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Europe's return to normality after the summer vacation season has been stronger than in previous years. Industrialists have needed to replenish stocks, cafeterias are back in operation, trade flows are back to normal and, in the end, there has been very good demand for pork in September.
In our previous commentary, we indicated that the price of pigs would be dragged down by pork, which has not been the case at all. In August there was clearly a surplus of pork for a few weeks, but in September the market changed. Sometimes our forecasts do not materialize in reality, because “the market” is a tributary of multiple, often hidden, multifaceted factors. Pig prices have fallen in Spain, yes, but in search of a less expensive price more in line with those of our neighbors and community partners. Not because of weak consumption, nor because the pork prices have fallen, but because we know that very soon many more pigs will be arriving for slaughter and it is imperative that our prices be competitive; we will need to export significant quantities to the EU countries and our pork must be attractive.
In Italy, there are major problems caused by the presence of ASF in the country. Slaughtering in Italian slaughterhouses has been affected and the need for imported pork has increased. This situation is likely to continue for a long time, as ASF is far from being controlled. The partial shortage in the industry has boosted Italian imports. Incidentally, let us remember that Italy belongs to the select “Million Tonnes Club” since, together with China, Japan, and Mexico, it makes up the group of four countries that import more than 1,000,000 tonnes each year. This volume is equivalent to more than 1,000 20-tonne trucks per week.
With Italian demand at an all-time high and Eastern Europe demanding more pork than usual, the situation is quite favorable, both for Spanish slaughterhouses (pig prices are down, pork prices are steady or rising timidly) and for farmers. This unexpected demand bubble could keep pig prices higher than expected for the rest of the year. Good prospects, then.
Let's take a look at what has happened to EU pig prices over the last six weeks (live kg equivalent prices according to Mercolleida):
| Country | Price on August 16 (€/kg live) | Current price | Difference |
|---|---|---|---|
| Spain | 1.82 | 1.68 | - 14 |
| France | 1.69 | 1.56 | - 13 |
| Belgium | 1.61 | 1.61 | = |
| Germany | 1.57 | 1.57 | = |
| The Netherlands | 1.57 | 1.55 | - 2 |
| Denmark | 1.31 | 1.32 | + 1 |
We observe a realignment of our price with the rest of the European pack, although we remain in the lead. Denmark is still far behind (although yesterday it rose 6 cents in kg carcasses...).
We are left to wait and see how far our price will drop. At this point (with pork firm as of today) it seems highly unlikely for it to reach 1.50 euros/kg live as we suggested a month ago; it seems the lowest price of the year will be higher. Exactly how much higher remains to be seen.
Here we will explain what we left unclear a couple of commentaries ago. We said that in recent years Spanish production has grown and that it has decreased in almost all other EU member countries. How is this possible? In our opinion:
- The slaughterhouse acts as a commercial market access filter (as well as a sanitary filter) for live pigs; pork can be exported anywhere in the world; live pigs cannot. Pork can be frozen, live pigs cannot.
- If this filter in country A has costs of 50 cents/kg (for example) and the filter in country B operates with costs of 90 cents/kg (also for example) it is clear that, other things being equal, farmers in country A are much more likely to get a better value for their pigs than those in country B. It seems entirely obvious to us.
- Today, access to distant markets is widespread and practically all countries export everywhere (except those “punished” by ASF).
- Despite the fact that the EU is a single market, there are many different ways of organizing pig slaughter. It may be time for many operators to look in the mirror, asking themselves questions in a serene and honest exercise of introspection.
- For years we have been expressing in this forum, and in many others, our conviction that most Spanish slaughterhouses are very efficient: in our opinion, this is one of the important keys to the success of Spanish pig farming.
- If farmers make money, they will try to grow as much as possible. If their balance is negative, they will close farms or reduce operations. We think this is what has happened and is happening. Clearly and without any doubt.
To conclude, we will focus on the fact that insisting, persevering, and persisting are key concepts for successful business in pig farming. We will borrow a maxim from Ovid: “Dripping water hollows out stone, not through force but through persistence” and the proverb: “Where there's a will there's a way.”
Guillem Burset
