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Yesterday's market session in Lleida marked 13 consecutive sessions in which Spain's reference pig price fell. From the lavish 2.025 that remained unchanged for four months to the price in effect today: 1.68 euros/kg live. Along the way, Spain's price has dropped by almost 20%.
The Spanish price falls because it is weighed down by an accumulation of circumstances, which were hardly foreseeable just three months ago:
- Third country markets are inaccessible to Spanish pork; the American competition (Canada, USA, and Brazil) has unbeatable prices and is removing us from all Asian destinations.
- While slaughterhouses have regained margin to some extent, the four-month period of losing the unimaginable has forced them to reflect, curbing their desire for more work.
- As is the case every year, the supply of pigs for slaughter increases in the fall due to improved environmental conditions that favor growth.
- In a bear market (this is the current situation throughout the European Union) no operator wants to freeze, because pork prices will fall later on. Only what can be sold fresh is slaughtered - nothing more or practically nothing more.
- The prices of offal and products that are raw materials for gelatin have collapsed shockingly; this is another factor of uncertainty.
- For months Spain has had less supply due to PRRS (8% lower cumulative slaughter so far this year); slaughterhouses have been forced to adapt their capacity to the lower supply and it is not easy for them to increase suddenly.
- All EU countries are suffering from the same phenomenon: slaughter pig prices are falling steadily.
The dramatic reduction in slaughter in Central Europe (up to 14% in some cases this year compared to last year's already weak year) is leaving gaps for Spanish pork: Asian destinations are being replaced by destinations within the EU.
Undoubtedly, we are witnessing an evolutionary change with no turning back: Spanish exports to third countries are decreasing and exports to destinations within the EU are increasing. We believe that it will be difficult for us to go back to exporting more than half of our foreign pork shipments to countries in the rest of the world.
Within the borders of the EU, the balance of supply and demand for pork is quite even; so much so that pork is seeing steady prices while pig prices are clearly falling. The truth is that a situation like this one is unprecedented: pig carcass prices have fallen by 40 cents on average in almost all the representative European countries and pork, at most, has gone down barely ten cents for certain cuts. The low level of slaughter is compensated by flat (almost null) extra-EU exports.
We believe that we are not far from the bottom as far as the pig price is concerned. It could very well happen that the price stabilizes at around 1.60 euros/kg live. In any case, whatever happens, 2023 will be a good year for Spanish farmers. Not for slaughterhouses, because the four months with a stratospheric price have been a burden that won't be able to be lifted in the weeks that remain. The slaughter from now until the end of the year should be very significant because the pigs are there and finally it should be best for the slaughterhouse to process as many kilograms as possible.
The stone guest in the entire pork processing chain is the sausage manufacturer. The extraordinary pork prices could not be reflected in the processed products and this situation has existed and persisted for months and months...
Over the years, the EU has been legislating and regulating the industry. Step by step and regulation by regulation, a legal framework has been woven that restrains the competitiveness of the European swine industry in the world. Environmental protection laws, all the legislation on animal welfare (important and surely necessary, but in many cases exclusive only to Europe) creates extra costs that limit our competitiveness in a globalized world. This is a fact.
It seems to us that in the medium to long term the EU will have a self-sufficiency rate of 100% or slightly more. The center of gravity of European pig production is shifting, in a path of no return, to the South.
The EU has practiced a very protectionist policy on swine issues. The obstacles and difficulties to the free import of non-EU pork have made it impossible for cheap American pork (from Brazil, USA, or Canada) to enter on a massive scale.
In response to the requirements and pressures of the World Trade Organization, the EU was forced a few years ago to grant a few individual countries some tariff-free pork quotas (from Canada, Chile...). Their impact on the market as a whole is pretty insignificant, as has been demonstrated this year.
We are where we are. The reorganization of European pig production continues. And the landscape and scenarios are constantly changing. Spain, in its role as the European leader, seems to be called to increase its specific weight within the swine industry in the European Union to the detriment of Germany, the former leader.
As the great Pablo Picasso said, “Inspiration exists, but it has to find you working."
Guillem Burset
