China beef rebound

China beef rebound

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RECOVERY: After the coronavirus lockdown, China has been rapidly getting product cleared through ports and its distribution network.

RECOVERY: After the coronavirus lockdown, China has been rapidly getting product cleared through ports and its distribution network.

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China's beef imports have rebounded quickly, writes Ken Wilcock.

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APRIL, with its public holidays, is normally a lower beef production and export month and often in previous years has been 10,000 tonnes or more down on export levels of the month before.

But this year has been different with April's beef exports of 92,476t only 1400t behind March, which brings the progressive count for the year thus far to just 5000t, or 1.3 per cent, behind same period 2019.

That is exceptional for a couple of reasons.

Firstly, 2019 was the biggest year since 2015 for total slaughterings and beef exports, driven by a sharp acceleration in herd liquidation which carried through right up to Christmas closures.

January and February's rain this year should have stopped that outflow of female cattle in its tracks and been reason enough for a sharp reduction in the first-quarter 2020 kill.

First quarter this year was down, but only by 75,000 head.

Percentage of females in the kill was also down, but only to around 52.3pc from the 2019 average of 56pc.

While not enough to reflect a full turnaround in herd liquidation, the fewer number of females in the 2020 kill has been enough to significantly increase average carcase weight from 286kg to 293kg in the respective first quarters.

These factors in combination have resulted in first-quarter 2020 beef production showing only minimal difference to same period in 2019 and largely explain why beef exports have held up so well thus far this year.

The other reason why this is such an exceptional result is the dislocation that has occurred in the global market since late last year.

November 2019 saw aggressive activity by Chinese buyers securing product before Chinese New Year.

A month later the Chinese were reneging on these deals as the market had fallen away beneath them and they were caught with high-priced product.

January trading was slow as deals were renegotiated and focus shifted beyond Chinese New Year to securing requirements for the second quarter.

In turn, that was stymied by coronavirus and lockdown of the city of Wuhan and surrounding province.

With China's foodservice sector hit hard, product backed up, ports became congested and shipments were being parked up in Singapore and other locations where a refrigerated container could be plugged into a power socket.

February saw tonnage to China at 16,000, less than half the monthly volumes of late 2019.

March was a little better at 18,000t as the ports started to clear product.

At the same time that mayhem was unfolding in China, negative forces were also starting to emerge in the United States.

Higher than normal cow slaughter rates early in the year led to a price fall in US domestic lean product, which in turn started a decline in the price of imported lean.

Meanwhile, investor reaction to the worsening economic situation saw commodity markets follow the same precipitous collapse as experienced in the equities market.

Live cattle futures took a big hit, which in turn impacted cash prices for fed cattle.

China's African swine fever-induced shortage of protein remains a key driver of its need to source meat from around the world.

With the fed and non-fed sectors of the US beef market in sharp decline it was simply an impossible time for imported product in the US market.

Price of imported lean continued to plummet.

It was around this time that Australian processors started talking about the disconnect between Australian cattle prices and global meat markets.

At this point the US had not started to implement coronavirus control measures and things could only go from bad to worse when the state of California led the way with implementation of 'stay-at-home orders' on March 19. The rest of the country quickly followed and foodservice dropped like a stone.

But while foodservice fell, retail soared.

The problem now for the US was sourcing enough domestic product for retail as plants and intermediaries such as grinders were forced into slowdown or closure due to outbreaks of infection.

By mid-April the price of domestic lean was rapidly increasing.

By early May, wholesale beef prices in the US had hit record levels with fed-cattle slaughter estimated to be down by 38pc and non-fed cattle slaughter down by 9pc.

While these machinations played out in the US, China was rapidly getting product cleared through ports and its distribution network.

So effective has this been that Australia's exports for the month of April spiked up to 23,788t.

This exceeds the monthly volumes to China in April, May and June last year and points to possible further increases in volume in the months ahead.

Remarkably, China seems to have contained the supply and distribution problems associated with lockdown of critical workers to just a couple of months.

As has since been shown to be the case in the US and elsewhere where lockdown has occurred, foodservice loss has been retail's gain, underscoring the fact that people still need to eat.

China's African swine fever-induced shortage of protein remains a key driver of its need to source meat from around the world.

What remains to be seen now is the extent to which coronavirus affects the ability of countries to supply the product that China requires.

In that regard, the US became an aspiring supplier of beef to China after implementation on March 20 of the US-China Phase One Economic and Trade Agreement.

US Meat Export Federation had high hopes for a big upturn in beef exports to China in the second quarter but the current fractured nature of US meat processing and general domestic shortage may mean that aspiration is put on hold.

Before the revelation just moments ago of China imposing suspensions on four Australian beef plants, there may have been some scope for Australia to benefit in the short term from any inability on the part of US beef exporters to direct product into China but that now seems very remote.

Perhaps instead Australian exporters may gain some joy from improved US bids as the runaway wholesale market there spills over into the import scene.

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