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Here we are again - as at the end of each month - in the process of commenting on the current situation and the reality of the Spanish pig market. Sometimes reality may seem confusing (everything is very confusing) but we will try to shed light on its facets.
Yesterday, Thursday, June 29th, the reference market for Spanish pigs (Mercolleida) repeated its quotation. This is the thirteenth consecutive repetition in the price, which is a true record.
Essentially little has changed this June: supply is still at a record low, pork is not reacting (it is at an all-time high, consumers are dealing with high inflation, and consumption is at rock bottom) and the weeks go by in a seemingly perpetual stalemate.
In the United States, pig prices have risen sharply since April: 40% as of June 15. It is now at an equivalent price of about 1.45 euros/kg live. The United States is taking advantage of the very high European prices by exporting at full speed to Asia.
In Brazil, pig prices are not going up: the latest quotations move within the range of the equivalent of 1.11 euros/kg live to 1.24 euros/kg live. From Spain (far away and without concrete information on the matter) we are inclined to think that this depressed price could be due to the lack of slaughtering capacity. In Canada they continue to have ruinous prices: from the equivalent of 1.00 euros/kg live to 1.13. From Spain (far away and without concrete information on the matter) it is difficult for us to understand this situation, especially knowing that the total slaughterings there remain within the normal range.
In Europe, we have seen three price increases in Germany in the last few weeks: 5 cents in carcasses on May 24, 5 cents more on June 7, and a surprising 7 cents the day before yesterday. The current price there is equivalent to about 1.90 euros/kg live, well below our "official" 2.03. Traditionally, the end of June marks the beginning of vacations in the Teutonic country with the consequent reduction in consumption as the country is partially vacated. The price increase the day before yesterday is due to the desperate demand for carcasses from Eastern European operators who need to provide their industries with content (some Belgian carcasses have been sold for over 3.00 euros/kg delivered!!!). It could be that this strange increase is due to a domestic struggle - in dispute for supremacy - between slaughterhouses. We think that pork will remain very heavy and with little real chance of increasing in price.
As the weeks and months go by, exports to Asia are faltering, volume is decreasing and prices are weakening. Everything seems to point to the fact that Spanish pig prices must go down...
Here we quote in part a paragraph from last month's commentary: what is mentioned is still very current and valid (in view of the blockage mentioned at the beginning): "This sumptuous price (more like a monument to pig prices) so exaggerated is stressing the market to unbearable limits; companies (slaughtering, cutting, sausage manufacturing) are running at a loss week in and week out, with no signs of change in the short term. As we have been predicting, there will be negative consequences in the near future."
According to Mercolleida, average carcass weights are now about 5.00 kg higher than last year at the same time. The mild temperatures this June (nothing compared to last year) have favored growth. This circumstance is also due to the fact that the farmer maximizes and optimizes his profit, carefully administering and managing deliveries to the slaughterhouse. Those five extra kilograms in each pig mean that there is a stock of pigs pending slaughter on the farms (which last year would have been slaughtered already) equivalent -grossly- to one week's slaughter.
This "stock of pigs" will serve, this summer, to soften the more than foreseeable and significant shortage of live supply. As a kind of emergency reserve, it will cushion the "crossing of the desert" that was foreseen. The reduction in supply due to the impact of the heat will be diluted in part by those extra pigs that now exist and will emerge.
In any case, even without major complications (which hopefully will not occur), 2023 will be remembered by the entire industry as an "annus horribilis" due to the unceasing accumulation of hardships. All operators in the chain (except for farmers with good health) have been suffering severe losses week after week for the last few months. We believe that these prolonged losses will favor business concentration along the lines of recent times: there are fewer and fewer operators and they are bigger and bigger. As in other occasions, time will tell.
A change in the scenario is not foreseeable (i.e. a drop in price, any increase is more than ruled out) perhaps until the end of August; supply will continue to be well below normal but pork prices can do nothing but drop, weighed down by the lack of exports to third countries. It is likely that, if the accumulation of unsold goods in Asia continues, the decline in pork may even be brought forward to the end of July, although we cannot rule out that it may occur earlier. The slaughterhouse is seeing its negative margin increase blow by blow due to the disinterest of Asian customers in buying in Europe when they have much cheaper alternatives in America. The pig price is holding firm, but if the slaughterhouse loses too much then it should rethink its interest in slaughtering. And if this is the case... anything could happen in the downward price evolution.
Let us remember (as a mantra) that Spain exports more than half of the pork it produces and that we have the most expensive price in the world (among the countries with significant production). What is already known as the "Spanish Miracle" is observed with extreme curiosity from abroad.
With or without miracles, life goes on. And in many cases, we have to deal with the ugliest. We will remain attentive to current events to be able to relay them and tell it as we see it, perceive it, and appreciate it.
We will end this month exceptionally with two quotes from great men: Friederich Nietzche: "What does not kill me makes me stronger.” Lucio Anneo Séneca: “In adversity, it is often fitting to take a bold course.”
Guillem Burset
