SOME early, if tentative green shoots are emerging in Australia’s export beef trade to China, as the Asian giant begins its long recovery from the ravages of coronavirus.
An Australian non-packer exporter with exposure to the China market provided a briefing to Beef Central this morning, highlighting some positive opportunities for Australian beef.
Government’s supportive responses to COVID-19, including yesterday’s announcement about underwriting airfreight export shipments to markets like China, and providing support to ensure that Australia’s port and stevedoring infrastructure continues to function during the disease control period, are helping enormously, Beef Central was told.
In sharp contrast, export beef competitors in South America are now facing considerable headwinds in export capability.
Reports are emerging of blockages and delays in ports in Brazil and Argentina this week, as both countries move late, to counter the local spread of COVID-19. Waterside workers unions in some South American countries have also refused to work, amid the outbreak, and local mayors have ordered the closure of key terminals in Argentina over coronavirus fears.
While local media coverage to this point has been minimal, one source in Brazil told Australian trade contacts this week that the country’s primary beef export port at Santos was currently an ‘absolute disaster.’ Some say the extent of COVID-19 infection in Brazil is much worse than what is being publicly reported.
In a second development, Argentina’s government has banned beef exports for the next fortnight, as a response to local concerns around food shortages.
If those logistics and political problems grow to a more serious level, as some trade sources believe they will, Australia could be well-positioned to benefit, with increased beef demand out of China.
China last year accounted for about 75pc of Argentina’s beef exports,41pc for Brazil (including Hong Kong) and 69pc for Uruguay. Any major disruption in port operations in South America could leave a large hole to fill for protein imports, made worse by the ongoing protein deficit associated with African Swine Fever.
In contrast, Australia’s beef shipments to China last year were just 26pc of total exports.
With Australia’s March monthly export figures due out in coming days, speculation is turning to export volumes into China since the onset of COVID-19.
“As a customer, China is definitely waking up, but I’d be surprised if volume is yet back to 20 or 30pc of where it was towards the end of last year,” a trader told Beef Central.
“There’s some business going into China at the moment among the larger, more regular retailers – mostly chilled meat. But cheaper frozen beef is still much further behind,” he said.
The trader thought prices were now reflective of the period prior to the ‘mini-boom’ that took place from October to December last year.
“That’s where the levels are on some chilled products – but chilled still only represents a small portion of overall trade,” he said.
“Regardless, we’re now seeing a very different demand message out of China. Last year, during the buying frenzy that happened in the last quarter, the message was ‘Just send beef: it doesn’t matter what it is.’ That’s now been replaced with much more select buying.”
“It’s really a two-tiered market at present, for chilled and frozen, but we think chilled will now become a bigger portion of overall China trade out of Australia. It might get to 20pc this year, or maybe more, up from 5pc historically. But that percentage change is also being driven by smaller volumes of frozen, of course.”
“The Chinese people with the cash are going to be the chilled customers, for the time being – so it might be a really good time for promoting a higher quality chilled Australian article.”
Chinese customers seeking ‘clean and green’
Some Australian exporters are providing feedback suggesting Chinese customers now have a heightened preference for ‘clean and green,’ in their beef purchasing, given the disease events of the past three months.
“There’s definitely a move to push clean and green protein to the top of the list, and that even extends into demand for Certified Organic,” one trader told Beef Central this morning.
“Rightly or wrongly, they are aligning COVID-19 with food safety and wholesomeness in beef. That has to be a positive for Australia, and we think that trend will persist, as the China market recovers. They may become far more discerning on protein, generally, in the post COVID-19 era.”
“When the current Australian domestic retail market ‘sugar rush’ demand for beef subsides, which it inevitably will, with people now holding tuckerbox freezers full of frozen beef, we’re going to need other significant markets, and China is going to play a role in that,” the trader said.
Reports continue to emerge that port facilities and movement of sea cargo in China are starting to get back to normal.
Surcharges that were put on by shipping companies have now all been waived, Beef Central was told, meaning the cost to do business in China is now beginning to “look more attractive again.”
“The US$1000/container surcharge that was being applied earlier was such a big part of the value of cheaper items – especially when the Aussie dollar crashed to US 55c,” the trader said.
“It was tolerable on higher value meats, but on those cheaper items that really drive the yield from each carcase, it made trade very hard. It was adding 25pc to freight costs, on some cheaper items,” he said.
Asked to describe the general mood of beef inquiry out of China at present, a meat trader used the words, ‘cautiously optimistic.’
“It’s slowly becoming more buoyant. Prices on better quality chilled product are getting back to world parity again.”
Loin cuts key challenge
But loin cuts remain the big problem faced by the meat trade in coming months.
“We don’t have a food service market available at present across the whole of Australia, or Asia – and they are the big user of loin cuts,” the trader said.
“All the demand in Australia is on trim and lean cuts like knuckles that can be minced. There’s no real market for those food service items like fillets, cube rolls or striploins heading into winter, and I’d anticipate that people in the trade will be mincing striploins within six weeks, the way things are going.”
“We need a market like China to come along, with some renewed vigour, to find a home for some of that meat. China will come in on a lot of the butt cuts, but unfortunately they have never been a real loin cut market – that’s where we are going to have to really lean on markets like Singapore, Hong Kong and South Korea, which have a bit more money to spend.”