COVID-19: impacts on markets 17 July

The unprecedented and unpredictable nature of COVID-19 makes it very difficult to report on the complete range of impacts to Australian red meat and livestock industry in an accurate and timely manner. In recent weeks there have been a number of localised spikes in infection in global markets where new cases had dropped to almost zero, including Australia, Korea and China, highlighting the risk of a second wave. As impacts are still felt globally and social distancing restrictions remain, this will continue to disrupt the consumption of Australian red meat, both domestically and internationally.

Here’s a summary of some consistent impacts seen in global markets:

Consumer demand

Concerns about financial security, the impact of COVID-19 on the economy and increasing pressure on household budgets have been the key drivers behind consumption and changes in purchasing behaviour for Australians.

More than two in five consumers globally are spending more time cooking and preparing food at home. While approaches to recipe and cuisine experimentation vary, familiarity remains key at this time.

MLA recently commissioned consumer research in China which confirms that consumers in a crisis gravitate to brands they trust. Australian beef and lamb have gained that trust over decades of combined industry efforts.

Foodservice sales

There has been a significant drop in sales at foodservice in most global markets, creating carcase imbalances. Typically, higher value loin cuts make their way into foodservice, balancing out the overall value of the carcase for Australian processors. With loin sales down, it will remain a constant challenge for the industry to move the entire carcase while minimising the impact to overall value of the carcase.

Globally, operators in the foodservice sector that have been able to pivot to focus on takeaway or delivery models have been able to weather the COVID-19 storm more successfully, as consumers continue to pursue convenience.

Retail sales

As foodservice channels slow, demand for meat through retail, particularly online, has lifted, as more consumers are forced to eat more meals at home. Domestic market retail value growth is over 20% for the twelve weeks leading up to 19 April, with more than 130,000 new households purchasing beef. Although sales have slowed after the March peak due to ‘panic buying’, they remain above year-ago levels, with May sales 14.4% higher than the same month last year.

Demand has been strongest for staple items such as mince and sausages, which were key contributors to recent spikes in fresh meat sales in the domestic market.

A shift to ‘localism’ has also occurred as more Australians are buying food and drinks from local businesses out of convenience and to ‘support local’. This has contributed to domestic butcher sales surging by about 39% for beef during the twelve weeks leading up to 19 April.

There are some early signs that consumer behaviour may change across areas such as:

  • Increased channel share for online grocery, as changed channel behaviour potentially sticks
  • Increased focus on quality & safety, as consumers seek out trusted products
  • Price sensitivity, as consumers have potentially restricted household and disposable income
  • Preference for cooking at home, as social distancing measures continue

Adaption will be key to overcome implications created by these shifts.

Competitors

Global competitor supplies have slowed due to COVID-19, as outbreaks and distancing restrictions lead to a drop in processing speeds and, in some cases, temporary plant closures. The impact on supply chains now means global beef production is now forecast to decline 1% in 2020, with further implications likely to carry through over the coming years.

Inconsistent supply and shifting demand from international markets is likely to see the global competitive landscape remain unpredictable for months to come.

In the US, the processing situation has rapidly improved, with cattle slaughter now above year-ago levels. The unpredicted speed of this recovery will likely create implications for Australian and global markets as the US returns as a prominent competitor. There are still some challenges, however, with processors facing a large backlog of overfed cattle still on feed and on pasture.

Cattle slaughter in New Zealand has improved with North Island processing capacity back to normal and South Island slowly catching up. New Zealand has now ‘rid’ itself of COVID-19 and removed all lockdown measures except quarantine for international arrivals. The outlook for the rest of 2019-20 season is positive for NZ, with strong international demand for red meat led by China.

Brazilian red meat processing is back 11% for the calendar year-to-May, a primary result of a three-year herd liquidation. The impact of COVID-19 has not yet mirrored that seen in the US, with the meat and poultry industry operating without significant disruptions, though this could change rapidly if the virus spreads further. Given a weak domestic market and soft value of the Real, Brazil is depending on exports to sustain its meat industry.

