Spanish Hog Market – Tough Times

SPAIN – The summer is getting its end, tourists are leaving the Spanish beaches and consequently the Spanish pork market has started to decrease, writes Javier Santamartina from Sales and Services, Genesus, in Spain, Portugal and Italy.

This is a regular higher demand over the 22-week cycle every year. The good news is that this year, the drop in prices seems to be less dramatic for producers than previous years.
A different story to tell is the cost of production, severely affected by enormous price increasing on grains. This situation has caused great discomfort among the producers and the market is apprehensive. The margins in most of the cases have touched the break-even point or a little bit higher with a lot of producers still surfing on uncharted waters of negative margins. Spanish net pig farm income is expected to close the year with red ink on higher prices for grain. There are also others factors involved. On the other hand, finishers are happy buying 23-kg pigs at record low prices now; they have been sold under their cost of production over the last few weeks.
A study by Rabobank, a reliable source in the animal protein industry, (Note Rabobank 268) estimates how feed cost in Spain is the highest in the the EU and higher than in the US and Canada. We always watch at these studies cautiously because of diverse levels of production in Spain, but one thing is clear: grain prices in Spain have cancelled out any expected income as a result of higher pork prices. It is hard to compete in these times with other European countries that are natural competitors in this market place. It is true that other costs are lower too, such as fixed costs and labour.

Cost price comparison for pork for selected EU countries, 2009 (€/kg)
Source: Rabobank estimated based on interpig, USDA, 2010

The same study reveals a drop in pork production of 1.2 million tons in the EU, partly due to animal welfare regulations that will be completely effective in 2013. It also suggests that the adjustment will be made mainly in countries that rely on grain imports, like Spain. In the case of the Spanish pig industry, it suggests two production models: number one, large corporations filling retail chain stores; and number two, smaller independent producers working to meet the domestic demand of processed meats. This latter segment is one of the most affected in the industry due to lower demand cause by reduced family income.

Summary

We are living in tough times, just expecting some step up in pork prices. If reduction on cost of production comes first, it will be welcome as well for the fall-winter season but this scenario is unlikely. The good news is prices are falling at a moderate rate compared with other years, but unfortunately it does not help to bring some break with better profit to an industry in distress.
The future brings two big questions. Firstly, what will be the effect on the European herd as a result of the new animal welfare and environmental regulations in 2013? And second, when we will real margins return to Spain’s pig production?

http://www.thepigsite.com/swinenews/27421/spanish-hog-market-tough-times?