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European convergence. Will we see a busy autumn? ASF in China

Right now it all depends on the evolution of the situation in China.

Monday 3 September 2018 (1 years 4 months 14 days ago)
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The most important European news in August has been the rise by €0.16/kg of carcass in Germany in the first three weeks. After that, the price has remained the same in the next two market sessions. This sharp rise has caused the huge difference between the German and the Spanish price in late July to drop to €0.035 (Spain has the higher price). Germany has slaughtered 1% less than last year (from January up to now). This means that “there is a slight shortness of animals”.

In Spain, the prices have repeated week after week, because there were no alternatives. On the one hand, the heat has kept the supply at minimum levels, and the pork demand has remained stable. Two opposite vectors have met. The abattoir has a negative operating margin and does not look for extra pigs. By the way, let's remember that Spain has slaughtered, from January and up to now, 8% more pigs than in 2017. This means that “there is a certain surplus of animals”.

In September, the situation will change. Due to simple physiological reasons, the supply of pigs will grow (decreasing temperatures), and the abattoir will not increase slaughterings if it can't obtain margins. Drops in price will be unavoidable, except if there are last minute surprises.

The most important global news in August has been the appearance of ASF in China. China has a pig population of some 500 million heads (half of the world population). Up to now, 5 cases have been officially reported, some of them more than 1,000 km away from the others.

Regarding the evolution of the Chinese pork consumption market due to the appearance of these ASF outbreaks, we think that we have two extreme and opposed hypotheses:

  • The Chinese consumer doesn't trust Chinese pork, and is still consuming more or less at the same pace, but prioritizing imported pork (this also happened when the contaminated formula milk scandal broke out).
  • The Chinese consumer is really scared (despite of the transmission of the ASF to humans being impossible) and penalizes pork consumption indiscriminately.

It is obvious that if the first hypothesis occurs, then Europe on the whole will be benefited. Regarding this (extremely important) question, we can only wait and see how things evolve.

In normal conditions there is no doubt that in the four months remaining until the end of 2018 the Spanish price would crash. Right now it all depends on the evolution of the situation in China. As we have commented so many times, globalization is a fact, and the interrelation between markets is increasingly obvious as time goes by.

Let's cross our fingers, be confident and hope that the exports to the Far East solve our overproduction problems. As a Spanish post-war period comic hero said: “The future is for the brave”.

Guillem Burset

<p>Guillem Burset</p>

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