China's consumer-led recovery a boon for beef

Economists are talking about China's economic recovery being consumer-led, as opposed to the traditional way the powerhouse has pulled itself up via manufacturing. That means agricultural exports will be far better placed than hard commodities.

Global Agritrends analyst Simon Quilty said the economic rebound when the United States and Australia came out of lockdown served beef demand very well and the scale of that would be amplified with China.

"Will it be meat, dairy, grains that benefits most - we don't know - but food service will be a big part of the euphoria coming out of lockdown and surely that will be a boom for Australian high-end grass and grainfed beef," he said.

ALSO IN BEEF:

The removal of testing of imported product for Covid will also be crucial in terms of supply chain management improvement and freeing up congestion on ports, he said.

Economists speaking at the latest Global Agritrends Down Under economics podcast said supply chain disruptions would likely return to normal this year.

Director of OTC Commodity Sales at Marex Solutions in Sydney William Johnson said shipping prices had normalised since the pandemic crunch which would allow a kick-up in supply chains.

David Llewellyn-Smith, chief strategist at MB Fund in Melbourne, believes there may be an overshoot, with cheaper supply chains unfolding towards end of year, given the investment that has gone into new efficiencies in recent years.

On the beef front, Mr Quilty said the oversupply situation out of South America to China was expected to fade within three to four months, due to both an easing of product out of Brazil and the expected increase in consumer demand.

Meanwhile, the potential shift in the US into a short-term recession may challenge Australia's grainfed beef exports but should increase demand for ground beef significantly.

Rain, and the tightening of US supply it would bring, would likely override consumer deflationary pressures, Mr Quilty said.

"The double whammy of tightening US supply and a shallow recession boosting demand for grinding beef all points to a much stronger finish to this year for our beef into the US," he said.

At the same time, Europe's economic recovery will come sooner due to a mild winter, and the Ukraine Russia war has now been largely 'accepted' by markets, the economists reported.

For Australia's livestock business, that means an easing in both grain and fertiliser prices.

On the topic of whether a global economic recession was inevitable, Mr Johnson said in real terms, the recessions had already occurred with the consumer price index tracking higher than gross domestic product in most economies since the end of 2020.

"However, if we take high unemployment as a necessity, it has been avoided," he said.

"China reopening will provide a boom once the initial Covid wave has passed and Europe has mitigated energy concerns and a prolonged cold winter has not eventuated.

"Commodity prices remain at high levels."

He put the AUD trading in six months at 70 to 72 cents, and the 12-month outlook at 72 to 74c.

Mr Quilty said it was likely that as expansion of the cattle herd continued in 2023, the negative impacts of a rising Australian dollar would be passed back to the farmer.

However, it was not a significant rise and would therefore not be 'showstopper', he said.