Development of Two-Tier Trade

UK - A two-tier trade is emerging with DAPP-based contract sellers still reasonably well protected from falling European Union pigmeat prices and although further reductions in the DAPP are forecast in the weeks ahead, it actually rose this week to 136.51p, writes Peter Crichton in his Traffic Lights commentary.
calendar icon 18 October 2008
clock icon 5 minute read

Much more of a cold blast was felt through the spot bacon sector where quotes tended to be in the 130–133p range and it was very difficult to get more than this or in some cases to find space, with buyers less than enthusiastic quoting very poor consumer demand, recent drops in the value of the € against a strengthening 3 and cheap imports as major problems.

As a result lighter pigs failed to attract more than a 4–6p premium with cutters traded around the 140p mark from specialist outlets.

The € closed the day on Friday worth little more than 77.9p which is 3 percent down on this time last week and effectively reduces imported pigmeat by a similar amount and this has impacted on cull sow quotes.

European pigmeat traders are warning of further falls in pigmeat and cull sow prices in the weeks ahead as stocks build up, unless demand improves in the retail sector where consumers are affected by the current credit squeeze.

Cull sow quotes have fallen by between 4–6p with top bids little more than 120p/kg.

Weaner prices all appear to be flattening despite sharp falls in feed costs for those producers buying on a weekly basis with ex farm feed wheat quotes of little more than 380/tonne compared with 3150/tonne a year ago.

The AHDB 30kg weaner average is now quoted at 344.93/head, but premiums of 32- 33/head higher than this are available from some buyers.

Although the pigmeat/feed ratio is much more favourable than it was a year ago, producers remain concerned that some of the major retailers will seek to drive down producer prices at a time when some producers are barely breaking even.

The current lack of demand is also painting a rather bleak picture for trade over the notoriously difficult Christmas period and we may have to look to the spring before any significant recovery is on the cards.

Bit of a grim day, like the economy in general

At least the pig market has proved to be a lot less volatile than the Stock Market where a roller coaster ride would be something of an understatement.

A slight fall in the DAPP which is now quoted at 136.21p was a ready pointer that there was unlikely to be any more money on the table for spot sellers and this proved to be correct.

Most contract abattoirs were well supplied and very few were looking for extra pigs which meant that spot quotes tended to hover around the 135p region with some variations according to specification and region.

Lighter cutters continue to earn a modest 4 – 6p/kg premium, but in all sectors most traders commented that demand remained a shade subdued with the added problem of some foreign imported pigmeat slightly undercutting the domestic product.

The value of the € has also remained greatly influenced by the strength or the weakness of the 3 and during the course of the last five days the € has ranged in value from between 77.5p to 80.2p closing on Friday at 79.1p.

If currency traders have more confidence in the € than the 3 in the weeks ahead this should help to put up the cost of imports and also stabilise the cull sow market where prices in Europe have moved noticeably lower.

Cull sow prices are now back to where they were in early August with a base price of circa 120p/kg, although it is worth reflecting that in early May 95p was considered a good price.

Further falls in the value of feed wheat which in some regions can now be bought at just under 390/tonne are one of the most positive factors emerging to the benefit of the pig industry, but in an almost complete reverse of what happened last year, many producers decided to take feed cover well before harvest and have since seen prices drop further.

Although cheaper feed means better margins for weaner buyers, the AHDB 30kg ex farm weaner average has remained almost unaltered at 345.05/head and once again spot trades have been reported at 32 – 33 ahead of this in some regions.

With no more than eight clear trading weeks before the dreaded “pull forward for Christmas“ period hits us, the opportunities for any significant price rise between now and the end of the year look slim. Providing the DAPP can hold at around the 135p region, this should still allow most producers to hold their own until (hopefully) we see a significant price improvement next spring providing numbers continue to reduce throughout the EU and there are no more nasty shocks in store in the currency markets.

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