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Insights April 2020

6 April 2020 |Sheep & lambs
Sheep

Insights April 2020

6 April 2020 |Sheep & lambs
The Coronavirus pandemic (COVID-19) is profoundly changing the domestic and international landscape. This edition of the Rural Bank Insights Update aims to provide a summary of Coronavirus’ impact on Australian agriculture as it stands today.

The report specifically addresses your questions around input supplies, underlying demand for food and fibre, and the impact on the supply chain across the commodity segments.

Overview

  • Reduced food service demand locally and globally will weigh on the medium term outlook for red meat.
  • Uncertainty about domestic market operations, and ongoing export demand are weighing on local sheep and cattle
    values.
  • Domestic factors, including seasonal conditions, should be mitigating factors, once concern about market
    operations ease.
  • African Swine Fever continues to drive a gap in global protein supply and should provide ongoing support for
    Australian red meat exports.

Key Markets

China

  • China was home to 25 per cent of Australia’s beef exports, and 36 per cent of sheep meat exports in 2019.
  • Australian red meat exports to China are expected to decline in response to weak demand in the foodservice
    sector, which accounts for more than half of Australian red meat exports to China.
  • China’s demand remains dependent on imported proteins to fill the gap created in local supply by the ongoing
    spread of African Swine Fever. This is expected to be more pronounced later in the year when the food service
    sector recovers.

Japan

  • 22 per cent of Australia’s beef was exported to Japan in 2019, and food service accounts for an estimated 70%
    of Australian beef exports to Japan.
  • The decline in food service activity could temporarily weaken demand for beef imports from Australia. The extent
    of the impact on Australia’s beef industry will be dependent upon how quickly Japan can recover.

South Korea

  • South Korea accounted for 13 per cent of Australia’s beef exports in 2019. This trade is expected to be
    relatively unaffected by Coronavirus.
  • A slowdown in food service in South Korea may temporarily weaken demand for beef imports from Australia,
    however overall South Korea is widely accepted as having managed the local outbreak of Coronavirus better
    than many countries, this should limit the impact within the South Korean economy.

United States

  • The United States represented 20 per cent of Australia’s beef exports, and 15 per cent of sheep meat exports in
    2019.
  • A localised spike in retail demand for ground beef in local US markets has added some support to imported lean
    beef prices, but this is expected to be short-lived as buying returns closer to normal within a month.
  • A large proportion of Australian beef exports to the US are frozen beef used for burgers in food service
    channels. Reduced demand in food service in the US will temporarily weaken demand for beef imports.
  • Lamb exports to the US are highly susceptible to reduced demand in food service as this channel accounts for
    60% of imports from Australia. There is generally low familiarity with cooking lamb at home.
  • Lower foodservice demand for beef could see the US divert some product to Japan and South Korea, adding
    extra competition to Australian exports.

Middle East

  • The Middle East accounted for 19 per cent of Australian sheep meat exports in 2019.
  • Chilled lamb carcases accounted for 46 per cent of sheep meat exports to the Middle East in 2019. These
    carcasses are typically transported via air freight, taking advantage of the expansion of air-traffic through this
    region in the last decade. The grounding of passenger flights in recent weeks has significantly reduced viable air
    freight availability to service this market.

     

Source: Meat and livestock Australia
*cattle saleyard indicators replaced with MLA Cattle Market Price Indicators (CV19) from 25/3/20

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