After the dog days in July, August has not been better. The high temperatures have been the decisive factor for the shaping of the Spanish pig price during the two aforementioned months.
The average carcass weight has dropped week after week until the last week of August, when it rose slightly. Under these circumstances, the extreme resistance of the producer to give in in terms of price is logical, as is the tenacity of the abattoirs to reduce the price to recover international competitiveness.
Now, the Spanish price exceeds the German price by €0.16. We can only expect a reduction of this difference, and a charge back of the German price does not seem plausible. The Spanish price can only fall, and it will inevitably drop week after week in September.
Figure 1. Pig price in Spain (Mercolleida market, €/kg LW) and Germany (€/kg carcass) from January to August 2015.
We can expect the sessions of the Spanish reference market (Mercolleida, without a doubt) to be tough and long, as none of the parties will want to give in.
We are working with price levels near the cost price: this complicates the farmer's leeway when it comes to giving in. On the other hand, we are working within price levels that prevent the exportation fluidity (all our important competitors buy their pigs cheaper), an this will inevitably entail important drops when the supply recovers.
Nature never fails, and we expect a rainy and mild September: the pigs will feel comfortable, will eat, will grow and the abattoirs will probably slaughter them at the maximum of their capacity. To reach maximum slaughter figures the abattoir will have to be tempted, week after week, with an attractive price.
In our opinion, the heart of the matter would be to know how much will the price fall: will we reach hell or will we stay in a caustic purgatory? Today we find it impossible to know the answer, because there are too many factors in play as, for instance:
- The economic-financial crisis in China: is it systemic or temporary?
- Will Europe recover its home consumption with the slight economic improvement?
- Will the euro/dollar parity help us?
- How will Germany (the European leading market) behave?
A quote by François de la Rochefoucault: “Hope and fear are inseparable, and there is no fear without hope, nor hope without fear.”