Change in China beef market fundamentals

Change in China beef market fundamentals

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MARKET FORCES: China's ASF outbreak in 2018 created a shortage of pork which drove up prices and with it demand for companion proteins including beef.

MARKET FORCES: China's ASF outbreak in 2018 created a shortage of pork which drove up prices and with it demand for companion proteins including beef.


One of the biggest drivers of Chinese beef demand may have run its course.


THINGS don't usually happen without good reason.

The massive spike in beef tonnage from Australia to China in 2013 came about because of convergence of a number of fundamental drivers, particularly those generated within China.

Since then there have been ongoing developments in trade negotiation, animal health issues affecting Chinese domestic meat supply and meat import protocols, a massive pandemic affecting not only human health but also food production, distribution and consumption and of course international politics and diplomatic relations.

These have had effects along the way and have governed the amount of beef product China has sought from respective exporting countries but it now seems that one of the biggest drivers may have run its course and is now exerting less influence on the demand side of the equation.

In the lead-up to 2013, Chinese small-scale farmers were abandoning cattle production to take up better paid jobs in factories in the cities.

Supply fell dramatically, forcing up the price of domestic beef which made imported beef more competitive.

Australia was in the right place at the right time largely because it was not affected by the BSE-induced lockout affecting most of the other large beef exporting countries.

Tonnage fluctuated over the next four years as progressively other countries got product in via formal channels or through Hong Kong and less formal cross-border movements.

Then in August 2018 China reported its outbreak of African Swine Fever.

What followed in the next 12-18 months was a massive decimation of China's pig population due to disease mortalities and eradication measures.

The subsequent shortage of pork drove up prices and with it demand for companion proteins including beef.

In 2018, Australia shipped 162,000t of beef to China, the highest volume since 2013.

This rocketed to a massive 300,000t in 2019 and looked set to continue in 2020 before herd rebuilding in Australia dramatically affected supply and export capacity was restricted by suspension of a number of Australian plants by China amid souring diplomatic relations.

China hastily approved export plant certifications in Argentina and Brazil which allowed them in turn to become the dominant suppliers of beef into the China market.

As noted by veterinarian Dr Ross Ainsworth in his latest Southeast Asian Beef Market Report, the price of live beef cattle in China appeared to peak in October 2020, around the time China announced it had overcome the worst of ASF and that pig herd rebuilding was well under way.

Dr Ross recounted that those claims were met with scepticism but nevertheless the price of pork started a fairly dramatic fall in February 2021, which suggests the claims may have been correct and that the pig herd, and thus supply, had recovered.

MLA picked up on the same theme in its June 28 report on the China beef market.

It noted that pork prices declined considerably since Lunar New Year suggesting pork supplies had rebounded but that the cooling pork prices had yet to drag beef prices down.

However while MLA's comments are no doubt correct in relation to import beef prices at the time of its report, there have also been some conflicting market signals.

Dr Ross noted live cattle rates in China have been falling continually since their October 2020 peak and only showed a momentary reversal in June just after the Argentine export beef suspension which started on May 17.

Now it appears that this wider downward trend in domestic cattle prices may also be starting to reflect in certain aspects of import demand.

Steiner has consistently reported over recent months that China has been outbidding the United States for lower-grade lean product but that situation may be changing.

Last week's report said that US lean-beef bid prices now represent a premium to what other markets, including China, are offering at this time.

However it is not as though US prices are improving.

On the contrary as indicator 90CL lost a further US2c/lb bringing latest price to US274c/lb (FOB East Coast).

Steiner also noted there is now speculation/uncertainty about Chinese beef demand in the second half of the year.

The report added, "Chinese beef imports slowed down in Q2, with June imports pegged at 161,055t, down 4pc from the previous month and 9pc lower than a year ago. This was the lowest monthly import volume since last May. Imports from Brazil in June were near 7000t lower, 11pc lower than a year ago even as imports from Australia declined 65pc and imports from New Zealand were 35pc lower. Brazilian June export data showed shipments to China were up about 4pc but exports to Hong Kong declined by 8573t or 44pc."

Maybe these are early signs that the ASF factor is in decline and that a reset is under way in demand for beef in China.

Trade steers and heifers over 1000c/kg DW

WAGGA market reporter Leann Dax described the trade section of Monday's sale in plain, un-emotive terms: "Price outcomes in the trade market were much stronger due to the seasonal shortage."

Perhaps that is an indication of how used we are becoming to sky-high prices but Monday's results were yet another quantum leap, this time into the stratosphere.

There were only a handful of steers but these were quoted 36c dearer at a top of 554c and an average of 544c which equates to well over 1000c/kg dressed weight.

Not to be outdone the heifer portion reached 542c, also equivalent to more than 1000c.

Bullocks were quoted 27c dearer at a 450c average which puts them at better than 800c/kg DW.

A good sample of cows reached 393c on a 19c rise taking them well into 700c DW territory.

In Queensland, slaughter supply is reported to have shortened right up with only a week's cattle now in front.

Grid rates are on the move with one south east Queensland processor adding 15c taking 4-tooth ox to 710c and heavy cow to 655c.


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