Price distortions caused by FMD and BSE no longer disrupting EU market Morale resilient among Continental producers Sharp price falls in several of the major EU pig markets during the past month seem not to have badly dented producer confidence on the continent. That's in sharp contrast to the gloom familiar in the UK and now apparent in Ireland. Most analysts in the mainstream of continental industry opinion still reckon only a gentle decline is likely over the next year. One explanation for resilient morale is the high level from which the prices dropped. Even after the mid August shakeout, processors in nearly all states were having to pay at least 10% more than a year earlier, and in several countries farmgate returns remained 20% above those of summer 2000. In other words, the previous prices had been generally regarded as unsustainable, so the downturn could be interpreted as merely a predictable and necessary correction bringing the market back to something like reality. Moreover, because the correction was expected as the market's assertion of economic rationality, it conferred on the post-shakeout prices the status of authoritative leading indicators, in effect promising traders there would be no nasty surprises now that legitimate value in terms of available supply and demand had been re-established. This supposedly means the price distortions caused since last autumn by BSE and FMD (and by swine fever in Spain) no longer afflict the EU pigmeat market severely, and for the next year or so prices will move modestly in response to influences such as the likely slight increase in production and the probable deterioration in export competitiveness as the US dollar weakens. Yet still it is possible to detect hints of trouble, one illustrated by the chart showing pig prices in the UK and in the other EU markets of most relevance to the trade here. Why is the UK price now significantly below the EU average, instead of at its usual premium? This is especially odd as production here has dropped sharply. The three weakest markets for pigs are in the UK, Ireland and the Netherlands, and these are also the poorest performers in terms of slaughterings. On the face of it the supply/price relationship is perverse, implying either that the other major markets are still overvalued, or the UK, Irish and Dutch prices must bounce. {{M/E MEAT }}