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China rapidly recovering from coronavirus, but other markets face a long, hard road

Jon Condon, 17/03/2020

THE rapidly spreading economic and trade impact from coronavirus will be a story of two hemispheres, global meat analyst Simon Quilty suggests.

Northern and southern hemisphere beef markets are likely to perform significantly differently in the face of the global pandemic that is unfolding this year, Mr Quilty anticipated in a recent briefing.

Simon Quilty

“Coronavirus is effectively a flu, and like any flu, there are flu seasons – effectively during the winter months,” he said.

This has driven an expectation that the spread of coronavirus in the northern hemisphere – currently in full-flight in markets like China, Japan, Korea and the US – will start to dissipate when temperatures begin to rise in coming months.

“It suggests that beef demand on those countries is likely to pick up dramatically as the weather warms up, and cross-infection with coronavirus starts to ease,” Mr Quilty said.

“We are currently finding that demand for beef has been disrupted, because of the great majority of Australian beef exports go into northern hemisphere markets. Conversely, 95pc of China’s imports come from Southern hemisphere suppliers.

“But just like the SARS virus event in 2003, we’re likely to see a bounceback effect,” Mr Quilty said.

In the fourth quarter of 2003, the northern hemisphere markets responded dramatically, with increased demand – so much so, it almost negated the impact of the demand downturn caused by SARS in the third quarter, he said. “Consequently, the year ended up looking like an ‘average year’, despite the disease impact.”

Mr Quilty anticipates that a similar ‘bounceback’ might occur in northern hemisphere customer countries facing coronavirus this year.

“I see the same thing happening again,” he said. “Once we get into the northern hemisphere summer (May-August), there’s likely to be a bounceback effect, with higher demand for beef, replacing the flat demand period currently being seen.”

Southern hemisphere faces supply threats

However it would likely be a different story in the southern hemisphere, including Australia, New Zealand and the South American countries.

The upcoming southern hemisphere winter meant that the real coronavirus impact was not likely to be seen in these countries until June, July and August, Mr Quilty suggested.

“For the southern hemisphere countries, the disease onset in these countries (virus is much more likely to spread in cooler conditions), is likely to be seen in beef supply challenges – not demand challenges like the northern hemisphere,” he said.

“Brazil, Australia, New Zealand and Uruguay – the major beef exporting nations – are all likely to be impacted. But just like what happened in China, factories in these countries (such as large meat processing plants) may have to shut, to contain the disease and stop it spreading among staff.”

“Imagine a boning room – a confined working space – in Brazil or Australia in June, July or August, where only a worker or two get coronavirus. That entire boning room would likely have to go into self-imposed isolation, so there will likely be beef production disruption – perhaps dramatically – in the southern hemisphere beef producing nations from June/July.”

The challenge was that this was the period when northern hemisphere beef demand was usually taking off.

“The lesson is that the advantage for any southern hemisphere beef producer is to remain coronavirus-free,” he said. “Any business which can achieve it may have a distinct advantage over its competitors,” he said.

China starting to recover

Among Australia’s key beef export markets – China, Japan, Korea and the US – China now appeared to be over the worst of the coronavirus impact, Mr Quilty said.

‘I would call the market this week anywhere from 50 to 75pc back to normal,” he said.

“Each week we are seeing around a 10pc improvement in the market, in volume from both Australia and New Zealand, now that the frequency of trade is increasing.

“Certain suppliers are almost back to where they were in terms of volume prior to November last year. As Chinese demand picks up, exporters are now opting to put round cuts and hindquarter cuts into China, in preference over selling that material as grinding meat into North America. That, in turn, tightens up the grinding meat market, because the lack of competition from Chinese buyers was making the going very easy for US customers, for the same product.”

Mr Quilty described the South Korean export market as also having passed through the worst of the coronavirus episode, having started to get on top of the disease in the past week or so.

“The rate of infection in Korea has started to subside, and we are seeing beef demand again starting to grow. Korea’s food service sector is probably the sector of greatest concern still, but of all beef imports into Korea, shortrib accounts for 40pc alone. But when looking at Australian and US shipments, which account for 90pc of all imported beef in Korea, 57pc of all US beef consignments are of shortrib, whereas only 6pc of Australia’s exports are shortrib.

“It means our cuts to Korea are more diversified, and Australia’s ability to move more product out of food service into retail, where demand remains strong, is far greater.

He said the consumer ‘panic’ effect that had been seen in Australia recently was also occurring in other countries overseas, but once the spread of virus through the population started to slow down with warmer weather, common sense started to prevail.

America and Australia were still in those early stages of panic, but in countries where the disease was now coming under control, it was a two to three month period.

“If I was to put a time-line on the situation in Australia, the panic buying phase could be over in six to eight weeks, but our flu season is going to last until August. That is the most critical period of all, in managing the spread of the virus.”

Food service hard hit

In some of Australia’s export markets where coronavirus has had a serious impact, food service demand for beef has dropped by 50 to 80pc. But conversely, in those same areas, retail had typically picked up by 30 to 40pc.

“Is this displacement pound-for-pound? It’s hard to know, because it’s at times hard to distinguish between domestic and imported beef used in each segment. But what we do know is that certain items get impacted most. In the food service sector, it’s the expensive loin cuts like striploins rib eyes, shortloins and tenderloins which were affected most.

“But you then see the retail sector picking up, especially in cheaper items like ground beef and ‘comfort food’ beef items, which are doing particularly well in the retail sector.

Economic slowdown effect

Beyond the immediate logistics and other effects from coronavirus, attention is now starting to focus on whether there will be a global recession, where less disposable income among consumers might impact on beef demand in general.

“I’d like to think that SARS in 2003 is still our best example of what might happen, and the bounceback effect, once the virus has dissipated over the warner months,” Mr Quilty said.

“The change that year was dramatic in terms of the economic impact – just as quickly as the virus came, it could dissipate just as fast. Therefore the turnaround in terms of the restaurant trade, food service and people going out could happen quickly, once the rate of virus spread drops dramatically.”

“Effectively, when summer comes in the northern hemisphere, people will get back to work, and the economy starts to thrive again.

“What we’re going to learn from this that long term, re-infection is likely next northern hemisphere winter in 2021 – so society in general needs to start thinking about how we manage this problem from flu-season to flu-season. It will go on for several years to come.”

“We have to learn how to cope with coronavirus not just this year, but for the next four or five years, or until a vaccine becomes available.”

 

 

 

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Comments

  1. Peter Gordon, 18/03/2020

    Simon, again your insights are comforting and help maintain a strategic plan for the season ahead. We are seeing some of the highest prices ever paid for store cattle, and grass is growing. may it continue.

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