Any chance of a photo? The "pellets" in your description mystify me, unless it's a type of mould/fungus.
I have attached a couple of photos, I hope that helps. The 'pellets' I think are munched up tree that are being spat out rather than fungus as when I touch them they fall to the ground.
If that is ordinary grass at the bottom, I would guess the trunk is about an inch or so in diameter? Just trying to gauge the size of the wound. It looks to me as though something has gnawed away part of the bark (eg rabbits, or deer if it is a larger tree than I have guessed.) The red stuff is probably resin produced by the tree in response to the wound - cherries can produce quite a lot of that. What worries me is that there seems to be a gap between the wood of the trunk inside and the bark, and the dark colour of the trunk wood (which I would expect to be creamy white, or grey on an older wound.) That could all point to a fungal attack f some kind, as Alina mentions.
I don't know what it is - looks too big for rabbits - but what you need to do is get yourself some chicken wire and wrap it around the tree trunk. I think it's an animal, and the wire should stop it chewing before it does any more damage. At the moment, the missing bark and hole are small enough for your tree to recover.
Forgot to say - tie the wiore firmly with wire top and bottom, so it can't be moved. You'll be able to get rid of it by the end of summer, when the offending creature should have forgotten about it. I have seen cats do this sort of thing, but not usually chew a hole.
I wish edit worked! That should be "tie the chicken wire firmly"
Thanks for the great response but I am pretty definite that its not animals as I have a terrier (she is a rat and rabbit catcher) who lives outdoors. I will however try out the wire suggestion. I think its more likey to be an insect or beetle. The tree is just over 2 inches in diameter so the hole is about half the thickness of the tree and depth of the hole now runs both up and down inside the trunk for about 4inches. My biggest concern is that it is a parasite that will affect my other trees. My first thought was to dig up the whole tree and burn it! I am hoping that that won't be the case?
Ah, if there is a big hole inside that may well be some sort of beetle, although that may not have made the original hole. If you are sure that the hole is empty, try sealing it with something that has a very fine mesh instead, e.g., the mesh from an old sieve, and see if that stops it getting worse.
Thanks, I shall try that but I have a feeling the creature is still making a home in my tree as there is more munched up red tree pellets each day I go an look.
Hi Nicole, With the extra info, especially the speed of the attack, I think you are right and you probably have a borer grub at work there. Try a google for "apple tree borer" which may give you some ideas on ways to treat it. Some of the google images look very similar to your photo's. If you don't get it soon and it eats it's way around the circumference of the trunk, the tree will die.