Recent widespread rainfall has buoyed Australian beef producer spirits and lifted cattle prices, but the sector faces reduced export demand from China as a result of coronavirus, according to Rabobank’s latest global Beef Quarterly report.
In its Q1 report, the agricultural banking specialist says China will again dominate beef imports in 2020, albeit at a far slower rate than the heady 60 per cent increase in imported volume recorded in 2019.
Rabobank senior animal proteins analyst Angus Gidley-Baird said that whilst hard to predict how long the coronavirus would disrupt the Chinese market, lower sales volumes and limited cash flows would delay a return to normal beef imports in the short term.
“We do, however, expect China’s beef imports to continue to grow in 2020, with a strong rebound in the second half of the year,” he said.
Coronavirus effects on Chinese imports
With a high inventory of frozen beef unconsumed over the Lunar New Year, and a significant percentage of the Chinese public avoiding eating out entirely, Mr Gidley-Baird said China’s beef demand will be down.
“Food service and tourism will remain disrupted until the virus is contained, with decreased restaurant sales contributing to weaker beef demand in the first half of the year than in previous years,” he said.
“Importers also face the additional challenge of limited cash flow due to unsold stock at ports, and financial losses incurred in the late-2019 price plunge.”
A slowing economy and side-effects of the coronavirus will curb the extraordinary increase in beef import volumes China experienced in 2019, and potentially lower global prices, particularly in the first half of 2020, but Mr Gidley-Baird expected demand to improve over the second half of the year.
Brexit’s potential export opportunity
The report expects Brexit’s impact on the beef industry to be minimal for the next 12 months, but may offer potential future opportunities for Australian exporters.
“The UK remains a member of the EU single market during the 12-month transition period, and we expect change to be limited during this time, however it does allow global beef exporters, including Australia, to negotiate new deals with the UK,” Mr Gidley-Baird said.
Uncertainties remain for the beef trade post the Brexit transition period.
Mr Gidley-Baird said while the UK and EU are heavily linked on beef trade – with 89 per cent of the UK’s total beef imports originating from the EU-27 and 44 per cent of EU-27 beef exports going to the UK between January and October 2019 – major beef exporters were already positioning themselves for a trade deal.
Mr Gidley-Baird said recent rainfall across large areas of Australia had ensured an increase in cattle prices as competition for limited stock heated up.
“Producers are flocking to the saleyards, with the recent rain providing an opportunity to restock and rebuild breeding numbers after such a prolonged dry period,” he said.
The Eastern Young Cattle Indicator lifted 21 per cent from AUD 5.13/kg cwt in November 2019 to AUD 6.23/kg cwt on 14 February 2020 and now sits above AUD 7.00/kg cwt, reflective of this turnaround.
Despite the drought, Australian beef exports for 2019 were strong thanks largely to China, where, Mr Gidley-Baird said, 2019 exports eclipsed 2018 by 84 per cent.
“By year end, China’s market share of Australian beef exports increased from 14 per cent to 24 per cent. Australian exports to the US also increased nine per cent, while exports to Japan were down nine per cent, year over year.”
With almost a quarter of Australia’s beef exports exposed to the Chinese market, a reduced demand was now expected due to coronavirus, and Mr Gidley-Baird said the potential lower global prices could prove challenging for processors, given the strong domestic livestock prices.