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Kay’s Cuts: Coronavirus impact already being seen in US meat market

Steve Kay, February 6, 2020

A monthly column written for Beef Central by US market commentator Steve Kay, publisher of US Cattle Buyers Weekly

 

 

 

 

LIKE many around the world, I have watched with horror and sadness how Australia’s devastating bushfires have taken lives, killed wildlife and livestock and inflicted terrible damage on large swathes of beautiful countryside.

My heart goes out to all those impacted and especially those who have lost loved ones. Australians are among the most resilient people I’ve met, so I know the country will recover. But the scars might remain for a long time.

‘Fire’ is a word that also strikes unease and at times fear into the hearts of Americans, especially in the western US. In northern California where I live, tragic fires since late 2017 have claimed countless lives and caused billions of dollars of destruction on a scale never seen before.

I hosted a family in late 2017 who barely escaped with their lives when fire swept through their community in Santa Rosa just north of me. Southern California also suffers from deadly fires, although fortunately not with the same loss of life.

It’s hard to believe anything could be more destructive than fires. But that’s the case with disease outbreaks. Just about every country in the world fears the outbreak of a disease that kills animals and humans. The past 30-40 years has witnessed devastating outbreaks of BSE in the UK and Europe, avian influenza in Asia and porcine flu and Foot and Mouth Disease in several countries.

China now has the misfortune to be grappling with a coronavirus epidemic just as it is still battling to contain African Swine Fever, which has decimated its hog population and caused a critical shortage of protein.

Other countries have benefited from this shortage by increasing their exports to China. But ironically, the coronavirus crisis is threatening to impact those exports because of falling demand. That is especially so for Australia, as Beef Central’s Jon Condon and James Nason reported so comprehensively last week.

The epidemic has forced the Chinese government to take drastic measures to halt the virus’s spread, notably by severely restricting the movement of virtually all its citizens. This has caused food sales to slump at all out-of-home dining spots and caused tourism to China to grind to a halt.

The results have impacted all protein imports into China. This in turn has put downward pressure on commodity markets and prices for meat and live animals in major livestock and meat-producing countries.

JBS deal to grow trade

Despite all this, JBS SA, the world’s largest protein company and biggest exporter to China, says it does not expect the coronavirus outbreak to negatively impact China’s meat imports.

Chief executive Gilberto Tomazoni told Reuters last week that during China’s SARS outbreak in the 2000s, which could be a comparable situation, meat imports actually rose. His comments came after JBS moved to cement its status at the single largest protein supplier to China by announcing a partnership with China’s WH Group.

The linkup is aimed at increasing its supply of fresh beef, poultry and pork products to the Chinese market by up to US$713 million annually, says JBS. The companies signed a memorandum of understanding to offer JBS’s South American generated Friboi and Seara branded products in China.

The agreement will allow JBS to have direct access to Chinese consumers through WH Group’s 60,000 points of sales across the country.

China’s WH Group Ltd, the world’s largest pork producer after acquiring US-based Smithfield Foods in 2013 for US$4.7 billion.

JBS’s first shipments to China under this agreement will start in the first quarter of this year and it no doubt will be hoping that the coronavirus epidemic has been contained by then.

US meat and livestock industries feeling impact

The US meat and livestock industry has so far felt the impact of China’s disease event in several ways. It is too early to say by how much US pork and poultry exports to China have slowed. But the boom in pork exports from the middle of last year is likely to slow, at least temporarily.

US beef exports will not be affected as they have been at such a small level until now. But the solid increase that was expected to begin after the signing of the Phase One trade deal last month between the US and China has likely been put on hold for the time being.

The more direct impact for the US beef industry has been in the futures market. As the impact of the spread of the virus became more known last week, all live (grainfed) cattle contracts sold off heavily. The February contract lost 310 points Monday through Wednesday to close at US $121.75 per cwt, the April contract lost 407 points, the June contract lost 402 points and the August contract, 384 points.

This pushed cash live cattle prices lower last week. Most cattle sold US $2 per cwt live lower and US $3-4 lower dressed than the averages of the prior week.

Prices will go lower again in February for two reasons. The month is the weakest of the year for domestic US beef demand, as Americans turn to cheaper proteins as they pay off holiday bills.

The second is that there are ample supplies of US cattle that need to be moved aggressively.

The year began with a large number of cattle in all US feedlots. The January 1 Cattle on Feed total at 14.668 million head was up 2.1pc from the previous year and was the third highest number for the date. The total was up 300,000 head on a year ago.

So the US beef industry will be hoping the coronavirus event does not impact any of its major export markets in Asia.

 

 

 

 

 

 

 

 

 

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