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UK Pig Price Indicators

by 5m Editor
8 January 2002, at 12:00am

By MLC - This article looks at the UK's Pig Price indicator mechanisms and answers the two questions: What are they, and how they are calculated.

What are the Pig Price Indicators?

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Each week, on a Wednesday, MLC currently produces two United Kingdom Pig price indicators:

  • The Adjusted Euro-spec Average (UK)
  • The Adjusted UK-spec Average (UK)

Both indicators relate to pigs purchased and slaughtered during the previous Monday-Saturday week. Information for Northern Ireland is included as well as that for Great Britain.

In addition, a Great Britain (ie excluding Northern Ireland) version of the two indicators is produced:

  • The Adjusted Euro-spec Average (GB)
  • The Adjusted UK-spec Average (GB)

What happened to the old AAPP (produced until 1994)?

The introduction of the new EC Pig carcase grading regulations on 12 September 1994 prompted a change to the way in which pig prices are reported.

From that date, UK slaughterers have had the option to either dress carcases on the basis of the EC specification (ie excluding flare fat, kidney and diaphragm) or to continue to dress inclusive on the basis of the old UK specification. If this latter option is chosen the recorded cold weight must be calculated as if these components were removed.

Many abattoirs in the sample will be paying in a higher price for European dressed pigs (to compensate for the reduced weight) but some abattoirs in our sample continue to pay on the old UK dressed weight. The old AAPP, therefore, became a mixture of prices paid on the basis of the two dressing specifications.

In order to ensure that neither producers nor abattoirs are disadvantaged in their formula priced trading, there was clearly a need for us to produce additional price information. The difference between the indicators is explained later.

What sort of information is collected?

Information is collected each week from abattoirs and auction markets. Details of deadweight purchased pigs include the cold weight, probe, sex and gross price for each individual pig slaughtered.

Normally liveweight auction market prices for porker weight, cutter weight and baconer weight pigs are collected and converted to deadweight equivalent prices. Northern Ireland details are collected from a sample of abattoirs in the province and provided to us by a third party.

Which price is recorded?

The price collected each week is the gross price paid to producers on the basis of either an EC or UK dressed carcase. The gross price, in pence per kg deadweight, is the price before deductions (such as transport, insurance and levies) and bonus payments (such as delivery and procurement). Prices might be weekly deadweight “spot” prices or prices based on contract formulae.

Where does the information come from?

Deadweight prices come from a sample of abattoirs, drawn from around Great Britain. The sample includes abattoirs operating in all parts of the market, from small multi-species plants killing for the fresh meat market to large specialist pig plants.

Normally liveweight prices are taken from the MLC national sample of auction markets (these generally make up 10 per cent of the survey sample). Northern Ireland details are supplied by the appropriate authority in Northern Ireland.

How is the information combined to produce the pig price indicators?

In order to maintain accuracy, the various prices are combined together using weighting factors or “coefficients”. This ensures that the influence of any one type of pig in the calculation is in proportion to its national importance. The coefficients reflect the national patter of slaughterings and are based on MLC pig carcase classification information. They are reviewed each year around July so that, as the pattern of slaughterings changes, the calculations can be kept up-to-date.

What is the difference between the pig price indicators?

The Adjusted Euro Spec Average is a price equivalent to that which the old AAPP would be if all pigs in the sample are adjusted to the European dressing specification. The price is calculated by converting reported prices for pigs traded on the old UK specification to the European dressed equivalent. This is done simply by taking the value for each pig dressed to the old UK specification (weight and price) and dividing it by the equivalent European dressed weight.

For example:

70 kg (UK) pig x 100 p/kg = £70/Pig ÷ 68.9 kg (EC) = 101.6 p/kg

These adjusted prices are then combined with the reported prices for European dressed pigs and an overall adjusted average price is produced.

A number of producers and abattoirs wish to continue trading indicator related contract pigs on the basis of the old UK dressing specification and have requested the provision of a price comparable to old definition of the old AAPP. This is very simple an is achieved by altering the Adjusted Euro Spec Average by 1.6%. This reflects the weight difference between the two methods of carcase dressing. This price is called The Adjusted UK Spec Average.

Exactly the same procedure is used for calculating the indicators on the basis of United Kingdom (including Northern Ireland) information or Great Britain (excluding Northern Ireland) information.

How can these different prices be used?

Most abattoirs have moved or are moving to paying for their European dressed formula prices pigs on the basis of one or other of the specific pig price indicators.

Although many people and organisations are using the various price indicators as a base for contract prices, they were not necessarily designed for that purpose.

The sample of deadweight centres

Approximately 70 per cent of the pigs in the pig price sample are paid for on the EC dressed weight and information on upwards of 40,000 deadweight purchased pigs is analysed each week. In addition to this, auction market prices in Great Britain and deadweight prices in Northern Ireland are included. The pig price indicators, therefore, are based on at least 20 per cent of the pigs slaughtered in the UK each week.

Do the abattoirs report all the clean pigs they slaughter?

Yes. The selective reporting of only certain types of pig is not allowed. The only information not included is from condemned pigs.

Is the information reported accurately?

Individual information from over 40,000 pigs is collected electronically each week on diskette or computer modem links. This electronic data is usually extracted directly from the accounts of the companies concerned. When auction markets are operating information for the remaining pigs are taken each week from MLC pig carcase classification documents.

Do the pig price indicators follow weekly “spot” prices?

The pig price indicators include weekly deadweight “spot” prices but they do not necessarily follow them exactly, particularly at a time when the market is volatile. The indicators are an average of all pigs and so include pigs priced by all methods whether related to the liveweight prices, deadweight prices or a formula using any of the price indicators themselves.

This means that if non-contract, or spot, prices start to move up sharply, it can be one or two weeks before contract formula priced pigs begin to move in the same direction. The same applies in reverse so that, as non-contract or spot prices fall away, contract prices take a little time to react.

The overall result of combining contract and non-contract prices are price indicators that are more stable than “spot” prices; they may not reach the peaks spot prices do but, by the same token, they do not fall to the same extent either.

Do the pig price indicators have to be used in contract pricing?

No. The decision of how to arrive at the price paid for pigs is entirely a matter between the producer and the abattoir. If some form of independently calculated national price is to be used as the basis of pig pricing, then there are many alternatives available: average prices in a weight range more specific to the section of the market in which the abattoir operates, EC grade prices, liveweight prices, prices from other European countries and so on. All this information is available from MLC Economics Services.

Other information produced

Other deadweight pig information is produced as well:

EC grades: The United Kingdom average prices for the EC grades, S, E, U, R, O and P. The “E” grade price is used as the UK’s EC reference price.

Information sources:

Recorded message service - Weekly deadweight pig price indicators available on Wednesday evenings (one day later in Bank Holiday weeks).

Dial: 0906 815 4973

(calls charged at 60p per minute at all times)

Fax service - generated each Wednesday afternoon (one day later in Bank Holiday weeks) as soon as the pig price indicators are available.

Annual charge £104 plus VAT.

Deadweight and liveweight information is featured in some detail each week in the UK Market Survey. EU pig prices are featured in the European Market Survey.

For details on subscription rates for the above please contact Economics - 01908 844396.

Meat and Livestock Commission
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