A very uncertain future awaits

June closes with four quite tangible price increases (+ 0.014 + 0.017 + 0.018 and + 0.028 €/kg live) totaling exactly 0.077 €/kg. This means that the current price of the Spanish hog is at 1.626 €/kg live, which is equivalent to 2.14 €/kg carcass.

At the moment, the Spanish price stands out as the leader within the EU. In fact, this tends to happen every year around this time. Of the world's major exporters, only the USA has a price clearly higher than Spain's. Let's compare the prices of the second, third, fourth, and fifth global producers now to get perspective:

(*) Average price between Minas Gerais and Santa Caterina; live price 11 cents difference

With feed (and energy) prices soaring due to the conflict in Ukraine, the costs of producing a pig have skyrocketed. At the moment, finishing a pig costs around €1.55/kg live in Europe. In the continent only Spain has a market price at that level; the rest of European pig farmers are in the price range of Germany, so they are losing (and have been in the red almost perennially since October 2020, impossible to withstand). Brazilian producers are not doing well either.

The price of sows has fallen in Germany and adjacent countries, a clear sign of another wave of sow culling caused by hopeless farmers abandoning production. The future of pig farming in Central Europe looks bleak and helpless, with far fewer pigs than ever before. Farmers have been losing for months and months and the only logical consequence is a reduction in the herd.

The EU internal market is, at the moment, under great tension: on the one hand, the effective reduction in the supply of live pigs is a fact. Few pigs are offered for slaughter and, to make matters worse, we have encountered a wild heat wave in an unprecedented month of June (all kinds of records have been broken in this regard in Spain) which will slow growth everywhere. Far fewer pigs in sight.

On the other hand, demand has been sluggish for weeks; in May the weather was not good and the famous German barbecues did not pull the market. June has become short and in July the German cities begin to empty, so that demand can only come from the tourist areas. Pork is not going up (and neither are pig prices in Europe, except for this last week in Germany), so the Spanish slaughterhouse is seeing its negative margin increase. The time is approaching for reflection repeated every year: "Slaughter at a loss? No thanks". We will soon see this.

Let's review this year's trajectory: in February, the pig price rose in a hurry, driven by an irresistible force (it is true that we were starting from far below); pork prices did not rise, held back by massive stocks resulting from significant slaughterings in December and January. In March, pork went up at full speed, more than catching up with the previous month's lag.

The prices that pork for industrial consumption so happily reached proved to be expensive for export, so the best possible destination - for price - for European pork was... Europe! And since we have excess and the pork remained within our borders... it ended up in surplus, causing the inevitable drop in prices. And that's where we are.

We know that pork has certain limits in its sale; when its price crosses certain red lines, what is known as consumption substitution takes place: the buyer is diverted towards other proteins (dairy products? legumes?). And in times of crisis (like now: an annual inflation of close to two figures is no joke) the phenomenon seems to be accentuated.

So the future is far from clear: pigs will continue to be expensive to produce, and with consumption in a rough patch, there is no way of knowing how things will develop. Will a very tight supply be enough to sustain prices in autumn/winter this year, or will the decline in consumption weigh too heavily and pig prices will fall?

At this point, it seems appropriate to ask another question: What will happen to European pig production in 2023? We believe that there will be a significant overall reduction; in the next commentary, we will try to elucidate this by providing data, verified information, and the opinions of some of the industry's leading experts.

As so often, it is important not to lose perspective: we are in a difficult situation in Spain, but we are not the only ones and most of our European colleagues (competitors) are doing worse.

As Ramon Llull, a distinguished Mallorcan who died in 1315 after 90 fruitful years of life, wrote: "The poor man with hope lives better than the rich man without it".

Guillem Burset