Pigs: price peak in EU, price trough in US

In Europe, pig farmers have not yet flown a (Chinese) flag, but the mood is high. With prices above €2 per kilo, keeping pigs has become fun again. This does not apply to pig farmers in the United States (US). The quotations there are under pressure and not too frugal either.

Let us first say that no hard correlations were visible between European and American pig prices in the past. The US price moves more erratically. This is because the US has a relatively smaller free market. There are many large integrations there that work with longer term prices. The daily market therefore tends to peak and fall, depending on sentiment.

Freefall in USA
The latter is currently the case. In the US, the Iowa/Minnesota price hit the painful level of $1 per kilo in early November and has since fallen even further. In July, the pig price was still well above $1,80 per kilo.

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The rapid price drop must first be attributed to the growing pig herd. Records are broken in virtually every U.S. Department of Agriculture (USDA) count. In the third quarter there was a growth of 3% to 77,7 million animals. This means that the pig supply is too large compared to the slaughter capacity. New slaughter locations have been opened, but to no avail so far. 

The wide range also shows that slaughter figures have been far above last year's level for almost the entire year. In the second week of September, the slaughter figure (2,749 million) reached an all-time high. It is expected that this record will be broken in the run-up to Christmas. Moreover, the pigs are heavy.

trade war
The trade war is also still affecting the American pork market. Although the US can also fill the large deficits in China, it is at a competitive disadvantage compared to Europe and Brazil. For example, exports to China doubled to 210.000 tons in the first 3 quarters of 2019, compared to the same period in 2018. However, China is not the most important sales market. That's Mexico. Exports to our southern neighbors fell by 12% to 430.000 tons during that period. Japan also imports less American and more European pork.

In Japan, Europe is benefiting from the free trade agreement that came into effect at the beginning of this year. This lead will not last long, because the US and Japan have recently suffered reached an agreement, whereby tariffs on dairy and meat, among other things, will be abolished. 

Trump compensation
In short: the trade wars and ample supply are holding back the US pork price. The hope is that China will soon drop tariffs on US pork. The rumors about a trade agreement are going on, but there is no white smoke yet.

Work is also still underway on a trade agreement with Mexico and Canada. This treaty, called 'USMCA', must become the successor to Nafta, which was cursed by President Donald Trump. Although signatures have been signed, the treaty has not yet been ratified. In other words, Congress still has to act on it. 

In the short term, higher U.S. pork prices are not likely. This is also reflected in the quotation on the American pig futures market, which is listed in Chicago (CME). In the short term, it does not look like US pork prices will rise. American pig farmers grumble about the low prices, but don't necessarily complain. This is because they receive compensation of the Trump administration for the negative consequences of the trade war.