… Beef, surprisingly, had become the key ‘filler’ in the absence of domestic Chinese pork – much more so than chicken…
Four factors will drive cattle prices for the next 18 months, webinar told
Jon Condon, BEEF Central (Australia)
May 15, 2020
FOUR key factors would drive cattle and sheepmeat prices for 2020 and 2021, independent meat and livestock industry analyst Simon Quilty told a webinar hosted by NSW Local Land Services on Wednesday evening.
African Swine Fever, COVID-19, and the supply and demand disruptions caused by these diseases and other factors like drought would dictate cattle and meat price trends this year and next, he suggested.
The latest outbreak of African Swine Fever had happened last week in two northeast states in India, he said. In March, ASF was found in East Timor and Papua New Guinea, just 550km from Australia.
“ASF is now present in 13 countries, which collectively account for 532 million pigs. China, alone, accounts for 441 million of those. In the majority of these countries, the expectation is for pig losses of 50-60pc, representing around 255 million pigs lost,” Mr Quilty said.
“That type of deficit is going to create a major global protein shortage. It’s already been seen in China, through the enormous protein importation that have occurred over the past 12 months.
“The Chinese government is desperately trying to keep domestic pork prices down, having some impact by regularly releasing frozen pork stocks out of storage for the past 12 months. But there is a finite limit to those frozen stocks, and the role of beef and sheepmeat, as well as imported pork, will be important,” he said.
Beef, surprisingly, had become the key ‘filler’ in the absence of domestic Chinese pork – much more so than chicken.
“Effectively China has a 24.5 million tonne protein supply gap to fill, as a result of ASF,” Mr Quilty said.
“As the graph above shows, even if the Chinese increase imports of beef, chicken, sheepmeat and pork, and manage to increase domestic pork production to try to fill the deficit, we believe there is still a 17.5 million tonne protein deficit to fill, each year for the next three years.”
Until a vaccine is found for COVID-19, seasonal disruption to both northern and southern hemisphere beef markets could become an ongoing problem for many years, Mr Quilty said. This would create opportunities for packing and processing facilities that manage to remain free of COVID-19.
“That sums up what we have seen recently in North America and Brazil,” he said.
“It’s all about the disruption to demand and supply, and what that is doing around the world.”
“If, as some people believe, the virus spread will slow in warmer temperatures, there will be an oscillation globally, affecting agriculture markets. As the northern hemisphere moves into its summer, for example, infection rates may fall away naturally.”
But 88pc of the world lived in the northern hemisphere, and 95pc of Chinese beef imports come from the southern hemisphere.
“As the southern hemisphere moves into its winter months, the expectation is that the flu season will get worse. The end result is that we could see an improvement in beef demand in the northern hemisphere over the next six months, and increased disruptions in the southern hemisphere, as more and more COVID infections occur in meatworks across Brazil, Argentina, Uruguay, Australia and New Zealand.
These points are covered in greater detail in this earlier Beef Central article.
“The answer, to me, is for processors to remain COVID-19 free, and they have a distinct market advantage,” Mr Quilty said
Disruptions to demand
Mr Quilty told the webinar audience that in his 30 years as a meat trader, he had not seen market failure like that seen in the global food service sector this year as a result of COVID-19.
“Food service (restaurants, casual dining outlets, fast food etc) typically made up 51 pc of beef sales. In pork, the figure is around 25pc, and in lamb 35-40pc. So food service is absolutely critical, particularly in selling items like the middle cuts – striploins tenderloins, cube roll, and rumps – all of which traditionally go into foods service.”
“Literally, these food serviced markets have shut down, overnight. As a result, we have seen some dramatic impacts in Australia on the market.
One of the results in the US right now was high unemployment, currently sitting at 25pc, due to COVID-19 business closures.
“When there is high unemployment in North America, there is a downturn in meat consumption – for pork, chicken and beef. Right now, the value of beef is two and a half times that or pork and chicken in the US market, and one of the real concerns is that with high unemployment in north America and around the world, people will look for cheaper proteins, than eating beef and lamb.”
On top of meat plant closures, port, freezing and transport blockages had caused key problems in supply.
“February really was the worst stage for this, in terms of China, while the US is still in the middle of it, as we speak. But I’d like to say we are through the worst of it,” Mr Quilty said.
What has been the impact here in Australia?
Because Australian is 70pc reliant on export, middle cuts were easily the worst affected, he said. Some had come back onto the domestic market, because they simply could not be sold in other places.
Rumps, for example, had fallen 33pc compared to pre-COVID figures; striploins fell 44pc; cube rolls 26pc; and tenderloins fell almost 60pc.
If we were to talk about Wagyu, the figures look even more dramatic, in terms of the fall in prices, because there simply isn’t a home for them in the export trade,” Mr Quilty said.
In sharp contrast, ‘comfort foods’ like ground beef prices (being sold through retail outlets, where there was a real desire for that cheaper product, which freezes well) were up 36pc, and diced meat up 24pc. “That’s where the real demand has been,” he said.
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