingredient prices at their current levels, now might be the time for producers to look at locking into prices just in case they start to move in the wrong direction.

And finally, as the UK only accounts for approximately 3.5% of EU pigmeat production, events in the rest of the world can have drastic consequences on the domestic market.

PEDv remains a significant global challenge, with surging pork prices throughout the US and Brazilian producers also benefitting from record pork prices arising from exports to Russia, while the mainland European Russian embargo remains in place.

While there’s nothing UK producers can do to influence world effects, securing feed cover and, where available, longer-term part-fixed price contracts with abattoirs are one way in which levels of risk can be managed to some extent.

> Based in Suffolk, Peter Crichton provides a wide range of valuation, auction and livestock marketing services, as well as supplying the UK pig industry with a wide range of consultancy services covering tenancy, contract advice, pig equipment and herd valuations as well as dispute resolution. For more information visit: www.petercrichton.co.uk

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