A highly unusual August that delays the hard times

During the second half of July and the first fortnight of August, Western Europe endured an extraordinary spell of intense heat: one heatwave after another lashed several countries across the Old Continent. This factor has played a crucial role in the market’s radical change of direction.

It is well known that pigs under heat stress eat little, drink a great deal and see their growth markedly slowed; we will remember this summer as a clear example of this cause-and-effect relationship.

We have always believed that the market is shaped by a number of different elements or factors, with one or another carrying greater weight depending on the circumstances. At present, the predominant factor, without a shadow of a doubt, has been and remains the excessive heat.

We ended July with a very pessimistic forecast (see our previous review); August has brought us a host of unexpected surprises which, taken together, have produced a very different scenario from the one we had foreseen: the downward trend has given way to unusually vigorous price increases. The year’s highest price was reached in yesterday’s market, disproving our statement a month ago that the peak had been reached in July.

Germany raised its price by 10 cents per kilogram carcass weight in each of two consecutive weeks (10 + 10); in Spain, the market has undergone a radical change of direction and cautious declines have given way to fairly decisive increases. We started August at 1.285 euros/kg live weight and ended it at 1.360. A historic increase for this month.

The shortage of pigs has been (and remains) so severe that slaughterhouses (in several Western European countries) have had to reduce activity for lack of animals; in turn, this reduction in activity has coincided with an increase in demand for pork as a result of the rentrée (people returning to the cities after their holidays), and the result has been to turn the market completely on its head.

The bankruptcy of a major German producer (managing more than 50,000 sows) has had a significant psychological impact on market players; it is difficult to discern the precise weight of this incident on the market, although it has undoubtedly had an effect.

At present, it is impossible to determine whether the hard times we forecast in our previous commentary have merely been delayed or whether they might, perhaps, be avoided, at least in part.

The reality is that the pork market has gone from dull lethargy and listlessness to a frantic scramble for pork (with little concern for the price and barely discussing over it). All very surprising. Although, in recent days… demand for pork is already retreating quite clearly.

As we approach meteorological autumn, we will be able to get a better measure of the market’s elusive reality; the return of temperatures to their usual ranges will allow us to evaluate the state of the Spanish pig herd more accurately. We must wait, which is good news in itself, since, for the time being, the discouraging scenario we predicted a month ago has not materialised. In any event, the pigs are still on the farms and, sooner or later, they will have to be sent for slaughter.

Widening our lens, let us take a look at what is happening across the wider world:

• In Brazil, both of the two most representative markets are below the equivalent of 0.90 euros/kg live weight. They can sweep us aside in third-country markets.
• In the United States, the current price is equivalent to 1.72 euros/kg carcass weight, or, in other words, around 1.31 euros/kg live weight (cheaper than in Spain).
• In Canada, the two most important markets do not exceed 1.50 euros/kg carcass weight, or, in other words, around 1.14 euros/kg live weight. Competing with them is simply not feasible.

The three countries mentioned are the world’s leading exporters after the European Union (perhaps with the exception of Russia: the live pig price there is equivalent to 1.31 euros/kg live weight). All three are at a price level below, or well below, Spain’s. This tells us that we will be competing with them at a considerable disadvantage in third-country markets. Add to this the fact that prices in China are showing no signs of recovery and demand there remains badly depressed, and the pessimistic picture is complete.

It seems quite clear that global pork production currently exceeds demand. Otherwise, it is difficult to explain why most of the major producers are operating at a loss.

There is little cause for optimism when it comes to exports beyond the EU. We will have to work tirelessly within the EU, where a fierce battle to sell fresh pork can be expected; freezing remains out of the question in view of the bearish outlook.

Fighting for every cent, fine-tuning costs to the last decimal, optimising processes… these are among the few initiatives still in the hands of Spanish operators; the situation will not change substantially until the European pig herd shrinks. And we do not know when that will come to pass.

Let us hope that live pig prices come down without any shocks, little by little and in moderation. Hard times lie ahead and, obviously, the future remains to be written.

We will end with a quote from Leo Tolstoy: “The two most powerful warriors are patience and time”.

Guillem Burset