Slaughter in Argentina lifted by 6% relative to 2019 for the calendar year-to-April, with beef exports up 20% over the same period in 2019. Argentina remains very competitive on the global market due to its weak currency.

Indian slaughterhouses have experienced heavy disruptions due to COVID-19, with livestock movements stopping since the lockdown commenced. India has leaned on exporting frozen buffalo meat primarily pulled from cold stores during this time.

Australian red meat exports

Australian beef exports are now down 3% for the calendar year-to-June, with this gap likely to widen in the coming months. Mutton and lamb exports have also declined 19% and 12% respectively in the calendar year-to-date on the back of tighter supply.

Growing export prices pushed the value of Australian red meat exports up by 20% year-on-year in the first quarter of 2020. This has been driven by rising livestock prices triggered by recent rainfall that has increased restocker demand and tightened supply, as well as favourable exchange rate movements in the first few months of the year.

Some beef offal prices have improved, as offshore demand for lower value red meat products remains strong, however more premium offal products such as tongue and thick skirt have failed to find support. Hide prices remain flat as suppliers wait on end markets and tanneries to reopen.

Although China recently temporarily suspended beef exports from four Australian processing plants, it still remains a key market for Australian red meat. Beef exports to China continue to fluctuate, down 25% on June 2019 levels. With a large and growing affluent customer base and significant protein deficit due to African Swine Fever, Australian beef is well-positioned to benefit given its brand recognition for reliability and safety. China was the top destination for lamb exports in June, taking 6,300 tonnes swt, up 2% for the calendar year-to-date.

Beef exports to the US were up 30% in June compared to the same month last year as US customers sought to import more beef due to the decline in domestic production. However, beef exports for the calendar year-to-June were down 7%, which is mostly be attributed to slowing foodservice demand due to COVID-19. US export volumes are set to slow as beef production in the US ramps up on the back of their rapid recovery. Mutton exports to the US were strong in June, tracking 26% above year-ago levels.

Exports to Japan remained steady in June remain solid at 138,000 tonnes swt for the calendar year-to-June as it remains Australia’s top beef destination for the year so far.

Several Middle East and North African (MENA) countries are experiencing economic uncertainty driven by COVID-19 and low oil prices. This has softened demand for sheepmeat, particularly in foodservice channels, with retail only partly able to offset the lower demand. Year-to-June sheepmeat export volumes to the UAE and Kuwait have dropped 16% and 36% on year-ago levels respectively, while Qatar is back 5%. There have been extensions to product shelf life that will provide opportunities for a greater degree of chilled primal sea-freight into some channels in the future. The speed at which air travel and air freight resumes in the second half of 2020 will be a key determinant in the success of carcase markets.

Korea has appeared as a potential new market for Australian tenderloin cuts. Already Australia’s fourth largest beef export market, Korea’s rapid response to containing COVID-19 and rebuilding its economy has presented the opportunity to introduce high-value cuts to consumers. June beef exports to Korea surpassed 15,000 tonnes swt, the highest volume since 2018.

Beef loin exports are on par with 2019 levels for the calendar year-to-June, but China, the US and Korea took an increased share of the market, while exports to Japan, Australia’s largest loin market, have dropped. A decline in grassfed loins by 6% and an increase in grainfed volumes by 9% have contributed to this market shift, as well as varied levels of foodservice and retail demand.

Goatmeat exports are down due to subdued demand from overseas markets such as the US. Trade disruptions and demand from foodservice channels have placed downward pressure on prices. For the calendar year-to-June, goatmeat exports are down 33% to 6,583 swt.

Eleven of Australia’s top fifteen most valuable red meat export markets are expected to enter recession in 2020, creating a range of factors that are expected to impact red meat sales.

Australian livestock exports

Cattle exports in June totalled 124,000 head, with year-to-date cattle exports now back just 1% on 2019 levels, while sheep exports are now down 17% on 2019 levels.

