Positive signs for the Australian beef industry in 2023
Rabobank reports that the recent removal of COVID restrictions in China opens opportunities for Australian exporters to tap into changes in Chinese beef consumption. In its Q1 Global Beef Quarterly, the bank says that China’s reopening will not only offer business opportunities for beef exporters, but also generate volatility in the global market.
The bank expects overall Chinese household consumption to rebound strongly from the low base of 2022, leading a slow rise in the demand for beef. This may support increased trade from Australia as Australian beef supply lifts and prices ease while beef production declines in the US, a key supplier to the Chinese market.
With ongoing COVID restrictions weighing on consumption, the report said that in 2022, Chinese food and beverage retail sales saw marginal growth and foodservice took a big hit. Signs of recovery are, however, emerging, according to the report. A week-long spring festival in late January saw retail and food sales rise 6.8% year on year.
A surge in savings by Chinese consumers and an increase of Chinese Yuan (CNY) — 17.8 trillion in 2022 compared with 9.9 trillion in 2021 — is perceived as fuel for economic growth; however, the bank holds a cautious view about whether this would lead to increased spending as consumer and business confidence may need time to recover.
For food and agriculture sectors, Rabobank believes the changes in Chinese purchase and consumption patterns, which should have long-term implications for the supply side, are more important as spending becomes more pragmatic.
Angus Gidley-Baird, Rabobank senior animal protein analyst, said weaker economic conditions would have some impact on beef consumption in lower-income groups, which tend to trade down. This, however, may not be the case for other consumer groups who view beef as a tastier and healthier eating experience compared to traditional meats.
Younger generations, middle- to high-income families and health-conscious people in China are increasing the frequency of their beef consumption. Market segmentation here will see beef experience both trading up and down, leading to a gradual increase in high-quality beef consumption, though total consumption may increase more slowly.
China beef market undergoing significant changes
The report found that the development of China’s beef market is also influenced by evolving market channels and consumer behaviour. Though foodservice has previously been the main channel for beef consumption, the bank now sees rising beef sales in retail channels.
The report says this trend is supported by the growth of tech cookers and portable ovens. Beef retail sales are expected to maintain this rapid growth supported by new retail modes such as O2O (online to offline) and community group-buying. Foodservice will remain the major channel, however.
Another trend is the pre-prepared dish market, which is rapidly growing. This trend has achieved high double-digit growth in the last two years and is expected to continue in the coming five years, though at a slower rate.
Rabobank believes beef consumption in China will continue to rise, and beef market size will steadily expand in the coming years despite the headwinds in the overall economy.
A slowdown in beef imports in 1H 2023 is expected because the high inventory of frozen beef in China will require months to consume. This will impact total import volumes in 2023, which may be flat or slightly higher than 2022 (which had a 15% increase).
Ripple effects for global beef trade
With higher Brazilian beef supply expected this year, China should remain the main export destination for the world’s beef production. However, Rabobank expects that average Chinese import prices in 2023 will be lower than 2022 to accommodate the increase in volumes. The flow in the first half of 2023 will also be affected by the temporary suspension of Brazil’s exports to China due to an atypical BSE (bovine spongiform encephalopathy) case.
For the United States, China became a top three beef export destination in 2022, but growth in export volumes slowed throughout the year. The US will face continued headwinds into China over the medium-term, as US supplies decline and prices increase.
This decline in US volumes should support increased trade from Australia as its volumes lift and prices ease, further strengthened by an increase in the demand for chilled product and the growth in China’s retail sales of beef.
In Australia, cattle prices have levelled out after dropping in late 2022, according to the report.
Gidley-Baird said the Australian cattle market took a steep turn downwards in late 2022, but stable prices since the start of 2023 have suggested that the market has found a new equilibrium.
“We believe current prices are more sustainable — providing more favourable returns for feedlots and processors — and that they will continue to track around current levels for the first half of 2023,” Gidley-Baird said.
Good rainfall in Queensland in January and February will help support restocking activity in the state and should support younger cattle prices.
Production volumes are also starting to show signs of recovery, with slaughter volumes increasing in late 2022.
“At these higher rates — and with the potential of more cattle coming online — processing capacity could be tested. Limitations with labour availability continue to impact the processing sector and resolving these problems is not a short-term matter,” Gidley-Baird said.
This increased production may lead to a rise in export volumes, even though the market may already be saturated with product.
“The indications that US production and exports are starting to decline will be welcome news, but there remain a few months when congested supply chains may cause softness in prices or build-up of stocks. Encouraging signs of a recovery in China are positive, but we will just have to wait to see how much additional volume China takes,” he said.
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