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The market is going through some truly exceptional times. In week 12, the official price of live pigs in Spain was 35 cents more than in Germany. In week 13 it was more of the same, with the aggravating factor being that the Spanish price was worth slightly more. We have never seen anything like this before. In fact, as of March 18, the live pig prices were:
- Spain = 1.69 euros/kg live farm gate
- Germany = 1.34 (live equivalence according to Mercolleida)
This week, pigs have been worth 40 euros more in Spain per head than in Germany. Real as life itself.
The pig prices in Germany are heavily burdened by the presence of ASF (African swine fever) there; additionally, in January, a case of foot and mouth disease was declared on a water buffalo farm not far from Berlin. The combination of the secondary effects of these two overlapping problems has cut off any possibility of price increases there. The total inability to export to third countries is taking its toll; a heavy toll indeed.
The reality of the Spanish market remains that there is a lack of pigs to meet the oversized slaughtering capacity that exists. As we have mentioned before, this situation is, as of today, endemic. The law of supply and demand is evident: pigs are becoming more expensive because demand exceeds supply. Simple and easy to understand. What is happening is possible; perhaps difficult to comprehend, but possible.
Both Germany and Spain are full members of the European Union. The European Union can also be defined as the “Single European Market”. We wonder where this supposed unity stands in the face of such abysmal differences. In terms of the selling price, in Germany the farmer struggles to cover his costs, while in Spain the price far exceeds production costs. The concept of “Single Market” should be nuanced according to the circumstances of the different states (labor legislation, environmental restrictions, operators' exporting capacity, etc.); in any case, the current situation is extreme and causes significant tensions.
Some 55% of Spanish pork exports go to the rest of the EU members; where in these markets we have to compete with pork from Germany and its neighbors. It is not easy to compete with our competitors' much cheaper prices.
The harsh reality is that the current Spanish price is only possible at the expense of negative slaughterhouse margins. It seems to us that, at this moment, slaughtering and cutting pigs in Spain is an activity with negative economic results across the board and for all operators—no matter how competitive and efficient they may be. It is more than evident that this situation strains every seam of the market. In fact, it affects the very heart of the market.
Faced with this harsh reality, the demand for pigs for slaughter will pull back in search of a certain balance and to curb further price increases. How fast this demand declines will determine how much further the price of Spanish pigs can rise. We shouldn't be too far from the upper limit.
We cannot fail to mention the significant flow of live animal imports from the EU to Spain, both for raising and for slaughter. In our view, this represents a major risk factor that should be reduced. Playing with fire means you may get burned.
Life goes on. We learned a couple of weeks ago that a case of foot and mouth disease has appeared in Hungary. It is the first case in the country in over 50 years. But just a week ago, on Friday the 21st, we found out that outbreaks have also appeared in Slovakia, after 50 years of absence. We must stay alert, keep a watchful eye, and be very careful. And that’s likely not enough. A sanitary incident of this magnitude in Spain would have catastrophic consequences.
Pork prices remain quite stuck. The market will likely pick up with Easter. As always, the barbecue season will boost the pork trade. The market needs the oxygen that better demand for pork would bring.
In the last market session of the month, Germany has taken a big step forward by increasing its pig price by 13 cents per kilogram carcass. The backlog of animals accumulated over Christmas has finally been absorbed, and the smell of spring in the air is starting to have its effect. This price increase was very necessary and will help revalue pork. However, Germany is coming from far behind (as we have explained), and the gap between its price and the Spanish price remains excessive. Additionally, as good news, we should note that markets for German pork are opening up since no new cases of foot and mouth disease have appeared (Great Britain recently opened its borders).
Asian markets are showing high demand for bellies, as in North America. In a rather stagnant market, bellies have been significantly revalued in Spain. Not so for the other pieces.
We face the upcoming months of good weather with different perspectives: the Spanish farmer enjoys comfortable margins, the slaughterhouse fights hard to avoid succumbing, and the processor/manufacturer can take advantage of the sluggish pork market. The near future remains to be seen.
We will end today with a quote from the Catalan philosopher Jaime Balmes about attention: “With attention, we notice treasures and collect them; with distraction, we may let gold and pearls fall to the ground as if they were trivial things.”
Guillem Burset
