Unwelcome News from Vion

by 5m Editor
7 November 2009, at 9:14am

UK - Today’s unwelcome news that Vion is intending to serve notice on all pig supply contracts may not have been a total surprise, but it still served to underline some fairly drastic restructuring ahead as far as DAPP-related pig contracts are concerned, writes Peter Crichton.

Since Tulip’s earlier exit from the DAPP compilation, the other two major contributors to the DAPP are Cranswick and Vion.

As a result, because the majority of the pigs they procure are on DAPP-related contracts, the DAPP index price has been very slow to move (up as well as down).

In March earlier this year the DAPP was 141p compared with spot prices of 153p, whereas now we have the DAPP at 142.72p and spot as low as 125p.

Unless a wider sample of prices is included in the DAPP, there will be periods when either buyers or sellers are unhappy with its relationship to the spot market.

One way to remedy this is for BPEX to lobby the abattoir industry asking for a larger number to supply price data which should then more accurately reflect the market as a whole, including lighter weight cutters through to heavy bacon.

The FTSE share index includes all the 100 top shares and not just a small proportion and the same logic should be extended in this case with the top (say) 15 pig abattoirs by throughput all making a contribution leading to a more accurate and realistic DAPP.

In the short term the DAPP is unlikely to collapse, but will probably continue to drift down a penny or two a week until former contract pigs hit the spot market.

By that time we may be into March/April when prices normally recover and this will be less of a problem, but for any former contract producer forced into the spot market during the November-February period, this could prove to be a very unhappy and expensive Christmas present.

Trading today was split into two distinct camps with the DAPP now standing at 142.72p; contract sellers will probably receive up to 20p/kg more than their spot counterparts where 125p proved to be an almost universal spot bacon base price.

The challenges faced by the continental pigmeat market continue to be reflected by falling cull sow values with German carcasses worth little more than 31.10 before slaughtering costs are taken into account.

British cull sow quotes continue to fall within a fairly wide range with quotes as low as 103p heard in some quarters, but a fair market average would be 105–108p.

As a result of the uncertain future facing finished pig prices two to three months ahead, weaner prices are continuing to slide with the latest AHDB 30kg ex-farm quote at 348.87/head, but numbers remain on the tight side which has helped to prevent this price falling further.

All in all another challenging time for the pig industry, although colder weather and better retail demand could turn things around in the run-up to Christmas, especially if this is combined with producers continuing to pull forward lighter weights.

A glance at most pig price graphs indicates that once we make it to the spring prices normally recover, but many producers will be feeling that unless they receive some positive news on the price front soon, they may be tempted to either pack up or put any reinvestment plans on hold.