Cataclysm in the European swine industry

July has ended, a month in which the market has behaved completely atypically. The successive price drops we've witnessed are anything but normal in the middle of summer.

Within the EU, the situation in the swine industry is very alarming; right now, the price of pigs for slaughter is well below the cost of production (this has been the case since last year, with no significant exceptions), and there is no prospect of this situation changing until next spring.

A sort of astral alignment has occurred, brought about by a combination of various concurrent factors:

• Global swine production has increased, particularly in South America (and also in China). Productivity is rising worldwide.
• Global consumption is stagnant, if not declining, as a result of a host of uncertainties (the conflict in Gaza, the war in Iran, the war in Ukraine, economic turmoil in China…)
• Feed ingredient prices are under pressure due to the complex international situation.
• The outbreak of African swine fever (ASF) in Spain, Europe’s leading producer.
• The persistence of ASF in other EU countries (Poland, Germany).

Let’s assume that swine production costs in the EU don’t vary much from one country to another. In Spain, we know that they are around 1.35-1.37 euros per kilogram of live weight (subject to raw material costs). With that in mind, let’s take a look at the circumstances facing various EU countries, those that have significant production:

Germany

The price of live hogs there is equivalent to about 1.09 euros/kg. ASF is still present in Germany. Since early October of last year, the German market price has been below the cost of production. It is likely that the price will not rise again until February, and that we will have to wait until March or April for it to reach the level of production costs.

The Netherlands

Live hogs are worth around 1.04 euros/kg there. Since early September of last year, Dutch prices have been below production costs. We are unlikely to see any increases until February, and it probably won’t be until March or April that the break-even point is reached.

Denmark

The current nominal price, in live-weight terms, is around 0.83 euros/kg live weight. It is true that, at the end of the year, slaughterhouses distribute a bonus that varies depending on the profits earned; this bonus is now very small compared to previous years, following a decision by the cooperative livestock farmers. The price is not expected to rise until February of next year. The Danish price has been below costs since November of last year.

Belgium

The current price is 1.09 euros/kg live weight. Since July of last year, the market price there has been below the cost price. No increases are expected until February of next year. Belgium eradicated ASF a few years ago.

France

We believe that, thanks to the unique characteristics of the French market (VPF = Viande de Porc Française = French Pork), the market is barely holding onto a price close to cost. In any case, prices there have been limping along below cost since October of last year. We expect the current price to fall and do not anticipate any increases until February of next year.

Spain

For several years now, Spain has been Europe’s largest producer. The outbreak of ASF in November of last year caused the price of live pigs (which was already below production costs) to plummet. The current price in Spain is the highest in the EU among countries with significant production, with the exception of France. The Spanish price is holding firm at a level higher than our EU partners; it will eventually give way, but that is not the case for now. No increase is expected until February of next year.

The EU is governed by the rules of the Single Market. In the pork sector, commercial networks form a system of interconnected vessels that functions almost perfectly; in the live animal sector, this is not the case due to transportation limitations.

Losses of 30 or 40 euros per head are unsustainable and cannot be sustained indefinitely. We have been experiencing losses month after month with no hope of change in the short term. We are witnessing a liquidation of breeding sows across the EU, which will continue and be very significant. The market needs to readjust; it will, and the restructuring will be painful.

The reduction of the herd will cause strain in the slaughterhouse subsector; the plant closures we have seen in Germany over the past two years are merely a prelude to what is yet to come (across the entire EU). In Spain, the slaughterhouse sector has been oversized relative to the supply of live animals for years; some adjustment will have to take place.

As we noted in a previous commentary, we are facing a deep and prolonged crisis that is structural in nature. Unfortunately, we have no choice but to wait for the storm to pass and for better times to return. Holding out at all costs (postponing investments, keeping costs to a minimum, making drastic cuts if necessary…) seems to be the only option.

The word “cataclysm” in the title clearly conveys our view. The European swine industry will be unrecognizable in two years.

We will conclude today with two very illustrative phrases:

Horacio: “Adversity has the effect of eliciting talents which, in prosperous circumstances, would have lain dormant.”

Abraham Lincoln: “If I had eight hours to chop down a tree, I'd spend the first six of them sharpening my axe.”

Guillem Burset