Kay’s Cuts: The cruelty of coronavirus

Steve Kay, 05/03/2020

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






THE start of the new decade held a lot of promise, whether it was for the global economy or prospects of an even bigger trade with China for food and agricultural producers around the globe.

Within months, much of that promise has been cruelly shattered, at least temporarily, by a new coronavirus (COVID-19) that emerged in central China.

The rest of the world watched with bated breath as China for several weeks battled to contain the virus’s spread. But it ignored geographic boundaries and eventually made its way to every continent except Antarctica.

As of yesterday, there were more than 95,000 cases in 75 countries and territories and more than 3200 deaths. Australia had 33 cases and one death. These numbers are expected to keep rising as a global epidemic is on the verge of becoming a pandemic.

The 3000 deaths are of course the tragic face of the epidemic. But the spread of coronavirus far from its origins in China is also causing economic stress in many countries. It has caused huge disruptions to peoples’ lives in the countries with the most cases, which has impacted everything from restaurant sales to planned gatherings. France has even closed the famous Louvre museum.

Markets pummeled

The virus has also pummeled the global equities and commodity markets as investors react to ever-worsening economic fallout, as trade and supply chains have already been severely disrupted. The damage has already been staggering. The global equities market last week lost $6 trillion in value, with the US stock market losing more than half of that. The week, at least in the US, was the worst for stocks since October 2008.

The US sells very little beef to China. But its beef industry has already lost millions of dollars because of sharply lower US cattle prices. A colossal decline last Monday and Tuesday in the US stock market inflicted severe damage on live (grainfed) cattle cash and futures prices.

Futures prices tumbled in the two days. The February contract lost 469 points to close at US$115.02 per cwt Tuesday and the April contract lost 530 points to close at US$112.95 per cwt. This forced cattle feeders to accept sharply lower cash prices than the week before.

Ironically, the futures’ collapse also improved the basis between cash and futures prices for those with hedged cattle, which encouraged them to sell. Wednesday, Thursday and Friday saw further considerable erosion in the nearby futures contracts. April ended up losing 538 points in the five days to close Friday at US$107.57 per cwt and June lost 460 points to close at US$101.20 per cwt.

The coronavirus-induced collapse meant cash live prices were down nearly US$5 per cwt from the average of the prior week. Dressed prices were down more than US$5 per cwt. The cruel irony of the collapse was that it was caused by external forces out of cattle feeders’ control, and came after prices the week before last had at last stabilised after a three-week decline.

Chinese consumption

The big question now for the beef industries in the US, Australia, New Zealand and other exporting countries is how the virus’s economic impact will affect beef consumption in China, across Asia and in other continents. And will the crisis trigger a global recession, which would further impact beef demand?

Moody’s Analytics predicted last Wednesday that a global recession is likely if the infection becomes a pandemic, an outcome the US financial analysis firm called ‘uncomfortably probable.’

The coronavirus has been a body blow to the Chinese economy, which now threatens to take out the entire global economy, says Moody’s chief economist Mark Zandi.

What occurs in China will be pivotal as it dramatically increased its beef imports last year not just from Australia, but from Brazil, Argentina and New Zealand. Brazil’s exports to China fell just shy of 500,000 tonnes up 54pc on 2018, and accounted for 32pc of all Brazilian exports in 2019, says Meat & Livestock Australia. Hong Kong and Egypt were the other major markets for Brazil, taking 225,000t and 153,000t, respectively.

Argentina’s competitive export position has improved dramatically, says MLA. This drew product away from the domestic market and has lifted total beef export volumes radically in the last two years. Its total beef exports rose 54pc last year.

Argentina made the most of strong demand in China, where beef exports rose 106pc year-on-year to reach 425,000t. Just over three quarters of all Argentine beef exports went to China in 2019, says MLA. Beef exports from New Zealand rose 6pc in 2019, finishing the year at 458,000t.

Export value assessment

A final note on exports. Australia was the world’s most valuable beef exporter in 2019, with total exports generating A$10.8 billion (US$7.5 billion). This figure from MLA appears to be based on exports of beef products (muscle meat), but not beef variety meat (edible offals, including head-meat). If they are included, the US was the largest value exporter in 2019, with a total of US$8.14 billion. Excluding them, US exports totaled US$7.127 billion. The US exported US$973m worth of variety meat last year, a total far above the value of Australian variety meat exports.






Your email address will not be published. Required fields are marked *

Your comment will not appear until it has been moderated.
Contributions that contravene our Comments Policy will not be published.


Get Beef Central's news headlines emailed to you -