Pig price in America climbs out of significant dip

The most important pork price in the US, the Iowa/Minnesota quotation, was still at a reasonable level last February when pigs were paid above $1,60 per kilo. This was followed by a significant price drop. The market reached its preliminary low at the end of April, namely $1,18. However, in the first week of May, prices are already above $1,30 per kilo. This price development is important for the mood in Europe, as meat prices correspond with each other on the world market.

This winter's price dip is the result of an ailing meat market. A record high pig herd has been driving slaughter figures approximately 30 percent above the long-term average for 5 weeks. The pork bellies illustrate the ailing yields on the meat market. The price of this part, which amounts to about 16 percent of the carcass, has fallen by about $1,80 since January to $2,60 per kilo. This pushed the US pork market into a downward direction. The pig price is usually quite stable in the first months of the year. That was clearly not the case this year.

Pig price relaxes, resistance remains
The pork market settled at $1,18 at the end of April. A few days later, Tuesday, May 2, the Iowa/Minnesota price was again at $1,31 (see chart). The reason? The meat market is picking up slightly, while the supply is declining slightly towards the summer months. This is in line with the seasonal trend that returns every year. The futures market for pigs also predicts this trend.

Even though prices are now picking up, the supply remains ample. Analysts expect slaughter numbers to continue moving between 2,1 million and 2,6 million pigs each week. That is far above the long-term average. As it progresses, the numbers increase. Fewer slaughters in the summer, in combination with better meat prices, means that the American pork market has potential to increase for the time being. Especially if the good export figures hold up. However, when autumn arrives, price pressure logically increases. At least, that is the expectation.  

Recovery important for Europe
It is important for the European pig market that the American pig market relaxes. In terms of volume, European exports are doing well for European exporters. Slaughterhouses do complain about price pressure. The low pork price in the United States in particular dampens the mood on the world market. The gap between European pig prices and other major players (Brazil, Canada and the US) has widened considerably (see graph). Now that the price of pork in the US is picking up again, the difference is certainly not increasing. 

A lot of slaughter capacity under construction
Slaughterhouses are expanding significantly in the states of Iowa, Minnesota, Missouri and Michigan. In the period up to 2018, the total slaughter capacity will increase by approximately 10 percent on balance. The expansion plans total 11,6 million additional slaughters per year. Last year, more than 117 million pigs were slaughtered in America. 

Despite the extra hooks, analysts expect that the occupancy rate at slaughterhouses will also be high in 2018. The pig herd is growing and feed costs are low. The American pig sector must therefore look for additional placement space. This is to keep pricing profitable for both producer and slaughterhouse.