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Stepped cascading drop

September will witness a series of drops in price, like a cascade. The abattoirs demand incentives to increase the slaughterings. The limit of the fall will depend on the international context.

Monday 4 September 2017 (22 days ago)
bhkim19mcrisolPanos V.

August has ended with the supply of livestock putting pressure towards an upward trend in prices, and the abattoirs are reluctant to increase their activity if the price does not drop. This is the current X-ray of the situation.

The containment in the weights and the availability has ended. The piglets are pushing hard (a good evidence of this has been the collapse in their price), and empty places must be obtained on the farms at any cost.

We estimate that in July and August the slaughterings have slowed down by 15% (because of the heat). The slaughterings must be made up for and increase, but for this to be attained, the price of pigs must drop. There are pigs available. In the last six or seven weeks, the Spanish price has been at level of some €0.10/kg higher than all our competitors (Germany, The Netherlands, Denmark, France…). This distortion is recurrent, because it happens almost all summers. In France (the main destination of Spanish pork, let us not forget that) the prices have started to fall, and when writing this article its price is €0.17/kg lower than ours.

Spain exports more than half of the pork it produces. In order to export, we must be competitive with respect to our closer competitors, and this entails aligning, at least, our price with theirs.

September will witness a series of drops in price, like a cascade. It is inevitable, and it is normal too. The abattoirs demand incentives to increase the slaughterings. The limit of the fall will depend on the international context.

In 2016, Spain slaughtered 8% more than in 2015, and in 2015 it slaughtered 8% than in 2014. Two consecutive growths by 8% is no small thing, and this is very important: there have been no penalties. Neither in 2015 nor in 2016 there were losses in the stockbreeders’ balance sheets at the end of the year… in spite of the black clouds hovering over the sector in early 2015 (with a price of some €0.95/kg for some six months that included both tax years, 2014 and 2015). We are certain that this year’s stockbreeding balance sheets will be worth mentioning.

There is a logical optimism that even the wisest do not allow themselves to undermine. Anyhow, nowadays everything depends on the exports. With the Chinese market absent (the USA and Canada have much more attractive prices than Europe), the prime cuts must be sold in the EU and the neighbouring countries. Right now, Europe cannot consume all the pork it produces if it slaughters at 100% of its capacity, and this will be what happens.

We think that soon (five/seven weeks), the European market will show signs of fatigue or saturation. The whole of Europe will have to reposition its price in order to be able to sell its surpluses in the international market.

Contrary to what happened in spring, August ends with a lower price than that in early August, and September will also end with a lower price than that in early September.

As Woody Allen said: “I’m interested in the future, because it’s there where I will spend the rest of my life.”

Guillem Burset

<p>Guillem Burset</p>

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