Groundhog day? (Four months of the same)

Yesterday the Spanish price stayed the same, which makes seventeen weeks that the hog price in Spain has remained unchanged. This is very exceptional, both for how long it has lasted and for the price itself, which is at a record level. Never before has the price stayed the same for four consecutive months (or even three).

Let's look at how some of Spain's neighboring countries, as well as the main world producers, have evolved in this interlude in the following table.

Table 1. Comparison of the pig price in €/kg live between the end of March and the end of July 2023. Source: Pig333.

* The premium for lean meat quality is not included in this price.
** This price does not include the yearly bonus farmers receive from the slaughterhouse.
*** The Netherlands is considered a satellite market of the German market.

In France, the price has recovered after falling in May due to the accumulation of public holidays.

In Germany, there is a structural problem: only 700,000 pigs a week are slaughtered, while a few years ago more than 1,000,000 were slaughtered. A restructuring of the slaughterhouse industry is necessary, whichever way you look at it, whether you like it or not.

Denmark suffers from its great exposure to the Great Exporters (third countries), where competition with the Americans is brutal.

China, the world's largest importer, is still stuck at a price well below the Spanish price (which until recently was unthinkable, pigs have traditionally been much more expensive there). It does not seem that Chinese interest in buying pork will awaken. At least for now.

The United States has risen sharply on the back of well-functioning exports and a strong domestic market this year. Canada is also up, albeit slowly (from below), and Brazil is up in dribs and drabs.

As we have pointed out in previous commentaries, the Spanish price cannot remain indefinitely the most expensive in the world (among the countries with significant production). Our foreign dependence (we export more than half of what we produce) prevents it. We are where we have been in recent months: there are not as many pigs as usual due to PRRS and this shortage is what keeps the price where it is.

One might think that the market is behaving like a dilettant (postponing and postponing all decisions) but this is not the case; there are simply too few pigs for the price to go down and too much extra pork for it to go up.

If we look at the live pig market, the situation is simple, straightforward, and easy: there are very few pigs and those that are available are extremely expensive. If we move further along the chain and look at the processors, the situation is very complex, multifaceted, and difficult: the prices of pork and processed products are historically expensive; inflation reduces consumer availability and consumption suffers. There is less pork due to the drop in slaughter throughout the EU, but there is still a surplus. With the Great Export (third countries) very complicated and difficult due to strong American competition, things are not simple at all.

We find ourselves in a totally exceptional time: since the end of March, our price in Spain has remained anchored at the top at a level never reached before. Record prices and the price relentlessly staying the same. In the meantime, our European partners have ended up aligning themselves with the Spanish price (although at a certain distance) with the only exception being Denmark, which remains several steps below, very dependent on the Great Exporters. We also see an upward movement in the rest of the world although, outside Europe, all prices, in general, are far behind the European ones.

The Spanish price can do nothing but go down. The million-dollar question is when. We don't think it can stay where it is for many more weeks. The slaughterhouse is struggling to contain the losses reflected in its weekly results; with pork prices in slow retreat there will be no other possibility but to reduce slaughtering even more in order to minimize losses. Let us consider that many Spanish slaughterhouses are already working only four days a week.

As we have mentioned several times this year, the market is very stressed and it is likely - we safely assume - that we are experiencing, in real-time and without anesthesia, a crude reconversion of the industrial sector. Unfortunately, some companies will fall by the wayside.

We will end with a quote from Henry Ford, a visionary American entrepreneur (considered to be the inventor of assembly line production): "When everything seems to be going against you, remember that the airplane takes off against the wind, not with it".

Guillem Burset