Saturday, March 30, 2024

MEATY MATTERS: Meat exports hold up despite covid-19

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Against a very uncertain economic background caused directly by the outbreak of covid-19 coronavirus one thing remains certain – the Chinese population must still have food to eat and their government has to make sure they can get it, though the purchase channels might have changed.
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Consequently, it appears some importers are prepared to place large orders for prompt delivery though port congestion, particularly at the larger ports like Shanghai and Tianjin, poses real problems for shipping schedules. Logistics problems have resulted in shipping companies applying a surcharge to China shipments while insurers are not prepared to cover non-arrival of consignments. These factors must reflect in schedules.

Exporters are cautiously optimistic business is gradually returning to normal after the extended Chinese New Year though their optimism is clearly tempered by a lack of knowledge about the time before the virus threat can be considered under control.

Affco chief executive Nigel Stevens says the company is taking a measured approach and, in the short term, some product has had to be diverted to alternative markets at a lower price than previously paid by China or has incurred further processing or storage costs. 

But the underlying protein shortage in China underpins consumer demand and prices have stabilised somewhat after the sizable pre-Christmas fall. 

Alliance chairman Murray Taggart says there has been a significant decline in sales through food service offset by a lift in retail and e-commerce but product is moving and being paid for. 

With its Chinese partner Grand Farms, Alliance decided late last year to divert shipments to smaller, less congested ports with the positive result no delays have been experienced. Apart from the impact of floods on its Southland supplier base the co-operative’s China situation means Taggart is, in his own words, feeling pretty good about life.

Silver Fern Farms and Anzco each report a similar pattern. Both companies see continuing strong demand for product but an inevitable delay before trade returns to normal. 

None of these four major exporters has any concern about the longer-term effect on beef and sheep meat prices, which have settled at a sustainable level still considerably better than the historical average. Since the early December peak prime beef has dropped from about $6.30/kg to a still acceptable $4.90 while lamb has fallen from the stratospheric heights of $9 to a more realistic $7.10. 

Schedules reflect many different factors including exchange rates, product destinations, carcase cuts, processing and distribution costs and seasonal livestock flows. 

Meat processors, not surprisingly, take the opportunity to reduce livestock premiums when plants are full. Exporters spoken to say their plants are running at full speed with overtime and Saturday shifts to handle suppliers’ need for space so in time schedules are likely to respond positively to a slowdown in throughput, market demand and exchange rate movements.

This particular combination of factors – Chinese New Year, covid-19, drought in much of the country, floods in the far south and seasonal peak kills coming early – has put a lot of pressure on meat processors’ operational and logistics planning. 

SFF has worked hard to manage its market mix, storage and operations to achieve optimal production flows so it can handle its suppliers’ processing demands. At this point its North Island beef and sheep meat plants are running ahead of last year’s volumes while SFF’s South Island beef plants have been working overtime since September. 

Frozen storage capacity is an issue for all processors because of higher numbers and the Chinese congestion. 

Stevens cites the shortage of external, third-party storage capacity licensed for product destined for China as a problem needing careful management. 

It underlines the importance of keeping product forms flexible and able to be moved to alternative markets, even at lower prices, if product intended for China cannot be shipped as planned. 

The prime beef and lamb kills are likely to have hit an earlier peak, which will see the pressure on processing and storage reduce sooner than normal. An early cow cull because of drought in the north will have less impact on shipments to China though exporters will be hoping for some competitive tension when negotiating with United States grinding beef buyers. The price for manufacturing beef has fallen sharply since early December with US price offers dropping by a third from unsustainable levels though still above the five-year average.

It is, as yet, impossible to predict the course of the covid-19 outbreak with no certainty it will be contained largely to Hubei province. 

NZ’s dependence on China for trade and tourism means our economy is under greater immediate threat than most. 

Amid the uncertainty NZ meat exporters appear to be coping well, possibly better than might have been hoped, but there are many potential twists and turns before the situation becomes clearer. 

At least the US-China trade dispute has been temporarily put on the back burner and no longer appears to be another reason for immediate concern.

Meat processors and marketers don’t usually get a huge number of compliments because they are generally, if incorrectly, considered to be guilty of driving livestock prices down or underselling in the market. 

At times like these farmers should give them credit for working very hard and successfully to process high livestock volumes and find a willing market for the product at acceptable prices.

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