Pork Price Seasonality was broken this year (Thanks goodness!)

This condition is paired with a poorer hogs offer due to the warmer weather which impacts pigs growing. This scenario has been the standard way of fluctuation over the last 15 years. This trend has been broken this year with a flat price in May and June.

The performance of the price for this year compared to 2009 and 2010 shows us a completely different behavior for the price trend. 2010’s prices moved following the traditional pattern with higher prices occurring in May and in the summer months. The prices decreased around the weeks 32/33 as usual.

On the other hand in 2011 pork prices goes up earlier in the year and keep going through the spring showing no major increases around the week 20 as usual.

Some of the reasons supporting this new reality of the Spanish market as follow: - Lower price of meat in Europe. Spain exports at least 20% to the EU. – Dioxins crisis in Germany decreased pork consumption in this country and affected the continental pork price in Europe, and finally a good portion of frozen has been released into the European markets.From today until the week 33 are expected light increases in prices. After that week it seems like a question mark for the prices. It depends actually on how seasonal effect would impact the market. What I mean by that is if the pork offer will be lower we would have better prices than a year ago.

The packing industry is taken advantage of the decent hog prices today. As we wrote in the previous report the packing industry would be suffering, as usual, in the summer months, because the price is normally (and seasonally) higher. It will not be the case for this year so far. In a way is good for the producers because at the end of the day they are the buyers.

At this point in time the producers are working under breakeven basis and very few of them with light profit margins. The main cloud over their heads continues to be the cost of the grain and everyone is asking what would be the scenario in fall. Nobody wants to predict, simply because there is not crystal ball showing the future. The market has become almost unpredictable and totally volatile. Spain is getting a nice harvesting time right now with good yields for barley and wheat. Unfortunately it hasn’t been the same in Northern Europe; France, the UK and Germany have experienced not exactly a severe drought, but dryer season than average anyway.

The general comments are if the cost of production is going to keep these levels most of the protein production would be affected by liquidation. On the other hand there are people predicting a different picture. They say that today’s market is pretty much like 2008 when higher grain prices at the harvesting time were decreasing in the fall. There are also some measurements to control speculation implemented by the European Community. The new regulations have been directed by French Prime Minister Sarkozy.

Summary

The pork price seasonality was broken this year. May and June prices did not increase, as usual. The key point in swine production in the near future depends basically on the grain prices that highly affect cost of production. The big question is how the market will react after the summer months. Today is a big gap between the hog prices and the pork prices.