Red meat exports to China remain strong due to swine fever

African swine fever remains the key driver impacting the global animal protein market, despite the effects of COVID-19 on demand, Rabobank’s latest African Swine Fever Update has shown.

And this is being borne out in Australia’s red meat exports to China, which remain strong, according to latest figures.

The Rabobank update said African swine fever was still the major influence on global pork markets, and it continued to impact pig herds and restrict pork production in China, Vietnam, the Philippines and parts of eastern Europe.

Despite Australia’s total red meat exports being down 16 per cent year-on-year in May, exports to China are down only four per cent – reflecting strong Chinese demand in the wake of African swine fever, despite disruptions due to COVID-19.

Rabobank senior proteins analyst, Angus Gidley-Baird said considering Australia’s reduced production, current export figures highlight China’s strong appetite for Australian protein.
“While exports into China are not quite at the levels they were at the end of last year – when African swine fever-driven pork shortages were driving strong Chinese demand and Australian production was much higher – they are close to levels seen at the start of 2019, which is a positive outcome for the domestic industry,” Gidley-Baird said.

China’s pork production is expected to decline by a further 15 to 20 per cent in 2020, while in Vietnam and the Philippines, declines are expected to be close to 10 per cent, prompting further import demand from these countries.

In China, Mr Gidley-Baird said, pork imports were expected to reach record levels, while imports of other animal protein types would also be strong.

“China’s pork import growth accelerated in the first four months of 2020, with meat imports up 180 per cent, year-on-year, and variety meat imports up 29 per cent year-on-year,” he said.

Rabobank maintained its view that China’s pork imports would reach a record level of about 3.5 million metric tonnes in 2020, with the majority of product supplied from the US, under the US/China ‘phase one’ trade deal.

However,  Gidley-Baird said imports for the rest of 2020 were still full of uncertainty, with disruptions to pork production and logistics in exporting countries, and movement in China’s domestic pork prices.

He said imports could ease through the current quarter, picking up again in quarter three and quarter four.

“But, COVID-19 and slower economic conditions aside, the protein gap created by African swine fever provides a strong demand force that will help support prices for Australian red meat exports for the remainder of 2020,” Gidley-Baird said

“African swine fever will continue to underpin Chinese demand for Australian sheep and beef exports, as consumers look to substitute pork with alternative protein options.”

Swine fever helps keep red meat prices high

The value of Australian agricultural production is forecast to remain high despite bushfires and prolonged drought, with overseas demand balancing drought-related falls in farm output and incomes.

ABARES’ chief commodity analyst Peter Gooday said the value of farm production in fiscal 2019-20 was expected to fall slightly to $59 billion, down on the previous year’s $62 billion and above the 10-year average due to higher prices for livestock and some other agricultural commodities.

“Widespread bushfires over the 2019–20 summer are not expected to have had a significant impact on the agricultural sector on the whole,” said Gooday, launching the latest Agricultural Commodities report at the ABARES Outlook 2020 conference in Canberra.

“The bushfires and smoke impacts in some areas were locally devastating. The majority of Australia’s agricultural production and exports, however, takes place outside the affected areas.”

This year, Gooday said, was another drought impacted one, with many regions having experienced their driest 12 months on record, even as others – particularly in Victoria — saw improved conditions, making for an uneven national outlook.

“Farm production and average farm incomes are estimated to have fallen for a second straight year in drought regions, with incomes for all broadacre farms projected to fall 8 per cent to $153,000 per farm in 2019–20 – around 4 per cent below the 10-year average,” he said.

“In NSW we are expecting farm cash incomes to be close to zero this year. As bad as things have been at a state level in the last 20 years – and some regions are substantially worse than the average.”

“For dairy farmers, average farm cash incomes nationally should increase from $120,100 per farm in 2018–19 to $165,000 per farm in 2019–20, with modest improvement for around 73 per cent of Australian dairy farms due mainly to higher farm gate milk prices.

“Those gains come from comparatively low levels in Queensland, parts of Victoria and New South Wales, and drought-related falls in milk production plus high feed and irrigation costs are constraining improvement.

“Meat and livestock prices have stayed high as African swine fever (ASF) has decimated China’s swineherds, driving red meat prices up and requiring Chinese consumers to look elsewhere. Without those good prices, this year would look a lot worse.

“Livestock prices medium-term are expected to soften but remain high, although coronavirus poses a significant risk as Chinese demand for agricultural products has declined under restrictions put in place to contain the outbreak, particularly for items like seafood and wine.

Gooday said that in 2019–20 Australia would have the lowest number of beef cattle since 1990 and lowest sheep flock since 1904, with production 12 per cent lower than five years ago.

“Over the medium term to 2024–25, a gradual recovery in the production of livestock and livestock products is expected to follow herd and flock rebuilding, although recovery will take several years and livestock related production in 2024–25 will still be 8% below the 2014–15 peak,” he said.

“The value of Australia’s agricultural exports overall is forecast to fall by 11% to $43 billion in 2019-20, which in real terms is 16% below the record value of exports in 2016–17, reflecting 3 consecutive annual falls in crop exports.

“We can expect grains and oilseeds exports to rebound quickly, but livestock numbers will take some time to recover and for cotton the speed of recovery will depend on how quickly irrigation storages are replenished.”

“The signing of phase one of a trade deal between the United States and China is a welcome sign of easing tensions. But the deal contains some very ambitious targets for agricultural imports, and the implications of that for Australian agriculture are not yet clear.