China meat market ‘as sick as it has ever been in ten years’

Jon Condon, November 10, 2022


EXPORT meat traders are describing the China market as being “as sick as it has ever been in ten years” this week, as the country battles the latest wave of COVID sickness across the country.

China’s severe ‘Zero COVID’ policy means large metropolitan centres and whole provinces are again in lockdown, or under severe restrictions.

Latest to join the list is the giant southern manufacturing city of Guangzhou, which has introduced partial lockdown anti-pandemic measures. Others currently hard-hit include  Zhengzhou, Chongqing and Beijing. Cases in Beijing have hit their highest level in more than five months.

The measures have sparked a rapid collapse in food service demand across China, where the overwhelming majority of imported beef and sheepmeat is sold.

The impact on demand and price is being seen across the full spectrum of beef and lamb trade, from cheap frozen secondary cuts through to premium Wagyu, Beef Central was told this morning by export traders dealing regularly with Chinese customers.

Credible reports have circulated this week of Australian Wagyu supply chains with heavy exposure to the China market exiting cattle on feed early, rather than risk being fully exposed to the China price collapse.

Despite China’s zero-COVID policies that result in travel restrictions and periodic lockdowns in metropolitan areas, China took 14,318 tonnes of Australian beef in October, making it our second largest customer for the month. Trade was down 4pc on the previous month, but the lag-factor in trading probably masked the full effect of the current problems, traders said this morning.

The nationwide COVID curbs were now crushing Chinese domestic consumption, economic commentators said this week.

“The result has been trading conditions (both price and volume) as bad as I have seen them in ten years into China,” a trade source told Beef Central this morning.

“It’s impacting both beef and lamb sales, and New Zealand is equally concerned,” he said.

He used beef navel-end briskets as an example of the current conditions. No Chinese ever bought navel end brisket to eat at home, he said – it was almost exclusively used in restaurants, street stalls and food service, finely sliced and cooked in a hotpot.

“The price of Australian navel-end briskets into China have halved,” he said. “They had been strong for six or more years, and prices have not varied that much up to now, but that has changed dramatically.”

Such is the love in China for navel end brisket that the premiums (spread) paid over other export customers like Japan and Korea have typically been as much as $3-$4/kg. That spread has virtually disappeared now, the trade source said.

Other cuts used in ramen or Taiwanese restaurants, for example were equally impacted, because many outlets were now closed due to COVID measures.

Stocks build-up

To add to the problems, stocks of beef and lamb on hand in China have built-up, as the COVID restrictions have escalated. Inventories are currently so high, given the rapid rate of import out of Brazil, Uruguay and elsewhere, that even if the market does again start to free-up, it would take some time to respond.

“It could be a slow-burn,” the trader said. “Even items like bones, used for soups are getting difficult to sell, which is highly unusual. We haven’t been able to attract a bid out of China for bones this week.”

China’s main ‘selling season’ between August and November was affected by a very long and hot summer this year, driving beef consumption down, one trader said.

“We thought by now (heading into northern hemisphere winter) business would have started to pick up, but it hasn’t happened.”

Wagyu trim prices have also fallen dramatically, with the big spread evident between customers in China and the rest of the world (for China-approved plants) now gone.

“China used to pay a spread of $1.50 to $2/kg on a 65CL Wagyu trim box – and that’s a lot on a fatty trim product. Now, much of that product is instead going into Japan, Korea or the US, because any premium for that item out of China has disappeared.”

“If that product is going to China, it’s now only because it is China eligible – not because there is any premium attached.”

Wagyu 65CL trim was quoted this week at A$6.20/kg, down from $7.70/kg earlier into China.

“For the same reason it is currently really, really hard at that upper end of the China market – chilled Wagyu for example,” the trader said. “China has been a key home for a lot of higher-end Wagyu over the past five years, but some supply chains in Australia have been forced to go to other markets due to China-eligible processing access issues – and they may be happy for that decision. There’s risk in putting too many eggs in one basket.”

Lamb also affected

Lamb prices into China have also tanked over the past six to eight weeks.

Boneless legs this morning were trading at less than $10/kg DCT – having been $14.50/kg only two months ago. Lamb shoulders that were $12/kg two months ago now have “a seven at the front of them,” a trade source said.

On many other cuts, lamb has dropped $3/kg into China, and it is a strong part of the explanation why lamb livestock prices have declined recently in Australia.

Unlike Australia, New Zealand has another ‘tier’ to fall back on in times like this, with better lamb sales access into Europe under tariff protection.

So how long does the current depressed state of the China market last?

“It depends on how long it takes to get on top of the COVID issues. But it’s China: it’s the greatest jungle on earth,” was the blunt response from one export trader this morning.

“There’s a lot of theories floating around. One is that lockdowns are being used in a secondary role for political purposes, in suppressing any dissent around the Premier’s re-election. Some believe China may soon start opening up, now that the election process is over. Early December is being tipped by some people.”

“But offsetting that, some are saying there’s a lot more COVID cases in China than what are being reported.”




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