Analysis Pigs
Pig price is exploding, what exactly is that?
Rarely have pig prices risen as quickly as they do now. The elevations are of historic proportions. A sense of deception has given way to optimism in the sector. The tide is turning just in time, because many companies were on their back legs financially. Where does the spontaneous reversal come from?
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In no time, pig prices rose by tens of cents per kilo and the ceiling has probably not yet been reached. The current price revival cannot be summarized in one word. It seems to be a cocktail of factors, such as the tight pig supply. The end of the corona crisis also plays a role, just like the war in Ukraine in the background. Unlike in recent years, this time the revival is not coming from China.
End of corona crisis
There is little news about the coronavirus in the media. For two years the virus dominated the headlines, but now the war in Ukraine dominates the news. Due to the relatively mild omikron variant, many of the measures have been phased out. Restaurants and canteens are open again, giving pork consumption a boost that should not be underestimated. In September last year, Marc van Rooi of the meat company of the same name said that 15% of European consumption had simply disappeared due to the corona measures. A lot of pork is eaten outside the home, especially in Eastern European countries. This drop in demand has now disappeared and that provides relief. The large stocks of meat that hung above the market do not appear to be an obstacle.
War in Ukraine
The war in Ukraine does not directly affect pork sales. The market in Russia has been closed to European exporters for some time and Ukraine is nothing in terms of sales volumes. Yet the war is probably a factor driving up prices. Many prices of raw materials such as wheat and oil are rising and this has a pull effect on other raw materials. In addition, war draws attention to the importance of food. This may cause market parties to decide to build up higher food reserves.
Was pork undervalued?
Meat was already subject to inflation in general due to corona. Beef prices recently set new records. In the United States, beef is one of the drivers of high inflation. The FAO Meat Index stands at 112 points, well above the long-term average. Pork has been the spoilsport so far. It is possible that pork has been too undervalued in recent months, as evidenced by the rapid price recovery that is now visible.
China not in the market
In any case, the price revival is not due to an increase in demand in China. Meat exporters describe sales in the Asian country as weak and this is also reflected in the export figures. The Chinese pork price is also currently under pressure. To stop the price fall, the Chinese government bought 40.000 tons last week. Although pig prices are now climbing out of the trough due to better conditions in Europe, Chinese demand remains necessary for prices to rise to higher levels. After all, the Chinese market is crucial for the sale of by-products and therefore the square value of the carcass. Large European slaughterhouses such as Tönnies and Van Rooi are still faced with an export boycott for China.
Limited pork supply
Probably the biggest factor pushing up prices is the tight pig supply. Particularly in Germany - a heavyweight in terms of price formation - many pig farms have gone up in smoke. Last year a shrinkage of 10% was visible, causing the pig herd to shrink to the lowest level since 1996. The decline is expected to continue. In Germany, the slaughter figure can easily exceed a million per week, but those numbers have not been achieved for a long time. In the Netherlands, slaughter numbers are proportionately higher, but here too the pig herd has fallen below the 12 million mark.
This means that slaughterhouses have to do their best again to fill the hooks. Slaughterhouses claim at all times that the price recovery with regard to meat prices is happening too quickly, but at the same time they 'must' keep up with their pricing to be assured of sufficient supply. The cooperative meat group Danish Crown, among others, has already publicly raised the alarm and Vion and Tönnies are sending out the same signals. However, at the moment they do not dare to burn themselves with a Hauspreise. It is expected that the German pork price will rise again this week (significantly) and that slaughterhouses will reluctantly follow suit.