Boerenbusiness analysis
US pig price is heading in the right direction for us
Last November, the American pig price registered its lowest point in roughly 10 years. Three months later, however, the pig sector has again escaped the deep price trough, prices are again 70 cents higher and the tide has turned. Good news for Europe, because this development will probably relieve price formation here this spring.
The reason that the US pig price plunged sharply in the second half of 2016 was due to a large supply of pigs, a recovering dollar and the European export drive in China. Because the European pig market was still in a deep price trough at the beginning of last year, Chinese importers focused on Spain, Germany, Denmark and the Netherlands. Because of this, during the 'start' of the Chinese import drive, Europe started to have an advantage over America. In the background, of course, a number of other things played a role. For example, not all pork in America is suitable for export to China, because of the use of the drug ractopamine.
When the American pig price quickly lost value from July last year, the European advantage was more or less wiped out and America clearly gained ground in the Asian markets. As a result, the improving pig prices in Europe leveled off and subsided in the second part of 2016. In fact, it ensured that the limit of 1,70 euros per kilo in Germany could not be broken and that pig prices fell towards 1,50 euros. Proof that the mood on the European pig market is strongly influenced by outside influences.
However, after an unpleasant second half of 2016, the tide has turned in America. This week - February 14 - the Iowa/Minnesota quote was worth $1,63 per kilo, while in November the slaughter weight per kilo was still well below the dollar. The 'gain' that the American pig price has made in three months is comparable to the advance that the Iowa/Minnesota listing made in the first 6 months last year, in other words the pig market in America is bouncing quickly.
The reason for the revival has mainly to do with the good export figures that America can refute. In November and December last year, the export volume exceeded 220.000 tons for the first time. Such figures have never been achieved. Thanks in America go to Mexico, China and Japan, where record volumes were exported last year. The value exported to China, for example, broke through the 1 billion dollar mark for the first time in history, this gain was mainly written in the last few months.
Mexico is more or less claimed by the American pig sector. Free access, through the NAFTA trade agreement, is absolutely necessary, or so the thinking goes. As the cards are now shuffled, Mexico will remain easily accessible for the time being. With President Trump currently being whistled back on all fronts, a wall—physically or visually—seems a long way off in the short term. Despite a weak Peso, trading may even pick up in the coming quarters. The American pig sector is in fact working on a promotional tour in Mexico to promote American pork.
As long as America can refute good export figures in Japan and Mexico, the pig price there will be on a solid – and possibly even rising – foundation. In terms of volume, these are the most important sales markets for America. This also offers prospects for the European market, as meat prices in Asia are competing. Simply, a higher pig price prevents American slaughterhouses from exporting to Asia at dump prices.
Last year, Europe exported 11 million tons of pork to China in the first 1,7 months. A percentage increase of almost 70 percent compared to 2015, while the export value increased by almost a billion. It is of course impossible to predict whether these figures can be surpassed in 2017. However, as long as America can serve neighboring Mexico and Japan and Europe keeps the focus on China, the pig market is positive on balance. Of course, the exporters meet in Asia, but with a spread focus they are not directly in each other's way. The American access to Mexico is of course a condition in this. The influence of exchange rates is also decisive.
Whether the pig market in Europe will revive this spring remains to be seen, of course. It is true that rising sentiment in America has a positive effect on European pig prices. The German 'tone setter' is firmly at a limit of 1,50 euros per kilo in mid-February and the overall tenor is quite positive. The supply of pigs in Europe this spring will probably not be too large, given the shortage of piglets this winter. Chinese demand is also expected to remain strong.
Which direction the European market will take is, of course, still something of the future. However, the price bummer from America seems to have passed on for the time being and that is something that suffered quite a lot in Europe in the second half of last year.
Wouter Job
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