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The heavy Russian burden

We fear that in the short term, the collapse caused by the Russian closure will become more evident and, that with it, the price will inevitably fall again.

Monday 3 March 2014 (4 years 9 months 10 days ago)

In the last comment we pointed out that "A few days ago Russia forbade the imports of pig meat and its derived products from the whole of the European Union." A month has gone by and many more things have happened.

Some ten days ago, Poland detected a case of African Swine Fever in its territory, so its exports have been cut off independently of their destination. This is a new element to be added to the already present turmoil.

Historically, Russia has bought between 4 and 5% of all the EU pig production. In absolute terms this represents an immense amount of meats and cuts. The radical closure of this destination has represented and represents a jigsaw that is difficult (if not impossible) to solve.

In the whole of Europe, the price of pig has fallen in February as a consequence of the closure of the Russian market. In Spain, the drop has been moderate up to now, and in the last two market sessions there have almost been no changes. The price of meat has fallen (some cuts have plummeted), but the abattoirs have not been able to transfer this drop to their purchase price, and this is probably due to their zeal to slaughter any animal alive and kicking.

We are facing an uncertainty situation full of unknown factors. On the short term, any upward reaction seems impossible. Only a reopening of the Russian market would change things, but this does not seem probable (Russia has already announced that it accepts pig meat from US that, up to now, was considered unsuitable due to the presence of ractopamine).

A great part of the meat that cannot be exported to Russia has been frozen and remains in the deep-freeze chambers. Another part (fats) disappears from the market and is being destined to non-human consumption uses (fats for feeds, industrial fats): these uses would be unthinkable if the prices were those in a normal market situation. Weeks go by and the tonnes build up.

We very much fear that in the short term the collapse will be more evident and that, with it, the price will inevitably drop again. Whatever happens from now on, year 2014 will be atypical. The stocks generated up to now will weigh down the market for months. We still have to see if the EU starts a private stockage operation (this should happen if, as it seems, there are no changes in the short term).

It all points towards year 2014 being a good year (maybe even an extraordinary year) for the processing industry.

As we have pointed out some many other times, we can only wait and see.

The Irish writer Oscar Wilde declared: "Sometimes we can spend years without living at all, and suddenly our whole life is concentrated in a single instant.”

Guillem Burset

Guillem Burset

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