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Australian exporters’ phones running hot in wake of Brazilian meat crisis

by Jon Condon, 23 March 2017

REPERCUSSIONS from the meat inspection investigation in Brazil which has attracted dramatic international headlines since last weekend are having an immediate and significant effect on demand for Australian export beef.

Export trading desk personnel spoken to this morning reported a surge in inquiry for Australian beef and a consequent lift in prices in the past couple of days, in the wake of the episode.

Asia retail beefDemand is coming through two separate channels:

  • Chinese importers who may have earlier been relying more heavily on supply out of Brazil, who are now looking for additional supply from Australia, as a result of import bans imposed this week; and
  • Customers in other countries, wanting to buy more Australian product as a ‘hedge,’ because they are concerned about mounting competitive pressure for Australian beef from China, and have no real idea where the whole issue is going to end up.

Australian export prices on some beef items have lifted quite significantly since Brazil’s inspection crisis broke last weekend.

Round cuts have in many examples kicked 20-30c/kg, and in places more. One trader this morning quoted steer outside flats that Australia was receiving less than $6/kg for a week ago, now trading at $6.30/kg. Knuckles had gone from $6.30/kg to $6.70/kg, in the space of a week.

Prior to this week, similar supply from Brazil was possibly 30-40c/kg cheaper than Australia, across the board.

Trim values had not been impacted so much, because of pre-existing strong US demand, but fattier trim was starting to move upwards, partly in anticipation of China moving harder on Australian shortplates and briskets to fill the void left by Brazil.

“All customers are focussing on China’s reaction to the Brazil closure,” a trusted export trade contact told Beef Central this morning.

“Were not yet necessarily fielding a lot of big inquiries for additional Australian beef supply from Chinese importers themselves, but contacts and customers in Japan, Korea, the US and elsewhere are all wary about what China might do.

“Burnt into their memory is what happened three or four years ago, when China rapidly emerged as a large beef competitor, taking share of Australian beef from other importers. This week, everyone else is all moving before China does – because they’re concerned that China might clean-out Australia again, in the absence of supply from Brazil.”

Most export traders spoken to today said they had anticipated some rise in customer interest later this week as a result of the unfortunate Brazil developments, but all said they were taken by surprised at how quickly and vigorously it had happened.

How long does it last?

The great unknown in all of the international meat trade excitement about Brazil at present is how long the current ‘temporary’ market closures last. Some sources are confident markets will re-open in a matter of days – indeed South Korea yesterday restored trade access for Brazilian chicken-meat, after imposing a ban earlier in the week. Korea does not support trade in beef from Brazil.

Other stakeholders think Brazil will take months to regain the level of market access it enjoyed up to last weekend.

One estimate from Brazil this week suggested 60pc of Brazil’s beef export market are affected by this week’s temporary market closures, or greatly expanded inspection and testing protocols imposed by importing countries.

Impact now shifting from govt to trade decisions

What’s become evident in the past 24 hours is that the impact of Brazil’s meat inspection/food safety crisis and damaging, if inaccurate media and social media coverage of the episode, is that the government interventions in the trade are now being ‘superseded’ by commercial decisions being made by large end-user customers – both retail and food service.

In the Middle East region, where no government intervention has yet taken place, supermarket chains are apparently making unilateral decisions to remove Brazilian meat from their shelves.

With dramatic, perhaps even sensationalised details about Brazil’s unfortunate meat inspection ‘scandal’ spreading like wildfire across social media, retailers are taking matters into their own hands in response to consumer concerns, it seems.

In Japan, Beef Central understands that at least one large retail supermarket chain last night took Brazilian chicken off its shelves. Japan is an enormous customer for Brazilian chicken, estimated to amount to as much as 25-30,000 tonnes in trade per month. No beef trade is yet permitted from Brazil.

Despite the South Korean government becoming the first to re-open its market to meat from Brazil yesterday, major Korean retailers have also removed Brazilian poultry from their shelves, while some Korean food service companies have shifted to US poultry.

“The speed with which the concerns over Brazilian product have filtered through the value chain across the world has taken many by surprise, and represents a huge product integrity headache for Brazil, for some considerable period,” a key trade contact told Beef Central this morning.

