Derrell Peel, Oklahoma State University agricultural economist, had a message for cattlemen at the 2020 Kansas State University Cattlemen’s Day, March 6. There are many outside global influences that have the potential to affect their markets for cattle and beef. But China is a key factor that presents opportunities and challenges.
“The global beef markets are changing very rapidly and for the last five years the change we’re seeing, the key, sort of center to that really is China,” Peel said. “It’s been increasing beef imports very rapidly and it’s come to dominate the global beef flows.” Peel showed that globally China is the second highest consumer of beef, and the No. 4 producer of beef.
Part of China’s beef consumption rise is the protein deficit in the country due to African swine fever decimating the Chinese swine herds, which plays into beef and poultry demand from other countries, like Brazil, he said. Prior to 2013, China wasn’t really a factor in beef trade because consumption stayed on pace with domestic production, Peel told producers.
“China at one point accounted for 45 to 48% of all the pork in the world,” he said. “At last estimate, China’s down 50% of its hogs through death or depopulation due to ASF.” The difference of protein source is an opportunity for U.S. pork producers and for beef producers to fill in 2020. That is, Peel said, if U.S. producers can compete with South America, Australia and New Zealand for China’s plates.
But most recently, the COVID-19 impact in the country’s labor supply has started to be felt in the beef supply chain.
“Coronavirus caused enormous problems in China initially, but now we’re seeing logistics issues,” Peel explained. “We’re not really sure how it’s going to play out in terms of the macro economy around the world.” He explained that when China first announced it was battling the novel coronavirus, what we now refer to as COVID-19, the country was aggressive in shutting down movement of the public, and that meant that no one was working the ports.
“Ports were empty, they couldn’t receive product, so cold storage shipments backed up because there was no place to plug in and keep them cold,” Peel explained. “They were turning away shiploads of product. Factories were shut down too, and the U.S. relies on China for a lot of ingredients for chemicals and fertilizer, so we saw disruptions in the chain and the ripple effects of coronavirus.” As the virus migrates around the world, as a human health issue, governments and businesses are going to have to figure out how to deal with people getting sick and the disruption to travel and tourism is also going to have an affect on not just the global economy, but also beef demand and pricing, he added.
Of course, cattlemen aren’t completely unused to disruptions in the beef supply chain. The 2019 fire at the Tyson Fresh Meats plant in Holcomb, Kansas, showed that there are always going to be challenges to the chain that are beyond cattlemen’s control. With the plant back online and we now have new inventory numbers. Peel said cattle numbers have peaked. So there’s a more stable supply going forward so that challenge to packing capacity is past, but no one can predict the future.
“If something were to happen, that would cause another problem because the chain is still vulnerable,” Peel cautioned. “The COVID-19 is a different kind of a ‘black swan’ compared to the Holcombe fire or even BSE in 2003. Those were specific events and they happened and then we could pretty quickly assess a timeline for recovery. Coronavirus is a much different deal. It’s still evolving. We don’t know where it peaks out, when it peaks out, we don’t know how long it’ll be when it peaks out to recovery.” Cattle markets have taken a big hit because of this, stock market, futures markets and ultimately cash markets too, he said.
There’s no quick fix to that, no news that would come out in the next week or two that would definitively fix that, Peel cautioned. That’s what makes the COVID-19 a different kind of challenge to the economy.
The macro uncertainty is affecting the stock markets, Peel said, and economists are used to seeing money move from one place to another when there’s a global challenge, but it “doesn’t just pull its horns in,” Peel said. “And that’s what we’re seeing here.”
Elsewhere, Australian wildfires drastically affected the country’s cattle region and recent numbers show that cattle inventory is down 29 million head, which translates to drastic drops in beef production and a sharp drop in its overall exports of 20% in 2020. There is hope, though, Peel said. The supply and demand is in pretty good balance for U.S. producers from a large standpoint. We see growing Japanese and South Korean markets, and high value markets for U.S. beef. And even if U.S. producers only get 2 to 5% of China’s markets, that’s a really big deal, he added.
“That’s growth that we haven’t seen in a long time,” he said. And that’s growth in cuts that we may discount here but that have value there because of their traditional cooking methods.
It’s just external factors that are playing the markets, Peel said. He advised cattlemen to stay nimble as they can, don’t make drastic changes at this point, and be prepared to spend more time on defense than offense as we move forward.
Jennifer M. Latzke can be reached at 620-227-1807 or email@example.com.