0
Yesterday's tiny and agonizing decrease in the Spanish reference market (Mercolleida, two-thousandths of a euro) clearly indicates that the hog price in Spain has reached a bottom. Everything points to the price being unalterable for a few weeks. Whether this ground is firm or not will depend on the slaughterhouses' attitude during the Christmas holidays. Slaughtering to freeze still doesn't seem to be a good option and Christmas will create significant disturbances in the trade flows of fresh pork. We will see if the current price will last until January; it probably will, but a downward adjustment is by no means out of the question; at least that is what we believe.
The Spanish price has fallen to align with those of our community partners; after months and months of being at a higher level; the difficulties of exporting to Third Countries have forced this realignment with our closest neighbors. We have said before that it is not a written rule that our pigs in Spain must always be more expensive than Germany's. The reverse is quite possible and plausible. Calm down.
The current situation in the Spanish market is comfortable for all players except for processors and sausage manufacturers (for several months now we have been emphasizing the difficulties that this link in the production chain is facing). There is a significant supply, but pigs are being sold without any difficulty whatsoever. The farmer's margin is still positive and the slaughterhouse has managed to pull its margins out of the abyssal depths in which they were during the four months from April to July.
This November, slaughter is at record levels. Having overcome the critical phase of PRRS incidence, piglets have been surviving this disease for months and large numbers of pigs are being slaughtered. In Spain, no sows have been slaughtered, as has occurred in many countries in our area, so pig production capacity is still intact.
There are two public holidays in the first week of December. We believe that this will have little impact on market fluidity; slaughterhouses are in high-speed mode and there should be no significant delay in taking on slaughter pigs. For slaughterhouses, it is a matter of slaughtering as much as possible in the remainder of the year to dilute costs and take advantage of the circumstances as they arise.
The current Spanish price (1.634 euros/kg live, farm gate) is still not at all competitive or is hardly competitive in the world market. As it happens, within the borders of the EU, Spain benefits from the huge reduction in slaughter in Central Europe (Germany, Belgium, the Netherlands, Poland... all have experienced a more than 10% reduction in slaughter in 2023 compared to 2022) and Spain is selling like never before within the European Union's borders. It seems as if an extraordinary alignment or astral conjunction has taken place to the benefit of Spanish pig farming. Just like that. For the time being, this is the way things are. Today, the EU is a "privileged island" as far as pig prices are concerned, from the perspective of the entire world.
The shortage in slaughter within the EU is causing some unprecedented situations: 98% of the tenderloins and necks have traditionally been sold within the confines of the EU. There is no stock of these two items anywhere and there is a lack of fresh product right now. How high the price can go is unknown.
Regarding the world market, we have to mention that Spain's main competitor is the United States. There, the hog price has fallen further and faster than in Europe. From the equivalent of 1.62 euros/kg live at the end of July to 1.06 at the beginning of November. A close to 35% drop, considerably more than the European drop. In Canada, three-quarters of the same thing has happened. It is clear that the EU has not gained competitiveness, but rather lost it in recent months. Pay attention.
Spanish pork must be sold now more than ever - as circumstances dictate - within the confines of the EU.
There is no doubt that this year Brazil will snatch Spain's third-place spot in the world's leading swine producers. Probably (and surely) without turning back. The hog prices there have been hovering for months between the equivalent of 1.05 and 1.40 live. Currently, the average price in Brazil is close to 1.23 euros /kg live. It is true that their production costs are much cheaper than in Europe.
The pressure from the U.S. and Brazil pushes Spain out of Asia and forces us to focus on nearby and friendly markets; as we have pointed out previously, we must sell primarily within the EU and some satellite countries. This is the current reality.
We are approaching the end of the year with confidence; we do not sense any major turbulence other than some difficulty in establishing the price. Many pigs are offered, all of them are slaughtered, and both the farmer and the slaughterhouse have positive margins. The average carcass weights are by far the highest in history, but the slaughterhouse accepts them (the more weight per pig, the lower the unit costs). In the next commentary, we will take stock of this atypical year.
We take a tenant from the Spanish collection of proverbs, which though hackneyed is no less true: “The calm comes after the storm.”
Guillem Burset
