Unprecedented is an understatement

We have seen a February like never before in history. The market is unleashed and knows no limits. There are no adequate adjectives to describe what is happening.

As we explained in our previous commentary, the impact of PRRS (Rosalia strain) in the northeastern part of Spain has been very serious and has largely decimated the piglet population, which is now in short supply.

Readers will know that we like aphorisms based on figures (which have no feelings, are impartial, and tell the truth). Well, Spain's current hog price is at 1.89 € / kg live. Nothing more and nothing less than 9.80% higher than the all-time record seen last summer and just 85% more expensive than last year at the beginning of February. A reflection, in passing, for the supermarkets: How many processed pork products have gone up in price in the last year by not even half that percentage?

Throughout Europe, there is a distressing lack of pigs for slaughter. Added to the uncertainties caused by the war (explosion of costs) are the below-cost prices that have been suffered in Central Europe since October 2020 (in the end many farmers have been forced to stop production) and in Spain the incidence of PRRS, which has been very intense and extensive.

The Reality (yes, with a capital "R") is what it is and cannot be changed. But this current Reality is not at all pleasant for most of the actors in the chain, except for the farmer, who is the only one with positive margins.

All extreme behaviors are pernicious, in the case of individuals, institutions, and also markets. And the lurches are not bearable. The rising price of pork (it has taken a while, but pork is finally rising strongly) has caught the processing industry with its back against the wall. Since April last year, some of the price increases from that time still have not been reflected in the prices of the end products...

The industry is at a real crossroads; the slaughterhouses, fighting for the few pigs available, accept consecutive price increases in a race that seems to have no end; on the other hand, the processor sees how - in the end - the prices of its raw material are rising at lightning speed. And all of them are faced with a large-scale distribution that is only willing to raise prices in dribs and drabs...

We are witnessing a restructuring of the industry, live and direct. Without anesthesia. For the processor, the situation is tough, rugged, and very arid. What is happening is of great magnitude. Unfortunately, it seems to us that some companies will not be able to overcome the current accumulation of hardships.

The reduction of the herd in Central Europe will be compensated by a greater export from Spain to those destinations. Spanish pig farming will end up gaining considerable weight in the EU; the current shortage of livestock in Spain seems to us to be circumstantial and temporary. The exceptional conditions (war, energy prices, feed prices, etc.) will normalize and somehow we will recover the pre-war and even pre-COVID parameters and behaviors. We are convinced that we will be on the road to normalcy in the not-so-distant future.

Let us express our surprise at the current behavior of the North American markets; pigs in the United States are worth about 1.23 €/kg live while in Canada they are still below 1 €/kg live. In spite of the much-vaunted globalization, the communicating vessels between the European and North American meat markets seem to be clogged. In our eyes, this situation appears paradoxical.

There is no magic crystal ball. No one knows with certainty what will happen. Nevertheless, it seems appropriate to mention a few facts - which in our opinion are incontrovertible:

• The Spanish pig farmer is enjoying comfortable margins.
• The Spanish slaughterhouse is facing never-before-seen difficulties.
• The processor is powerless (and this is already somewhat reiterative) in transferring the increases in pork prices to its final product.
• Large retailers do not seem to be very sensitive to the arguments of their suppliers.
• The Spanish pig price is the highest -by far- in the western world.
• The EU market is realigning according to the availability of pigs.
• The shortage of pigs in Spain will not be fixed in the short term. It is circumstantial, but it will persist as long as PRRS is out of control.
• The month of May brings barbecues; we will see how the flow of pork Germany will need will be managed.
• Slaughterhouses and processors have to get together (alone or in small groups) to resist this year's avalanche of negative events. Reduce operations, encapsulate - if possible - and wait for better times.

We have titled this commentary "Unprecedented is an understatement" because that is our point of view. Not even the oldest among us could have imagined - or even lived through - a February as bullish as this year's. And that's coming from record prices. We are certain that 2023 will be remembered by slaughterhouses and processors as a very bad year.

Bertrand Russell, British philosopher, mathematician, and writer wrote: "The whole problem with the world is that fools and fanatics are always so certain of themselves, and wiser people so full of doubts."

Guillem Burset