Australian’s largest cattle export market, Indonesia, has been hit by a significant decline in beef demand, resulting in importers being more cautious about buying cattle in large numbers. . For the calendar year-to-June, live exports to Indonesia were 254,000 head, back 16% on the same time last year.

Shipments to Australia’s second largest cattle export market, Vietnam for the calendar year-to-June were up 39% on year-ago levels, totalling 166,500 head. Australian beef exports to Vietnam were subdued through April and May, which has created an opportunity for locally processed beef to fill the supply gap, hence the lift in imported cattle in the past two months.

After a very slow January and February, Australian live sheep exports picked up substantially in March and remained strong in April. However, in the calendar year-to-June, exports are 17% back on 2019 numbers.

For the calendar year-to-June, live sheep exports to MENA are down 13% from 2019 levels, with the downturn in foodservice demand being a key influence in the decline. Yet, live sheep exports remain a key pathway for the Middle East, as chilled carcase air-freight exports continue to be impacted by COVID-19 travel bans.

Demand for live goats has been curtailed due to COVID-19 restrictions in Malaysia, which is Australia’s largest live goat export market.

Australian livestock markets

Online livestock sales have risen, saleyards have adjusted to video streaming sales and implemented strict entry protocols to conform with social distancing requirements.

Domestic cattle prices have found support in tighter supply numbers and continued restocker and processor competition. The Eastern Young Cattle Indicator (EYCI) is now sitting at 745¢/kg, a 27¢ decline since the 17 June peak of 772¢/kg, but still up 227¢ on 2019 levels.. Widespread rainfall, which also supports heightened restocker demand, has also triggered a decline in cattle on feed numbers from record highs.

MLA has recently released revised cattle projections for 2020, which are forecasting a further tightening of supply as improved conditions help initiate a national herd rebuild.

Sheep and lamb prices have also been supported by a winter contraction. Lamb production is forecast to fall according to the latest Sheep Industry Projections from MLA, as restocker demand supports a recovery of the national flock.

Nationally, goat slaughter is back 24% for the calendar year-to-April compared to year-ago levels, at 410,000 head. Goat over-the-hooks indicators were also reported at their lowest level since April 2019, even though goat supplies remain well below year-ago levels.

From 3 June, MLA’s full suite of market reporting returned – including the cattle and sheep indicators – after being suspended since March due to COVID-19 disruptions to market reporting.

Impacts on MLA’s marketing activities

MLA staff remain in constant contact with trade partners to gauge market impacts and are looking to implement a number of surveys to gauge potential impacts of COVID-19 on consumer behaviours and attitudes, feeding adjustments to marketing activities.

MLA’s marketing programs are being adapted to a ‘lockdown and adaption’ phase that has seen a shift to meals consumed at home. MLA’s consumer marketing objectives in this phase aim to mitigate food safety risks through correct storage of beef and lamb products, ensure the availability of practical cooking information with a focus on high value cuts and emphasise the nutritional value of red meat as part of healthy meals.

Despite the global disruptions caused by COVID-19, MLA is committed to delivering marketing communications via digital platforms – see how MLA’s Simply Spring campaign in the US has been modified to leverage digital platforms. MLA is also exploring ways to deliver business development activities using digital formats such as webinars.

MLA is working closely with the Australian Olympic Committee and Paralympics Australia regarding the Australian Beef partnerships to align them with the new Games period. MLA intends to retain its Olympian and Paralympian Australian Beef Ambassadors and will continue to use these Ambassadors across 2020 and 2021 activities.

Impacts on MLA’s research, development and adoption activities

MLA has been able to progress many of its research, development and adoption activities as intended. However, in some instances MLA has been required to make some adjustments to project milestones and timelines. Travel restrictions have caused the most disruption where MLA and researchers have been prevented access to certain locations where projects are – and projects with international partners have been especially impacted.

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