Virus impacts US beef trade

Virus impacts US beef trade

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FALLOUT: Of particular concern to Australia is the fact that our trade with the US has evolved very much into one of frozen beef for the foodservice sector.

FALLOUT: Of particular concern to Australia is the fact that our trade with the US has evolved very much into one of frozen beef for the foodservice sector.

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Ken Wilcock looks at the potential influences of COVID-19 on the US beef trade.

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TWO weeks ago in the United States, state and local officials started issuing shelter-in-place orders in an attempt to control the spread of coronavirus.

Shelter-in-place orders have become associated with panic in the US as they are typically used in an emergency such as a mass shooting in order to get people to move to the nearest place of safe refuge and stay there until the emergency is over.

Coming on top of President Donald Trump's turnaround admission on March 13 that things were indeed quite bad, consumers took this as the signal that they needed to stockpile food and other essentials and according to US-based analyst, Steiner Consulting, retail stores were stripped bare overnight.

Noticeably the tenor of more recent directives has shifted to less strident stay-at-home language but in terms of inducing panic buying, the damage was already done.

While all types of protein were subject to the frenzy, Steiner noted beef roasts and ground beef were particularly popular.

The US Department of Agriculture under its mandatory price reporting remit uses a concept called 'cutout' which rolls up the respective wholesale values of domestic fore and hindquarter primals into an overall wholesale beef value index.

Typically this is applied to Choice grade beef (second highest quality in the US grading system) to track and illustrate market movement.

In just five days, the line on the graph soared in near-vertical fashion from just under $US210/cwt (hundred pounds) to almost $US255. That 22 per cent increase equates to a rise of about 170 cents a kilogram in Australian currency.

In the face of this exceptional retail demand, US beef packers responded by diverting product away from foodservice channels to retail while at the same time ramping up fed cattle slaughter, according to Steiner.

While not showing as dramatic a price rise as cuts, the increased interest in domestic 90CL fresh beef was sufficient to influence a momentary turnaround in the price of imported lean grinding product, which had been falling steadily since December last year. Unfortunately this interest was limited to nearby/spot product while product for May delivery and beyond was trading at a significant discount.

Steiner's expectation that retail demand would remain firm for a couple of weeks before tapering off has proved accurate, with US media reports late last week confirming the consumer meat-buying frenzy has cooled.

Now the expectation is that retail demand will remain quite strong compared to normal as more meals will have to be consumed at home while at the same time foodservice effectively falls off a cliff.

Steiner believes this ongoing retail demand will provide some support for imported beef in the near term but inevitably the falloff in demand for foodservice will affect the imported beef market. How that plays out in the short term will depend on the longevity of the social distancing and stay-at-home measures imposed to fight the virus.

In the longer run, it will come down to how much economic destruction is caused by efforts to bring the virus under control. The initial signs are worrying as in the space of just last week a record 3.28 million Americans filed for unemployment benefits.

Of particular concern to Australia is the fact that our trade with the US has evolved very much into one of frozen beef for the foodservice sector.

Of our total 251,800t shipped to the US last year, 185,000t or 73pc was frozen beef.

Given the expected demise of foodservice in the US in the immediate future, the question will be the extent of any corresponding spike in retail demand for ground beef product and whether Australia has a role to play in helping to meet that demand.

Certainly the global companies who supply value-added food products such as burger patties, meatballs and the like to both foodservice and retail food brands may be reasonably placed to switch focus more to the retail side. If so and to the extent that Australian beef processors have supply linkages with such companies, some trade can be expected to roll along.

However if there is straight out extra demand for fresh ground beef in US supermarkets that cannot be met from US domestic production, Australia may not be as well placed as closer Central and South American processors to help meet that demand.

In the meantime tonnage out of Australia to the US has nosedived. Preliminary figures from Department of Agriculture to March 26 suggest shipped weight for the full month will be around 18,000t. This compares to 19,500t in February this year and 24,400t in March last year.

Given the expected demise of foodservice in the US in the immediate future, the question will be the extent of any corresponding spike in retail demand for ground beef product and whether Australia has a role to play in helping to meet that demand.

Lost time in Australian meatworks during March was obviously a contributing factor as far as production was concerned. But aggressive supermarket buying activity in the saleyards for cows was probably responsible for diverting a lot of product that would normally have gone to the US into the Australian domestic market instead.

Anecdotal reports suggest the Australian public are still panic-buying beef mince and the supermarkets are continuing their quest for cows in the saleyards.

Tight supply of cattle still causing lost time

WITH the traditional post-Easter start-up of mustering camps still a few weeks away, supply of slaughter cattle in virtually all of the state except north Queensland remains very ordinary.

One major south-east Qld meatworks did not kill on Tuesday but as the processor contact commented, the present circumstances are not surprising given state of the national herd.

At the same time grid prices are continuing to ease back from the 650c/kg for 4-tooth ox and 570c for heavy cow in early March.

Latest south-east Qld rates are 580-590 for ox and 490-510 for cow. Also a 10c differential between southern and central Qld has reappeared after trading at parity since January.

Further price adjustment looks likely particularly for cows once the panic buying of beef mince subsides and the supermarkets retreat from the saleyards. That may not be far away as meat is appearing back on shelves.

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