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Mercolleida's last market session in May ended with the live pig price rising 0.40 cents per kilo live. A real declaration of intent after three previous sessions with a great fight between slaughterers and producers that had ended in a draw. For four weeks the market has remained in a situation of precarious balance until Thursday, May 26th. We are embarking on the upward path, knowing that the upward path will necessarily be modest.
The question we expressed in the previous commentary as to whether the reduction in supply (throughout the EU) or the lack of exports to third countries (due to the high internal pork prices in the EU) would prevail has been clearly answered -for the time being, and for May: the lack of pork exports has weighed more heavily than the reduction in the supply of pigs so this month there has been a lot of pork left in the entire European Community.
The pig price hadn't been able to go up until Thursday because:
- All pork cuts have suffered a downward drip in price (a significant one for some pieces) during this month that is coming to an end.
- The severe losses in the weekly balance sheets of the slaughterhouses have driven them to reduce their activity as much as possible, thus counteracting the significant reduction in the supply of live pigs.
The pig price hasn't been able to go down in May because:
- The extraordinary reduction in supply due to the virulent "Rosalia" strain of the PRSS virus that has been rampant in Catalonia and Aragon for many months, decimating piglet populations. In short, there are no pigs.
- The added reduction in supply due to the little interest -since October- in bringing piglets into finishing barns in view of the great economic uncertainties that finishing them presents (expensive feed, live market below cost or in the vicinity). Again, in short: there are no pigs.
- Since October of last year, production has been at a loss; many cull sows have not been replaced and it seems clear that these unborn piglets will eventually be lacking. This is an added psychological factor of the first order.
The wait-and-see situation experienced in May is over. As the weeks go by, the live supply will become even more restricted and it is enough to know that already at this moment 80% of the Catalan slaughterhouses and cutting plants are working only four days a week; it is possible that in June some will be forced to reduce their activity to three days a week... We expect a scenario of reality never seen before as far as the weakness of the supply is concerned.
The United States is the world leader in pork exports. Its carcass price is now well above all European prices which, together with the strength of its domestic market, the strength of the dollar, and the significant reduction of its weekly slaughterings, is producing a clear reduction in its exports.
In the world market, only Canada and Brazil (among the top 10 exporters) are at a price level well below that of Europe. Both countries together have greater activity than Spain (71 million head slaughtered per year against 58), although not enough to expect that they can "fill in all the gaps" that the absence of the USA may cause. In addition, pig farmers in both countries are incurring heavy losses, which makes their production extremely fragile in the short term. Trade possibilities should be opened up in third countries (US customers) for Spanish pork.
The price of pigs in Europe can only rise significantly if exports are relaunched. The European Union has a pork surplus: exporting is essential if we are to avoid swimming in abundance, as we have seen in the last month. In this respect, we believe that European exports will be revived in one way or another. This fact, together with the fact that there will be a reduction in supply like never seen before, allows us to think that in June the pig price can still go up. We think that feed is firmly anchored at prohibitive prices and will not move from there for months.
Very qualified operators report a cost price of pigs in Spain for September/October of around 1.65 euros/kilo live. (Wow!) A selling price of live pigs coherent with this cost will be very necessary.
As mentioned, the wait-and-see situation is behind us, and now it will be a matter of seeing how far up we can go. The climb will be stronger the higher the volume of exports to third countries. At the moment, these exports are performing better than in the past months and even China is placing orders - at last - although on a small scale.
We will keep a close eye on developments and report on them. As we noted, the unstable equilibrium is over and it will be a matter of seeing how far it can rise and at what pace. Whatever happens, there is no doubt that 2022 will be a particularly negative year. One to be remembered.
The great René Descartes, the French philosopher and mathematician, bequeathed us (among hundreds of lessons) a categorical phrase: “If you would be a real seeker after truth, it is necessary that at least once in your life you doubt, as far as possible, all things".
Guillem Burset
