Why the SPP will not react as quickly to processor and EU prices as people might think

Last Friday saw the big pork processors increase their weekly contribution prices by around 12-16p.

This only directly affects some pigs, depending on contracted arrangements, but it sparked hopes of a much-needed wider upturn in the market, particularly with pig prices soaring across the EU, having been on the floor for a long time.

Duncan Wyatt

Duncan Wyatt

However, when the SPP relevant for the week ending Saturday March 12 was published on Wednesday, it was only up by 0.41p to 138.51, resulting in some raised eyebrows within the industry.

But, according to AHDB analyst Duncan Wyatt, the processor price increases are likely to have come too late to feed into that week’s SPP. He pointed out that the increases would only apply to pigs purchased after last Friday, so would have little impact on last week’s SPP sample.

But they will be reflected in the price index in future, although producers should not anticipate dramatic changes in the SPP straight away.

“I would expect the reported price increases to feed into the SPP in the coming weeks, and because of the way people use the SPP in contracts, it ought to then build up a degree of momentum,” Mr Wyatt said.

He stressed that there are a few different elements that can go into setting contract prices. “The weekly contribution is, as I understand, only one of several pricing elements in some contracts and so will not cover anything like all the pigs in the sample. Pricing terms in individual contracts vary hugely; many will also include the SPP itself and, in some cases the Weekly Tribune price, while some contracts will also have an element of cost of production, too,” he said.

Mr Wyatt stressed that the SPP is a simple average of all pigs in the sample each week, regardless of how the price of each individual pig was arrived at. This differs markedly to the EU pig trade, where prices tend to be set via the spot market, so can be extremely volatile.

The nature of the SPP also means the more an individual price is linked to it, the ‘stickier’ it will be, he added.

Mr Wyatt pointed out that the price premium of British pigs over EU pigs has been ‘extraordinarily high in recent months’, and this a cushion means the effect of the EU price rise might be a little bit less than usual.

“Anyone expecting prices to rally here as rapidly as they have been in the EU in the last few weeks could be disappointed because the two prices are different things,” he said.

“Conversely, if the rally in the EU is short-lived, I would expect any subsequent downwards pressure on the SPP to take more time to take effect too.

“Everyone knows the SPP moves more slowly in either direction than prices in Europe, up or down, and that lower volatility has advantages and disadvantages. People tend to notice it more when prices are going up, although on average, the SPP really does move up as quickly as it moves down.”

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About The Author

Editor of LBM titles Pig World and Farm Business and group editor of Agronomist and Arable Farmer. National Pig Association's webmaster. Previously political editor at Farmers Guardian for many years and also worked Farmers Weekly. Occasional farming media pundit. Brought up on a Leicestershire farm, now work from a shed in the garden in Oxfordshire. Big fan of Leicester City and Leicester Tigers. Occasional cricketer.