Coronavirus unsettling the beef market

Coronavirus unsettling the beef market

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With the coronavirus outbreak occurring just before Luna New Year, celebrations were cancelled and fewer people dined out.

With the coronavirus outbreak occurring just before Luna New Year, celebrations were cancelled and fewer people dined out.

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The coronavirus outbreak in China is having a serious impact on global trade and economies.

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The coronavirus outbreak in China is having a serious impact on global trade and economies.

While travel and trade restrictions are garnering attention, from a beef point of view we need to keep an eye on the Chinese consumer.

At the end of the day, it is their willingness and ability to purchase beef that determines the impact on the Australian cattle market.

Wuhan city, where the outbreak occurred, is under lockdown and Chinese consumers in other provinces have been encouraged to avoid public spaces to lower the probability of infection.

This creates an immediate impact on food sales. But retail sales of daily necessities are relatively resilient to the impact of a virus outbreak.

People still need to eat and consumers will continue to stock daily staples like vegetables, meat (pork, poultry and seafood which are more commonly consumed at home) and noodles.

On the other hand, the food service industry is heavily impacted as consumers will choose to protect themselves by not dining out or travelling.

This presents a real challenge for beef-exporting countries like Australia, as the majority of beef sold in China goes through the food service industry.

Compounding this problem is the logistics of a relatively full supply chain.

Strong buying activity from China late last year filled freezers - with around 90 per cent of Australian beef sent to China being frozen.

With the coronavirus outbreak occurring just before Luna New Year, celebrations were cancelled and fewer people dined out.

Now, even with people returning to work on February 10, there remains the challenge of selling this large volume of beef into a potentially softer market.

Reports are starting to come through that these full supply chains are beginning to impact Australian exporters as they are being told to hold, or slow down, orders.

Looking beyond the logistical issue, what could be the impact of coronavirus on Chinese beef demand?

It is still too early to get a measure on the reduced food service sales, but reports of empty streets suggests that it will be dramatic.

In 2003, the SARS virus created a similar situation in China.

Granted that with the coronavirus the Chinese government has been stronger and quicker to react, but at the same time the Chinese economy is larger and plays a much bigger role in global trade these days.

In 2003 with SARS, food service growth slowed more than GDP growth, with May 2003 (the worst period of SARS) showing a -15.5 per cent year-on-year decline.

However, after the disease was controlled, the food service industry rebounded at a faster rate than other sectors.

The test will be on how comfortable the Chinese consumers are in returning to a 'normal' lifestyle and eating out.

One silver lining is that Australia has three other strong export markets and in light of troubles in China, our currency could weaken, making us more competitive.

We have also recently received some rain which may reduce cattle slaughter numbers.

This can help to alleviate some of the supply chain pressures but we will need to keep an eye on the Chinese consumer and their willingness to go out for dinner.

  • Angus Gidley-Baird is a Rabobank senior analyst
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