Analyst Intel

10 September 2021

ANALYST INTEL | Limited beef supplies to China

Two atypical cases of bovine spongiform encephalitis (BSE), or mad cow disease, have been detected at separate locations in Brazil. In accordance with existing China policy, Brazil put an immediate halt on beef exports to China.

Atypical BSE describes a case which develops in cattle sporadically, rather than by consuming infected animal matter and affects all cattle populations at a very low rate. Brazil reported atypical cases in 2012, 2014 and 2019. In 2019, the ban on exports to China lasted 13 days. 

It is still too early to know when trade will resume this time around but given China’s limited options for suppliers to fill the gap, it’s expected the ban will be as short as possible. 

In 2019, the make-up of China beef imports was like 2021. The top five suppliers in 2019 were (in order): Brazil, Argentina, Australia, Uruguay and New Zealand. In the year to July 2021, the order has been reshuffled, but the key players remain Brazil, Argentina, Uruguay, NZ and Australia.

The outbreak of African swine fever has increased China’s reliance on beef imports. Compared to the same period in 2019, year-to-July imports increased by 474,117 tonnes to 1.3 million tonnes, including 503,000t of Brazilian beef. This is a lift of 323,200t compared to 2019. 

There aren’t many alternative markets available to plug a long-term supply gap left by Brazil. NZ exporters are not able to step up, given September cattle processing is weak before capacity and numbers lift through October and November. Based on the five-year average, 105,800hd of cattle are processed in NZ in September, 149% below November processing. 

Australia-China trade relations remain sour. Australia’s share of China’s beef supply has reduced from 18% in the year-to-July 2019 to 6% in 2021, a reduction of 41,855t. 

Even if China let hostilities with Australia lapse for the sake of beef supplies, Australia does not have the volume to deliver. In August, Australian chilled and frozen beef exports slumped to 77,150t, the lowest in-month export volume recorded over the past decade. This aligns with weak Australian slaughter rates. From June 8 to September 1, Eastern States beef slaughter rates were 27% below the five-year average.

A similar situation exists with Argentina, which was China’s second biggest supplier in the year-to-July. As of July, China has imported 297,500t of Argentinian beef, a 111,900t lift on 2019 volumes. However, to stop domestic meat prices inflating, the Argentine government has extended its export ban to the end of October. This ban stipulates Argentina can only export half of its 2020 volumes, with a total ban on specific cuts. So, at most, Argentina can only supply China with 46,016t of beef over September-October. This is a drop in the bucket compared to the 155,309t Brazil supplied over September-October 2020. 

There may be some opportunity in the US, which is China’s sixth biggest beef supplier this year. Hefty cattle kill due to severe drought, paired with strong export demand, has seen supply to China lift by nearly tenfold year-on-year in July. This July, the US exported 16,670t of beef to China, with an export value of US$144 million, $132mup on year-ago exports. So, the US may be incentivised to dig deeper into domestic inventories to supply a strong market.

Sarah Friel