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January has ended with a tense market in Spain. There are more pigs than ever, they are heavier than ever, and yet the slaughterhouses would kill more- if they could find them. The holiday slowdowns have been reabsorbed without any difficulty; the last snows disrupted some deliveries, but the snows disappeared days ago.
The successive static prices are logical. The price is very close to the cost price and traders have known that by managing the market with perspective, the only possible way was up. Last week, in a session with a lot of tug-of-war, the pig was raised by a few thousandths of a cent (0.40 cents). This is the first rise, a prelude to those to follow.
In Spain, pigs are being slaughtered at rates never seen before; the large slaughterhouses, as much as they can, follow the philosophy of "slaughter, quarter, freeze, and export (to China)". For several months now, Spain has been the leading supplier of pork to China. We are approaching 100,000 tons per month, which is a real barbarity- something like the equivalent of 1,100,000 pigs every month. This was unimaginable not so long ago, but is now a reality.
Europe remains in a complicated quagmire; activity restrictions due to COVID are still in effect and both Denmark and Germany report significant delays in the reabsorption of pigs not slaughtered at Christmas.
Here is a brief overview of our European neighbors' markets:
Germany: They have spent months and months with a price anchored at 0.92 €/kg live. First COVID and its restrictions and then the blow of the ban on selling to most Asian customers.
Netherlands: Trailing behind Germany; its powerful neighbor maintains important trade flows with them, and the Dutch market behaves as if it were a captive of the Teutons. The Netherlands has also been trading at €0.92/kg live for months. The Netherlands can sell to Asia, but its powerful neighbor floods its local market with cheap and plentiful pork.
Belgium: The worst off. Battered for two long years by ASF, they have learned to live and sell mainly in Europe. The country has been declared free of ASF for a couple of months now, but... export authorizations are not coming. Their price is astonishing and dangerously low: 0.71 €/kg live. Selling at that price is not sustainable. (Breaking news: very strong rumors indicate that China will open its market to Belgium soon).
France: It exports to Asia what best serves its interests. The VPF (French pork) initiative - a self-defense - mediates the purity of the market and gives a premium to French pork to the detriment of European pork. Like Spain (it is located relatively far from Germany and can export to China), its price is close to the cost price, far from the sinking prices of the other countries mentioned above. Its quoted price is 1.08 €/kg live.
Denmark: The current price is the equivalent of €0.97/kg live. But in Denmark the price is always an estimate, and we have to wait until the end of the year to know the bonus that the slaughterhouse will pay in the current year. In any case, even without a bonus, it is the best among those mentioned, with the exceptions of France and Spain.
It doesn't take a genius to understand that months and months of selling well below cost price (Germany, The Netherlands, Belgium...) can only lead to a reduction in herd size. There will certainly be a significant reduction in these countries. In other words, the scenario is changing, producing a clear shift of the European center of gravity of pig production towards the south, specifically towards Spain.
Months go by and Spain's dependence on China is exacerbated. No one ever gave the order "we have to sell to China!" but market freedom, Spanish efficiency and China's need have caused Spain -as said before- to become the leading supplier of pork to China. Without question.
The situation seems almost circus-like: a complex and spectacular act performed in the heights of the big top, the spectators gawking - admiring and applauding - and it is as if the whole set-up were supported by a single, powerful, imperial, reinforced titanium cable. It's all very nice, it's all very fantastic but... there is clearly a risk, probably a major risk. Will the cable withstand?
In a normal situation, without notable incidents, the Spanish price should climb little by little throughout the month of February. We believe that Mercolleida will assume, without hesitation, the role of leader of the European markets, now that Germany - forced by circumstances - has had to relinquish first place.
We end with a quote from William George Ward: "The pessimist complains about the wind, the optimist hopes it will change, the realist adjusts the sails".
Guillem Burset
