Immediate global market impact from Argentina’s surprise beef export ban

There has been an immediate  response in the some markets, with yesterday’s Urner Barry Yellow Sheet (a key daily monitor of meat price movements and influences in the US) reporting that throughout the US imported beef complex, asking prices from beef exporters were sharply higher compared with the previous day, and trading values were ‘up significantly.’

Australian/New Zealand imported 90CL manufacturing beef was quoted yesterday at US$274/cwt – easily its highest point since the sharp price spike experienced in November 2019.

The repercussions from Argentina’s suspension are already flowing-on in other markets like Singapore, which has previously taken supplies (mostly air freight) of chilled beef out of Argentina.

One Australian trader reported ‘big orders’ coming out of Singapore for Australian beef in the past 24 hours, as a direct result of the Argentine suspension.

“Argentina had expanded into chilled airfreight into premium markets like Singapore, which was really challenging our premium grassfed program – but there is certainly scrambling going on there today,” one exporter said. “Traditionally we would see a dip in loin cuts into Singapore at this time of year, but yesterday’s announcement look like turning that around.”

“The US imported beef market was already been lifting over the past couple of weeks, but everything on Urner Barry yesterday had ‘green numbers’ (indicating price rises across the board for a range of popular cuts price rises) against it – in North America, South America and Central America,” one prominent trader said this morning.

He said the Chinese had been trying to hold down beef prices in the country recently, but reports late last week showed most items had gone up again, and the Argentine development “would only add fuel to that.”

In its daily commentary, Urner Barry this morning said yesterday’s news about Argentina had seen the trade working to determine how the development might change the flow of (imported) product to the US.

It pointed out that Argentina was second only to Brazil in the supply of imported beef to China, with first-quarter exports to China totalling more than 109,000 tonnes. China accounted for about 70pc of Argentina’s entire beef exports last year.

“When we spoke to large end-users in the US over the impact Argentina’s ban could have on delivery of their imported product from Argentina, the greatest issue seemed to be how the suspension might impact trade flows for larger US imported beef suppliers, including New Zealand,” this morning’s report said.

Asked whether markets may have anticipated Argentina’s move, given the ‘chatter’ that had circulated about the prospect of an export withdrawal late last week, one veteran Australian meat trader said it was hard to tell.

“But certainly China is now chasing beef all over the world,” he told Beef Central.

Other exporters said export meat markets they serviced had not yet adjusted significantly, but admitted there was a “great deal of speculation going on, on both the buy and sell side.”

“It’s certainly going to help trade activity out of Australia. Panic over securing supply is a possibility,” one contact said. “We appear to be entering a period of considerable volatility in global meat trade, driven by even the smallest of changes – particularly for commodity-type product, and Argentina’s move is only adding to that,” he said.

Will suspension end after 30 days?

There is also widespread speculation around the trade that while Argentina has suggested its  export suspension is only for 30 days, history has shown previous examples of the country’s attempts to control domestic prices by banning exports have gone on for much longer – in one example, more than a year. The impact from that event was low exports out of Argentina for years afterwards as its herd declined.

“Whatever was slated to go out of Argentina to China for the next month is now not going,” one Australian exporter told Beef Central. “That would be orders in the books that Chinese customers now are not going to receive, so alternate arrangements have to be made.”

So where does China turn to, to fill the void?

The obvious target is Brazil, one trader said, but Brazil has its own production issues this year, being well down on volumes being produced last year, having liquidated a big slice of its cow herd to meet Chinese beef demand. Consequently, Brazilian beef export prices this year were considerably higher than those seen for at least the past two years (see yesterday’s report).

In terms of other supply options, Australia is still heavily constrained by low production volume after two years of drought (albeit last week’s eastern states kill at 107,000 head was the highest for the year so far, but still down about 30pc on this same week two years ago.

One exporter said the main items going out of Australia to China at present were at opposite ends of the quality spectrum.

“It’s either very cheap bone items, shin shanks, flats and chuck rolls; or the very dear items, including Angus and Wagyu brand programs for high end food service. There’s not a lot of middle ground items like eye rounds, oyster blades chuck rolls going out of Australia any more, because other markets are paying more, and we don’t have so many China-approved plants,” he said.

The next targets Chinese customers were likely to go looking for product from were New Zealand, or the US.

“In New Zealand’s case, it is coming to the end of its seasonal production cycle for commodity type beef (dairy steer and bull) in the next three or four weeks,” the export source said.

“And because the US as a supplier is basically grainfed Angus, they may fill a role at the upper end of the quality range, but that does not fill that huge Argentinean gap left for cheaper commodity meat.”

“That’s despite the US recently getting another 31 meat processing plants (beef, pork and chicken), approved for export to China, on top of a further 19 the month before. Over the same period, Australia has gained no new plant approvals for export to China.”

“The world is a different place than it was a year or two, and commodities like beef and sheepmeat are in high demand, across the globe. China will not find it easy to fill the void left by Argentina’s exit, even if it does turn out to be only a month in duration.”

Some trade sources suspected that Argentinean meat companies would simply wind-back beef production during the one-month export ban to avoid forcing meat prices significantly lower, but other felt that based on past experience, there was no guarantee that the suspension would be lifted by the Argentine government after 30 days.

Another source told Beef Central this morning that the Argentine government’s export suspension may not have been solely driven by political motivation in the lead-up to an upcoming election, by artificially lowering meat prices to domestic consumers.

“Part of it appears to be about a government crack-down on Argentine meat companies, who have been using offshore trading accounts to avoid paying a government taxes on meat sales. The suspension is also about sending those meat companies a warning that they have to pay their dues,” he said.

SIAL Trade show abuzz

The SIAL food trade show continuing in Shanghai this morning was ‘humming’ with speculation about how the market might react, Beef Central was told.

One interesting observation out of the show last night was the contrast between Australian and US exporter social events being staged at the same time. Australia managed to muster an estimated 150 Chinese trade contacts to its event, which in past years had hosted ‘500-700’, Beef Central was told.

In contrast, the equivalent US function last night hosted an estimated 1500 people.