1
Rarely has it been so difficult for us to grasp the essence of the market as it is at this moment. Aside from the fact that some of our forecasts have not materialized (Germany has not only failed to remain in the Easter Truce but has even pulled back, and in Spain we have seen the prices continue to stay the same), it remains to be seen how the future will develop. It doesn't cost us anything to recognize the facts; five weeks ago the market appeared to be much stronger than what we are seeing today. The wise man is not afraid to admit when he is wrong.
We will try to light up the darkness. It has not been easy, but we have turned to the true and contrasted facts, fleeing from fanciful lucubrations.
To try to understand the current situation, we need to analyze different markets:
Live pig market in Spain: Unbridled. Slaughterhouses are looking for and need pigs. And they can't find them. Live pigs are imported from France and Central Europe. The situation is not going to improve in the summer: tension is certain. The only way for the "urge to slaughter" to diminish is for the slaughterhouses' margin to disappear. The Binéfar macro-slaughterhouse appearing on the market and the announcement of the implementation of the first German operator in Calamocha guarantee a demand constantly higher than the supply. In the short term, nothing will change: pigs will continue to be in short supply.
Live pig market in Europe: Bewildered and totally unsettled. In week 16 we have seen that on Wednesday the 21st Germany went down 8 cents per carcass (a significant drop, a result of panic due to the collapse of pork sales) and the following day France went up an impressive 5 cents per carcass (probably a self-defense move to stop the drain of live pigs leaving to be slaughtered in Spain). The maximum increase allowed did take place. What is surprising and unprecedented is that these are two powerful antagonistic movements. We have never experienced anything like this before. The possibility of exporting to third countries, or not, is very determinant.
Let's not lose sight of the fact that right now the German farmer is getting an equivalent price of 1.11 € / kg live for his pigs and that, on the other hand, in Spain the minimum price is above the official tariff price of 1.46. The difference of 35 cents per kilo live is an enormity. If a German farmer collects about 10 cents below the current cost price for his pigs (another factor is that the price of feed has skyrocketed and will remain high), then the Spanish would be earning about 25 euros per animal... Food for thought. One day we will explain the how and why behind these differences (and the how and why behind the success of the Spanish Pig Sector).
Pork market in Europe: At rock bottom. On life support. The persistence of COVID and the restrictive measures in all areas of the hotel and catering industry (in most countries there is still a total shut-down) are weighing on meat like a slab (sirloins at 3 €/kg: unheard of, depressing, and deplorable). The persistent bad weather is another negative cause for the evolution of the market. It is likely that in three or four weeks with the gradual lifting of restrictive measures and the arrival of good weather there will be an explosion in demand. It is quite possible.
Chinese market: China has long been the most important factor in the equation. And we are hearing news from China about abundant slaughter and the recovery of its herd to levels very close to those before ASF (97% according to the Chinese Ministry of Agriculture). The global price of food continues to rise, probably because there are more mouths to feed in China than ever before. The price of pork in China has been falling for thirteen consecutive weeks, and has fallen from 36 yuan in January to the current 23.64 yuan (Graph 1). A 35% drop is by no means trivial. The abundant Chinese slaughter is the cause of less essential imports. As a result, orders from China have slowed down and, above all, their prices have fallen, and are nowhere near what they were. First hams and now shoulders are already being paid at prices comparable to European ones. Some reputable operators are predicting a significant price rebound, although this remains to be seen.
Graph 1. Evolution of pork prices in China from before the emergence of ASF to the present.
Asian markets: Almost always trailing the Chinese giant. The Philippines has expanded its low-tax import quota from 35,000 t to 400,000 t, in anticipation of a meat shortage caused by the presence of ASF in its territory. Japan and Korea are keeping pace.
We think that prices in the Spanish live market will continue to stay the same: a drop is unthinkable in the current situation with a shortage of pigs and a rise is also not expected when all of Europe is quoting several points below. It seems as if the prices staying the same were the pillars of a bridge that leads towards the future awaiting the European rebound (100% certain it will happen; Europe is coming from far below) or the improbable -for now- Chinese rebound.
We will soon see how the tensions from the lack of pigs play out, which we see every year in the middle of June. The prices will not go down and a rise is not ruled out, but it would be very unlikely.
Let's remember that Spanish slaughterings total over 1,100,000 pigs per week. Let's also remember that Spain exports 58% of what it sacrifices. We will add that in January and February this year 40% of the total production of pork each week was exported to China. We are exposed to external factors (that we can't control) and any disruption in export flows would mean thousands and thousands of tonnes.
As the great Woody Allen once said: "The advantage of being intelligent, is that we can always play stupid, however being the opposite is completely impossible."
Guillem Burset
