In his quarterly update, market analyst Dr. John Strak describes the contrasting trends in North America, China, and Europe for PigProgress. Everyone seems to be out of sync with each other, isn't it? Here's what Strak says:

"Caution

The latest intentions were to urge producers to be cautious. I predicted then that a turning point (a shift to the positive phase of the price cycle) would not occur before the middle of this year. We live in a world of rapid changes and major events, which makes forecasting even more challenging, but now I expect there will be no turning point in the global pig price cycle before the autumn equinox.

European producers reading this statement might wonder why all of this is relevant to them since pig prices in the Old World have been rising for 12 months, and margins have been positive for the past 3 months. Let's unravel the different ways pig prices have behaved worldwide to understand how these opposing trends coexist and how business decisions are affected.

This recovery, however, has only gone so far as to present the normal seasonal pattern of price behavior. To paraphrase Star Trek, it's progress, Jim, but not as we know it. This recent price increase is not a structural change.

Significant contraction of the US herd is underway. Although key values (total inventory, total breeding herd, and market hogs) are practically unchanged from a year ago, intended farrowings reported by producers in the census will decline by 4% in the period June-November 2023.

That means many fewer hogs in the pipeline. Overall, pig prices in the US have fallen from the levels seen in 2021 and 2022, and with rising costs and static productivity (PRSS), production has contracted and will continue to contract in 2023.

High prices but no party mood in Europe

I noted in April that pig prices in Europe are on a 12-month upswing. Figure 4 illustrates how prices have risen in the EU (and how this contrasts strongly with the US experience shown in Figure 2). Additionally, according to European Commission data, EU producers went into the black (on average) in the autumn of 2022.

And those positive margins are still there – up to 20% higher than variable costs, as reported in the May 2023 report to the Commission. The same report indicated that the number of pig slaughterings in the EU fell by nearly 8% in Q1 2023, which explains why pig prices have been so firm.

But despite reports that pig production is now profitable, there are few signs that EU producers are encouraged to move from contraction to expansion. Census data in June for major producers will be an important dataset providing hints on where pork production in the EU is headed.

My bet is that they will not show a return of producer confidence. If I am right, then although EU and North American producers seem to have had different experiences in terms of prices, producers on both sides of the Atlantic seem to have the same view of the market – a bleak one.

The pig price cycle in China

The latest producer prices for pigs in China are shown in Figures 5 and 6. In the former, data is presented as a set of year-on-year comparisons, so we can differentiate the seasonal pattern.

You can see that the pattern is not in sync in 2023. The good news is that pig prices in China have aligned since I last wrote this column. This (relative) stabilization may reflect the Chinese government's desire to intervene in the market and support domestic pig prices using state-financed purchases.

It may also be good news that a number of large Chinese firms with major investments in pig production have reported losses in their pig activities and seem less inclined to expand in 2023/24. We will see.

Recent low prices have confirmed that margins in Chinese pig production have been low or negative. The pig sector in China may have become more concentrated, but there are still many small and medium-sized producers that could return to the market and trigger another cycle of price spikes and declines if margins improve.

Worse, it is not clear that Chinese officials have the ability to handle commodity price cycles (spoiler: national and local policies are not always in sync). Giving them the benefit of the doubt, various issues with the Chinese economy, plus post-Covid and post-FAI hangovers, may have diverted all the authorities' attention away from the livestock economy in China.

Looking ahead, the best scenario is that the rush of indigenous semi-industrial conglomerates to expand in 2021/22 (encouraged by national and local decision-makers) has now ended, and a more measured approach to the expansion and development of the pig sector in China is adopted. Also, let's hope for improvements in data collection and transparency.

Overall, it is fair to describe the sentiment in the pig meat supply chain in China as "hesitant" (a bit like the genetic economy).

Global Market

Reading the previous comments, it should be clear why I refer to "complications" when analyzing the global pig meat market. However, it is not so complicated underneath. All major producers have experienced margin losses and lack of confidence.

All have contracted at the end of 2022 and in H1 2023 – and seem to continue contracting. Everyone is gloomy. As shown in Figure 7, there are few signs that the global pig price index could increase in the next three months.

It is a cliché, but often true that it is darkest before the dawn. I noted earlier that the recent recovery in US pig prices does not seem to present a structural change in the market.

I don't think it's a change (in demand or supply) just seasonality at play. If I'm wrong, we could be in the phase before the turning point in the cycle – in which case producers wanting to bet may want to check their breeding and fertility programs now. Either way, I hope my next column on this subject will be written in less gloomy times."