Hitting the breaks on collapse

Despite the fact that the total number of pigs slaughtered in Spain now often exceeds that of Germany, we have to recognize that Germany retains its role as the leading market within the European Union. A leadership gone undisputed for many years does not fade away or disappear just like that.

Let's review the latest movements in the German market by comparing them to our Spanish market; the German price is set on Wednesdays while the Spanish one is set on Thursdays. Data are in cents per kilogram. Germany per kg carcass, Mercolleida per kg live:

We observe (as always, it is a constant) that Mercolleida modulates, moderates, and cushions the German lurches. We believe that in itself, this is a good thing. Weeks follow one another tirelessly and the fringes that may remain in one market are compensated for in the next.

From March 19 to May 14, nine weeks passed with nine consecutive drops; from 1.54 euros/kg live to 1.263, which represents an exactly 18% drop from the record price. The price has fallen by 18% and is still well above the cost price.

In the United States, there have been problems such that pigs are having to be euthanizing by the hundreds of thousands (pigs that will never make it to the food consumption chain). It happened that in two consecutive weeks the slaughter capacity was reduced by 35% due to slaughterhouse closures: this circumstance alone meant that 1,700,000 pigs were left behind without being slaughtered. Now it is not so much a question of looking at the price but of knowing whether or not the pigs can be slaughtered. In this respect, we recommend reading the excellent article by Dr. Di Pietre published on Pig333 on May 19: "Euthanizing Pigs in the US: Flattening the Curve". In Germany and France we've seen important slaughterhouses having to close due to problems with COVID-19. In Spain (to date) we have weathered this storm with great skill and fortune: no plant has needed to closed and slaughter has continued to proceed almost normally.

All of Europe has experienced two very turbulent months; the market has shrunk considerably and exports to third countries are what has saved us. The gigantic pork deficit in China guarantees a constant flow of pork to the country. It so happens that the Chinese ban on US pork has been lifted and the US is placing carcasses (slaughtered in emergency mode after the presidential order to reopen slaughterhouses closed for sanitary reasons) at very cheap prices. China is buying, yes. China buys a lot, yes. China buys very cheap, too. But it buys, and that is the main thing.

We find ourselves in what was once known as "mythical week 22". Indeed, it usually marked the first significant price increase in the search for summer highs. That was a different era, when we exported just 10 or 20% of what we produced and the summer increase in demand was the most determining factor in the market. This past Thursday's increase was part of a clear recovery of normalcy; this would have been the time to sacrifice the pigs that were sold as piglets for 95 - 100 euros, but not everyone bought them (so the fattened pigs aren't there to sacrifice). Moreover, the structural over-demand caused by the recent start-up of the new large slaughterhouse in Binéfar remains. We interpret the rise in Lleida after the German price had stayed the same as a clear sign of a tight offer. This movement will be consolidated or not depending on what happens throughout Europe in general. Right now it seems that there will be no drops happening again until after the summer.

We have previously mentioned that we export more than 50% of what we produce in Spain, so we are very dependent on global circumstances. It is obvious that we cannot swim against the current; it is imperative to remain competitive in international markets. We must export at all costs, and to do so our prices must be attractive in the global context.

In any case, we are in the threshold of summer; European consumption improves with the weather and the worst of the pandemic seems to be behind us. There is nothing to stop us from being optimistic. We must consider what has been achieved so far: in the context of a runaway crisis and a truffle of negativity, our sector is holding on somehow; prices remain comfortably above the cost price (let's look at the harsh reality of other species...) and the future does not seem catastrophic in any way.

The reality of the market is fleeting and unstable. It seems that we have already hit the price bottom, although no one is ruling out the possibility of COVID-19 infections reappearing. Today more than ever we must live in the present. We will worry in due time, not now, about what may happen when China regains its self-sufficiency. For the time being, then, carpe diem and life goes on.

Whether we like it or not, the economy undeniably permeates and dominates our world. And it turns out that we are facing the biggest crisis known since the crash of 29... and there is no instruction manual on what to do or how to do it. Let's prepare for inflation like we haven't seen in years and knock on wood. It's a good thing we are not starting from negative balances and at least some clients will hold on.

The current world chess champion, Magnus Carlsen, is from Norway and is 29 years old. He thinks that: "It's better to trust your gut and be burned sometimes than to always second-guess yourself".

Guillem Burset