Autumn downturn, shocks, and underground battle

Exception after exception and shock after shock, we are approaching the end of the year. Never before have we experienced a year like this. The war in Ukraine and disruptions in the globalized supply chains have led to sensitive and unprecedented situations.

The Spanish hog market is following the expected course: the pig price has gently decreased from the high of 1.72 to the current 1.64. We have lost 8 cents along the way or, in other words, 5% of the known maximum value. This 5% is nothing compared to the more than 70% appreciation seen between January (1.02 €/kg, let's remember) and September.

In Spain, for the time being, and structurally, the existing slaughter capacity far exceeds the supply of live pigs even at its current maximums. That is to say, supply is not enough to satisfy demand as things stand today. The current reality is that slaughterhouses need the pigs and they are leaving shreds of their margin in their wake. In November, more pigs are being slaughtered than ever before (the last two weeks have been record-breaking) and yet the pigs are making up weight by leaps and bounds. The slaughterhouse is still without margin and the processing industry yearns for a drop in pork prices that is not forthcoming.

Europe is facing a winter with all the historical data out of play: Germany is seeing a very significant drop in supply week after week, in Poland there is talk of slaughter reductions of more than 15% compared to last year, Denmark has recently announced a 10% reduction in its pig herd... In general, on our continent, no one is able to look to the future with optimism. Herd reduction is a reality wherever we look with the notable exception of... yes, you guessed it: Spain! (if it were to see a reduction in 2022 it would be by less than 1%: negligible).

Trying to look at the world market (our competitors and our main customer) with perspective, let's look at what is happening with prices in relation to Spain:

• Germany's current carcass price is 20 cents less per kg than Spain's.
• Brazil's price is currently between 1.20 and 1.30 €/kg live; at least 0.35 €/kg live cheaper than Spain's.
• The United States' current live price is less than 1.40 €/kg; 24 cents per kg cheaper than Spain's.
• Canada (Ontario) currently has a price equivalent to 1.17 €/kg live; and in Canada (Quebec) it is even less: 1.05€/kg live. An astounding 47 cents per kg live cheaper in Ontario and even more terrifying, 59 cents per live kilo cheaper in Québec. The poor Canadian pig farmers are losing big time.
• In China, the price remains high by historical standards; it is still 20% above pre-ASF highs and the government continues to release pork on the market to curb the escalation in consumer prices. Continued imports - at one pace or another - seem to be guaranteed for the time being.

The reality of these prices prompts us to reflect: Can Spain continue to have prices higher than anyone else - in the Western world - given that we export considerably more than half of what we produce? This is a big question with a quite obvious answer: it does not seem possible in the medium and long term.

In this strange and turbulent year, buffeted on all sides, one has the impression that the entire Spanish swine industry has been running, running incessantly; without time to stop, take a breath, and see things with the slightest bit of perspective. In the style of the vintage movie, "They Shoot Horses, Don't They?"

We are witnessing a jumble which, although impressive, is not enough to hide or disguise a spectacular structural change within the EU: the center of gravity of European pig production is inexorably shifting towards the southwest of the continent. This is a tectonic shift, which is a response to immense telluric forces and from which there is no turning back. For whatever reasons, fattening pigs has not been profitable in Central Europe, but it is in Spain.

At the Spanish reference market, a dilemma arises every week: slaughterhouses ask for pigs despite their low margin, average carcass weights have recovered rapidly despite the magnitude of slaughter, and pig farmers courageously try to defend their position. The reality is that the autumn downturns have been very mild and we are still at record prices, still comfortably above the cost price. This resilience of the price of Spanish pigs to fall below the cost price is what ultimately explains why the pig herd is not being reduced here. If we are not losing money, then... we continue to produce at full sail.

There were no public holidays in November in Spain except for Tuesday the 1st; Christmas and New Year's Eve fall on a Sunday and there won't be as many December holidays as in the past: this circumstance will help, as the industry's activity will not be so disrupted. In Germany, a shortage of their own pork is expected this Christmas... everything points to favoring resistance to the downturn; in spite of this, it seems to us that prices will continue their slow decline south of the Pyrenees.

We will end with a quote from Epicurus (Greek philosopher born 341 BC): "Do not spoil what you have by desiring what you have not; remember that what you now have was once among the things you only hoped for."

Guillem Burset