Why remaining COVID-free is so important for meatworks

Why remaining COVID-free is so important for meatworks

Beef
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A look at northern, southern hemisphere demand and supply dynamics over next six months

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A DISTINCT market advantage is emerging for countries supplying beef that can prevent COVID-19 outbreaks in their meatworks, analysts believe.

The seasonal disruptions to both supply and demand from the pandemic will be an ongoing problem until a vaccination is found, according to prominent market analyst Simon Quilty.

The way those disruptions will interact over the next six months in the northern and southern hemispheres was creating opportunities for processing facilities that could remain free of outbreaks, he said.

Speaking at a Local Land Services webinar last week, Mr Quilty explained if the spread of the virus slowed in warmer temperatures as predicted, infection rates would naturally fall off from now as the northern hemisphere moved into summer.

With 88 per cent of the world living in the northern hemisphere, demand for beef would lift significantly.

"The challenge for China is that 95pc of its beef imports come from the southern hemisphere and as we move into our winter we are expecting the flu season will get worse," Mr Quilty said.

"So as we see an improvement in demand over the next six months, we will likely see increased disruptions as more infections occur in meatworks across Brazil, Argentina, Uruguay, New Zealand and Australia.

"The answer is for processors to remain covid-free and you have a distinct market advantage."

Food service woes

Decreased beef production as Australia rebuilds its herd will be the main reason for less exports in 2020. Forecasts are for exports to fall below a million tonnes for the first time in eight years.

However, consumer behavioural changes on account of the pandemic are certainly affecting exporter profitability.

Rural Bank's May Insights Update says finished cattle prices will remain under downwards pressure a processors are challenged to capture the full value of carcasses as a result of reduced demand through food service channels, particularly at the higher end of the market.

Pressure on prices was expected to ease as food service channels reopen and in fact that was already being seen in China, Rural Bank reported.

Big farm sector lender Rabobank says consumer attitudes towards returning to normality will be critical to the recovery of food service as various jurisdictions start looking to relax movement restrictions.

Senior analyst animal protein Angus Gidley-Baird pointed to a Datassentail report which showed most Americans would go back to eating in restaurants but would take cues from trusted health sources, and would be looking for reductions in new cases, widespread testing and development of a vaccine before venturing out.

Mr Quilty said in 30 years of trading meat, he had not before seen market failure like what had occurred on the back of COVID-19.

Food service makes up 50pc of global beef consumption - in pork it is only 25pc and in lamb 35-40pc.

"It's critical in selling items like middle cuts - striploin, tenderloin, cube roll," Mr Quilty said.

"As those food service markets literally shut down overnight, we've seen dramatic impacts."

A key concern for beef in the US now was high unemployment, currently sitting at 25pc, he reported.

"In North America, you get a downturn in meat consumption with high unemployment and the value of beef is 2.5 times higher than pork or chicken at the moment," he said.

"The concern is real that people will start looking for cheaper alternatives."

Globally, striploin prices have fallen a whopping 44pc, cube rolls 26pc and rumps 33pc.

But ground beef prices are up 36pc and diced beef is up 24pc.

Some of those higher-end cuts had come back on the domestic market in Australia and were selling but 'it is not near making up for the losses in the food service sector,' Mr Quilty said.

The switch from food service consumption to eating at home in Australia has led to a 15 to 20pc increase in retail sales but changed the type of cuts people are eating, he said.

"At home, people consume more of what we call comfort food - the lower end of the animal," he said.

ALSO SEE: Beef proving the key filler in African swine fever protein shortages.

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