“Brazil’s real challenge now is not so much in convincing governments and food safety regulators about the integrity of their meat proteins, but in convincing consumers. They are facing a real trust issue,” he said.

“The Brazilian product is so cheap, relative to US, Australian and New Zealand product, that the importers will all want this issue to go away as quickly as possible. But the problem is there is just no way to tell how long this Brazil issue will be current. And once the consumers get hold of it, it’s pretty much out of the importers’ hands.”

“The way this matter has been handled has been a massive own-goal by the Brazilian Government,” the trade source said. “They’ve basically put their entire export business in jeopardy, which come at a massive cost for the Brazilian meat industry, and the broader Brazilian economy.”

While there has only been a trickle of Brazilian meat entering the US market since approval to export was gained in September last year, reports are circulating about US end-users (mostly grinders, using manufacturing meat) putting orders for Brazilian meat on hold, until the crisis subsides.

Another meat further-processing company with a global footprint has apparently ordered inventory stocktakes, so the company can establish exactly where it has stocks of Brazilian meat on hand, and how much.

While most of the attention in investigations in Brazil on inspection irregularities is focused on chicken meat, the broader issue has gone past that, with beef and pork now all facing trade push-back.

“Once this sort of stuff blows up, everyone is guilty by association,” a respected meat trader said.

Analysts view

In Australia, analyst Mecardo* speculated about the potential impacts on the Australian beef industry, suggesting the current suspension of the China/Brazil beef trade would mean a lot of Brazilian beef would have to find a new home.

“But how much of a hole does it leave in China’s beef supply?  In 2016 Brazil was the largest source of China’s beef imports, accounting for 29pc,” Mecardo said.

“If the suspension continues for any significant amount of time, China will be looking to replace Brazilian beef from its other current beef sources – the main ones being Uruguay, Australia and New Zealand.”

Assuming the Chinese suspension of Brazilian beef lasted a month, China and Hong Kong would have to import around 29,000t of beef from somewhere else, if it was to maintain supply. If Australia provided a third of that volume, it will double Australia’s average monthly beef exports to China, Mecardo said.

In reality, Uruguay and New Zealand were not really in a position to increase exports to China, as both countries had much smaller export programs than Australia and Brazil.

“India can fill some of the void through the ‘grey channel’, but Australia is in a good position to replace Brazilian beef in higher value markets,” Mecardo said.

Obviously if Australia was to part-fill the Chinese gap, product would have to be diverted from other markets, which would force them into a sort of bidding war with the Chinese, pushing up export prices.

As with any trade restrictions, the bad news for Brazil could be good news for Australian cattle producers and processors, Mecardo said. However, China was not likely to want big increases in beef prices locally, and as such was likely to be working with Brazil to sort out issues.

“As such there is no way of knowing how long the suspension will last.”

Other developments

In other recent developments in the washout since the Brazil crisis broke:

  • The US has invoked 100pc inspection of all shipments from Brazil including 100pc E.coli testing of all beef trimmings.
  • Uruguay and Argentina have reported being caught up in the “uncertainty” surrounding the integrity of Brazilian meat. A trader said that everything pointed to the crisis triggered by briberies in Brazil hitting the entire South American region. “Many consumers speak of South American beef and not of Brazilian, Uruguayan or Argentine. Consequently, this kind of news always has negative effects for all,” he said.
  • In Egypt, authorities are intensifying controls over Brazilian beef already in-port, but no containers were being returned, a broker reported.
  • Russia, one of Brazil’s main export markets has not yet made a decisions on bans of Brazilian meat, but was considering its position. One trader said after bans in China, Hong Kong and elsewhere, it was possible Brazilian meat trade to Russia might grow, but at considerably cheaper prices “It’s possible that some measures may be taken against pork and poultry meat because locally they strongly support these production chains, but maybe they will take advantage of the moment to buy more Brazilian beef,” the source said.
  • Speculation in Brazil has already raised the prospect of JBS postponing its launch on the New York Stock Exchange, initially expected for the second half of April.
  • In the Sao Paulo futures market this week, contracts from April to July dropped around R$/@ 1.5 on the previous week.


* The original version of this report mis-spelt the company name ‘Mecardo’ as ‘Mercado’. Apologies for the mistake.  

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