Beef exports holding despite global turmoil

Beef exports holding despite global turmoil

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HOLDING ON: The Department of Agriculture's tally of beef exports in March came in at a surprisingly good 93,954 tonnes for the month.

HOLDING ON: The Department of Agriculture's tally of beef exports in March came in at a surprisingly good 93,954 tonnes for the month.

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Australia's beef exports are in surprisingly good shape, writes Ken Wilcock.

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A MONTH ago only a trickle of product was entering China as the first tentative steps towards recovery were getting under way.

At the same time the United States was entering a period of unprecedented turmoil as coronavirus really started to accelerate in that country.

Japan and South Korea's beef markets were also expected to be affected to some extent as lockdown threatened.

As if those demand-side issues were not enough, Australia had its own problems.

Good rain in January and February tightened supply, which resulted in lost time in a number of meatworks.

To complicate matters a little more, panic buying of beef mince in Australia erupted.

This resulted in the unusual sight of supermarkets scouring the marketplace for trim, competing hard against export processors in the saleyards for cows while at the same time asking them to provide service kills.

In a country that produces so much lean grinding beef, the idea of the domestic market actually buying product away from export markets seems ridiculous, but it happened nevertheless.

Against all of this, the Department of Agriculture's tally of beef exports in March came in at a surprisingly good 93,954 tonnes for the month.

In 2017 and 2018, relatively stable years by comparison, the March figure in both instances was 90,000t.

In 2019 tonnage shot up to 102,000 but only because of highly elevated herd liquidation due to drought.

On the surface, the consolidated figures across all markets give no hint of the turmoil being experienced but a closer look at individual destinations provides some insight.

Given the underlying drivers of China's demand for protein have not changed, perhaps there is scope now for some cautious optimism in this market.

In a country that only a little over a month ago was suffering paralysis in its shipping ports, processing and distribution infrastructure, China has rebounded in March with 18,328t of beef from Australia.

While that is 11 per cent behind March last year, it is also 10pc up on February this year, so that is a promising sign.

Even more promising is a report in a major Australian daily early this week that McDonald's and KFC in China are back to about 90pc of pre-COVID-19 sales.

If that report proves accurate, it suggests a bounce-back in foodservice provided, of course, the much-feared second wave of infection does not materialise.

Given the underlying drivers of China's demand for protein have not changed, perhaps there is scope now for some cautious optimism in this market.

But caution has to be the operative word because while China's factories may be restarting operations, they have to sell what they produce into global markets and there is the rub.

China's big import customers in the US and Europe are cancelling orders as the pandemic spreads.

An article in the South China Morning Post published last Thursday tells of the difficulties confronting labour-intensive manufacturers in the industrial hub of Dongguan.

Many of the factories in the city have stopped recruitment and some that have been there for decades are now being forced out of business.

Wage rates are falling and the weakened state of the economy is trickling down to small restaurants and food outlets. Many are closing or struggling to get by without hired help.

All of this seems powerfully at odds with the above-mentioned media report about McDonald's and KFC returning to pre-COVID-19 sales levels.

In essence, Dongguan and China generally may have more to fear from a second-wave economic shock than from a rebound of the virus itself.

Meanwhile infection rates in the US are still escalating and control measures are biting hard.

As of Monday, the US had 363,000 confirmed cases with 130,000 of those in New York, according to data compiled by John Hopkins University.

With the exception of a handful of mid-western states, the entire country is subject to stay-at-home orders resulting in some 10 million people filing for unemployment benefits in just two weeks.

Market analyst Steiner Consulting reports the resultant fall-off in foodservice has left packers struggling to move steak cuts at the higher end and facing a similar level of disinterest in fat trim for burger patty formulation in the vast fast-food segment.

In consequence, domestic cow slaughter is holding due to demand for lean beef to go into retail ground beef packs but fed cattle slaughter rates have fallen sharply.

Concerning for Australia, the imported beef trade has been brought to a standstill, according to Steiner. Volatility in the market has caused buyers and traders to retreat to the sidelines rather than attempting to book forward deliveries.

Coming on top of March's diminished trade of 17,182t (down 12pc on February and a massive 30pc on 2019), these developments will hit hard in the months ahead.

While this may be offset to some extent with April being a shortened production month due to public holidays, the test will come once supply ramps up in May with the onset of first-round musters in the west and frosts on the inside country.

Japan is the other of the big three customers for Australian beef and their story so far has been quite different.

Having avoided lockdown in the belief that they have contained the COVID-19 virus, Japan is now experiencing a massive spike of over 500 cases per day, according to John Hopkins data.

As discussed in this column in March, Kentaro Iwata, professor of infectious diseases at Kobe University, always doubted that Japan had contained the virus and predicted that the previously expected explosion was still to come.

Now on the orders of Prime Minister Shinzo Abe, Japan is implementing national emergency measures but these will still fall short of lockdown responses imposed by other countries.

No doubt the absence of lockdown has contributed to Australia's upbeat 26,751t of beef shipped to Japan in March but dark clouds are forming.

One major Australian processor reported a sizeable Japanese foodservice customer going out of business last week.

But underlying all of this, the biggest challenge facing Australia is to keep the virus out of plants and the lights turned on.

The story Beef exports holding despite global turmoil first appeared on Farm Online.

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