21 February 2023

3 minute read

By: Jim Long

Europe

We have been writing for the last couple of years about the terrible market conditions in Europe and our expectation of a large swine inventory decline and higher hog prices.

There are now December inventory reports from all of Europe’s major hog-producing countries. From what we can discern from the data Europe’s swine inventory is down 7.5 million from last December and 12 million from December two years ago.

As you can see from the data all major countries are down from last year. Only Spain is up from two years ago. There were 145.911 million pigs in the industry in December 2020, 141.681 million pigs in December 2021. We estimate when all data is entered for December 2022 about 134 million. Less pigs always lead to higher prices, and they have.

Last week most countries in Europe reached record hog prices. Spain the largest producer in Europe reached 1.845 Euros/kg liveweight (90¢ U.S. liveweight a lb.) a 280 lb. pig = $252 U.S. ($336 Canadian). The same pig in the U.S. is selling now for about $160. Looks to us about a $90 U.S. per head difference. We don’t believe there has ever been such a price spread between Europe and USA-Canada, the world’s two major pork exporting blocs. It doesn’t take a Harvard MBA to figure there will be greater pork exports from USA-Canada as pork-importing countries move towards a lower costing source. We will arbitrage – the practice of taking advantage of a difference in prices – the effect of prices in different countries will converge. The spread between hogs in Europe and USA will converge. The other factor is Europe with millions of fewer hogs will have less Pork to export.

A week ago, U.S. Pork Export sales were 44,950 metric tonnes. Exports have been running closer to 30,000 tonnes a week so far this year. Watch export sales if they go higher it will lead to higher hog prices.

In the last couple of weeks, China has relisted more Canadian Pork Plants allowing export to China. We expect the main reason is China needs to buy Pork and wants more competition between exporters. Last year Canada exported significant amounts of Pork to the USA due to weakness not only in China market but Korea, and Japan partially due to strong Europe competition. If Canada can shift the Pork from the USA to other markets, it will support U.S. and Canada hog prices.

U.S. Beef production is down 3.7% year to date (-141 million lbs.). Last Friday U.S. Choice Cattle cut-outs were $2.80 lb. as they continue to push higher on lower supply and continued demand. U.S. Pork cut-outs Friday 82¢ lb. The price spread is a sad testimony to our industry’s total lack of comprehension of the importance of taste in consumer demand.

Summary

Europe hog supply record low – hog prices record high. U.S. Beef supply is down with strong prices. We expect at some moment U.S. hog prices will take off with less supply–price competition from Europe and Beef. All leading to greater Pork domestic and export demand. Not if but when.