The Spanish pig price is down and continues to fall. What is happening?

On Thursday, July 17, the first drop of the year in the live pig price occurred in Spain (with the exception of the two adjustment drops in January, after the Christmas holidays). We were coming off the annual record of €1.815/kg live. Just six weeks later, the current price is €1.643, a cumulative drop of more than 17 cents, which is atypical for July and August. What is happening? How can this be explained?

Four weeks ago, we mentioned that there were several compelling reasons for the price in the Spanish reference market (Mercolleida) to fall. We summarize them below:

• For several weeks, the Spanish price was more than 28 cents per kg (live) above the German price; history shows that this difference is not sustainable over time.
• Germany's price unexpectedly dropped by 15 cents (carcass) in the first market session in July: this move dragged pig prices down in neighboring countries and caused uncontrolled declines in pork prices.
• Spanish pork exports to third countries are struggling due to the extreme aggressiveness of Brazil, whose herd is growing rapidly, which is eating into our market share month after month.
• We explained that in week 29, Spanish slaughterhouses posted their worst results ever: with such colossal losses, their only alternative has been to reduce activity drastically to minimize damage. They have applied themselves to this task. At the end of all these reductions, the result has been that there is no shortage of pigs for a much lower circumstantial demand.

The current sustained decline can be understood as a pendulum swing resulting from a long period of comparatively high prices compared to other European players. Prices were too high for too long and are now moving from one extreme to the other, seeking to revitalize slaughter flows.

Numerous livestock farmers report a clear improvement in the health of the Spanish herd; it can therefore be deduced that the supply of live animals has improved and will improve significantly between now and Christmas. Prices will fall as much as necessary. We believe that a price of around €1.45/kg live weight in mid-December is realistic. This is what some major operators have told us.

We believe that the results of the processing industry (mainly sausage manufacturing) will improve significantly in the second quarter. It cannot be otherwise, and it is about time that this happened.

The significant declines recorded to date have not been enough for most slaughterhouses to break even; there is no doubt that the bleak results have improved, but not enough so far. The pig price will fall further.

Pork prices still haven't found stable footing; we'll see if people's return to the cities after the summer vacation (always noticeable in Europe after August 15) serves to bring some stability.

With herd health improving significantly and the number of sows in production nearing an all-time high, it is likely that between now and the end of the year we will see several weeks with slaughter figures approaching (or even exceeding) the highest ever recorded. It is highly likely that pork will continue to be abundant in surplus within the European Union.

In the United States, the pig price is between 10 and 20 euro cents per kilogram carcass above the carcass price in Germany. The market remains high due to the significant decline in the current supply of live animals. U.S. pork is not available (or if it is, the volume is very limited) to compete with us in Asian markets.

On Thursday, August 21, the joint statement on the new trade framework between the EU and the United States was presented in Scotland. The new situation means that EU pork will face a 15% tariff to access the U.S. market, while U.S. pork will be granted preferential treatment. Many details still need to be finalized (quotas? reduction of health requirements? ... ), but the general impression throughout Europe is that we are losing out. We will return to this topic later, once the remaining details have been clarified. In short, this is the news of the month, and it is not good news.

In Brazil, the price has risen by around 20 cents per kilogram since the low point in mid-July. It is currently around €1.40 per kilogram. It is still considerably cheaper than in Spain, but the difference has narrowed significantly.

In August, we regret to report a fire at two industrial swine companies in Vic, in the area known as “Illa Càrnica.” We hope that the damage can be overcome quickly.

A season is approaching with live prices more in line with production costs. Nothing lasts forever. Be that as it may, this year will be a good one for Spanish livestock farmers: the numbers speak for themselves.

We will conclude by quoting the words of the American chess genius Robert Fischer, who became world champion: "You have to have the fighting spirit. You have to force moves and take chances.” We agree with these words and consider them to be completely applicable to life itself.

Guillem Burset