Red meat's black swans - and why it's not all bad news

Red meat's black swans - and why it's not all bad news

Beef
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COVID-19 not the only influencer at play for beef, lamb.

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COVID-19 is not the only influencer at play in red meat at the moment.

Some of the industry's biggest stories ever are playing out in 2020 but despite how they appear on the cover, they won't all necessarily be nightmares.

This was the key message to be taken from market analyst Robert Herrmann in a webinar presented by Mecardo and Meridian Agriculture last week.

While nothing is predictable at the moment, the two prominent beef and sheep consultancies organised the event in a bid to provide producers with as much clarity as is possible on the marketing environment at the moment.

From the global protein gap as a result of African Swine Fever and how things are coming out in the wash following the first phase of the US-China trade deal to the unprecedented livestock supply and demand conditions at home on the back of rain, there is plenty of fuel for uncertainty in red meat at the moment.

"The negatives for red meat stemming from coronavirus are hard to quantify at this time but we do know a global recession is bad for consumption and logistics will be impacted," Mr Herrmann said.

"But we think there will be a real appetite to deal with these challenges and keep business and trade going."

The premiums Australian beef commands will be a problem, he believes. When people tighten their belts, they shift to low-value cuts and less restaurant activity will add further pressure.

"Wagyu will come under a lot of pressure in trying to preserve its premium," Mr Herrmann said.

"90CL (chemical lean grinding meat) and average cuts in our carcases will be favoured. This is already evidenced on our supermarket shelves."

Protein shortage

Over the top of all that, however, is the fact African Swine Fever is creating a worldwide protein shortage.

Of the 800m pigs in the world, China had 440m but by the end of this year that will be down to 240m.

ASF has impacted countries representing 94pc of the global pig herd.

In 2015 Chinese consumers ate 31.5kg per person of pork (in comparison Australian beef consumption is at 26kg per person).

Even after China ramps up what it can in terms of local production, there will be an expected deficit of 16m tonnes of protein - seven times the total Australian beef production.

The impact has already been seen with Australian beef exports up 86 per cent year-on-year.

Despite some softening in February, 2020 figures were still well above the five year trend, Mr Herrmann said.

"Demand for red meat was already developing in China prior to this. Chinese millennials are embracing western diets. They are the first generation to have serious spending power and there are 400m of them compared to the whole US population of 329m," he said.

"The vegan movement might be here but in other parts of the world, populations are introducing meat into traditional plant-based diets.

"ASF is really just petrol thrown on the fire of growing demand in China for Australian red meat."

Even if the United States is able to significantly increase their beef exports to China courtesy of improved trade deals, they are coming off a low base, Mr Herrmann said.

Australia makes up 20pc of China's beef imports against the US figure of less than 1pc.

Cattle prices

Meanwhile, restocking in Australia will continue because returns are good and the season has improved.

That will support prices.

"Any softening in processor appetite will be supported by cattle breeders holding cattle back to rebuild herds, or restockers looking to buy in and directing females to breeding programs," Mr Herrmann said.

The struggle for processors with supply and margins will likely mean more rationalising in that sector but Mecardo believes that will happen at a mid and lower tier level.

ALSO SEE: Beef price lifts not profiteering, say butchers

The story Red meat's black swans - and why it's not all bad news first appeared on Farm Online.

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