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April comes to an end with the market holding its breath, waiting for seasonal summer consumption to arrive (barbecues, terraces, outdoor parties, etc.). After the month of March that culminated with prices rising like never before, the arrival of Easter brought a truce or rest in order to digest some very significant increases (62% in the German carcass in a matter of a few weeks, 50% in the Spanish price in thirteen weeks of consecutive increases). This is where we stand.
The persistence of the war in Ukraine augurs and guarantees that prices of raw materials for feed will be high for a while. This disruptive factor will persist. Energy prices have gone through the roof. Spanish inflation exceeds 10% from April to April. All the factors in play warn us that the only way for Spanish (European, really) pig farmers to work in profitable conditions is with pig prices at record levels. This is where we stand.
The pork market has responded well to the lashing of the live price... up to a point. With the arrival of Easter, the mood settled and pork buyers said "enough is enough!". The paranoia of shortages, which was triggered immediately after the announcement by the large German slaughterhouses to unilaterally cancel orders for frozen meat, has faded over the weeks, and rationality seems to be prevailing again. For the time being, pork prices are recovering, although hams and loins are struggling and are in trouble. This is where we stand.
The European Union launched a private storage operation for pork at the beginning of April. We find it hard to understand why a market safeguard mechanism would be initiated several weeks after unprecedented rises. Our ground-level vision probably prevents us from seeing and understanding what the bureaucrats in Brussels have perceived with an eagle-eye view from on high. We note that more than half of the storage operations have been finalized for the minimum period of two months; there must be a reason for this.
The new pork prices in the EU act as a limiting factor for exports to third countries; in effect, the majority of cuts have gone up sharply and are now unattractive on the world market. Under normal conditions Europe has a surplus of pork; the limitation of its exports - due to price - means that the pork produced has to be consumed within our borders. The million-dollar question would be: with exports at a minimum and slaughterings greatly reduced... will there be a shortage of pork within the EU, or not? If we knew the answer we would know whether current prices are bullish or not. This is the question. The overall scenario in the European Union is unprecedented:
- Never before has there been such a lack of pigs for slaughter (in Central Europe, but not in Spain so far this year) compared to normal vs now.
- Never before have we experienced such skyrocketing production costs as now.
- Rarely before have we seen such expensive internal prices (compared to the world market) in all fine cuts.
The pointer on the scale (whether it will rise much more or a little more) will be decided by the balance in pork. If the reduction in slaughterings is sufficiently intense to compensate for the reduction in exports, then we will see pigs at stratospheric prices; if in the end the reduction in exports is such that even with fewer slaughterings there is enough meat for everyone, pigs will still be expensive, but not far from the current prices.
As long as the slaughterhouse has a positive margin, it will continue to slaughter all the pigs offered. When it starts losing money, it will have to consider what is in its best interest: to continue at a high slaughter rate to dilute costs or to reduce its activity to minimize losses. Everything will depend on the severity of their negative margins.
Spain's main global competitors have lower production and high prices (with the sole exception of Brazil); it is possible that the export doors are not totally closed to us. This would be a ray of hope that could allow us to move up a little higher.
The European market is holding its breath right now. Expectant. Waiting. We know that there will be a large lack of pigs and that consumption impulses should come with the good weather. There is no doubt that the Spanish price has not reached its upper limit, although we do not know how much further it has to go.
The great Pythagoras of Samos stated: "I prefer the staff of experience to the swift chariot of fortune. The philosopher travels on foot."
Guillem Burset
