China’s Saturated Beef Market Puts Pressure on South American Exporters
In South America, Argentina is the country that depends the most on the Asian giant in terms of beef exports. However, this market is now saturated and prices are depressed.
China has become both a solution and a problem in the agricultural commodities business. As the world’s largest buyer of various products, including soybeans, beef, wheat, and barley, China’s importance as a demander has become a matter of national importance for countries like Argentina, Brazil, and Uruguay. Argentina, for example, directs nearly 80% of its beef exports to the Asian market. The other two countries are also dependent on China, although to a lesser extent. The need for sales is even more urgent for Brazil, the largest member of Mercosur, with significant productions of soybeans, corn, and beef that need to be quickly placed in the world, or rather in China, given the repositioning of buyers. Brazil’s movements saturate this market, but the rest of the countries are not far behind.
As a result, South America is pressuring a buyer that is not currently in its best moment and is reportedly holding stocks that could take 3 to 6 months to channel. This inevitably leads to price adjustments, with reports of prices being up to 40% lower than those paid in better times, averaging last year.
Apart from other issues that may be questioned regarding China’s government, the impact of the pandemic and Xi Jinping’s subsequent obsession with Covid Zero have particularly affected the middle class, which was showing increasing enthusiasm for beef, even of better quality. For now, things have not returned to what they were.
China’s economy stumbled in May as industrial production and retail sales growth fell short of expectations. The economic rebound seen earlier this year lost momentum in the second quarter, leading China’s central bank to cut some key interest rates for the first time in almost a year, with expectations of more to come.
The post-Covid recovery has not been easy. Economists have revised down their forecasts for China’s GDP growth. Retail sales, a key indicator of consumer confidence, increased less than expected. The Caixin Services PMI fell in June to the lowest level since January, providing further evidence that this key activity indicator continues to cool in the immediate post-Covid Zero period.
To make matters worse, the yuan has lost ground against the dollar, dragged down by concerns about China’s growth, as well as its growing divergence in monetary policy with the United States. This should imply less purchasing power for imports from the Asian giant.
It is assumed that beef exporters are pressuring what appears to be a saturated market because diversifying the business is not so simple. Unlike an industrial scheme, production cannot be stopped with the push of a button, and therefore, export accounts end up in the red.
For the first five months of 2023, Argentine exports to China grew by 17% compared to the same period in 2022, but with weak prices, resulting in a total amount 21% lower than the previous year’s January-May period. This is partly due to the intense drought that led to a significant outflow of manufacturing cows from the fields.
In May, Brazil exported 111,000 tons of frozen beef to China, the highest monthly volume since the records of August-October 2022, and 70,000 tons higher than the 41,000 tons in April. In a way, Brazilian exporters caught up after being out of the game for four weeks due to an atypical case of mad cow disease.
Certainly, in June, they continued to ship at a good pace, with a high proportion destined for China. However, this does not imply satisfaction with the state of the business, as a Brazilian trader stated, “China buys a lot and pays little.” Brazil is already debating its high dependence on the Asian giant, for now without a solution.
In June, Uruguay reduced its exports to China, with 15,565 tons, 2,380 tons less than in May. China’s share in Eastern sales fell to 58%, the lowest proportion since August 2020. This is related to the unsatisfactory prices paid by China.
In addition to this, Oceania countries shipped 40,000 tons to China in May, the highest monthly volume in three years. If Beijing lifts the ban on three Australian processors, which is expected to happen later this year, it will further increase market opportunities.
Rabobank itself has warned that too much stock is being put into the growing Chinese market at the moment, reporting a surplus of protein available, both in the market and in storage. In this context of poor demand and increasing supply, it is not surprising that the Chinese market is evolving with downward price pressure.
Importers claim to have high stocks of the product bought at high prices and are taking advantage of the relatively low current prices to average out. For the first time since October last year, China’s purchases in May exceeded its monthly supply needs.
Those familiar with the matter speak of a crisis of volumes rather than prices. In the words of one specialist, “Brazil has an enormous amount of beef, and it’s very cheap, and it complicates the rest because, in one way or another, it accepts without complaining each new price drop proposed by Chinese buyers.” The neighboring country is starting a liquidation cycle and will have increasing exportable surpluses.
Regardless, Argentina presents a different reality from its competitors. It does not seem acceptable for a country renowned for its high-quality beef to be heavily dependent on a saturated market. The situation calls for diversification and finding new markets to avoid overreliance on China.Argentina’s Dependence on China for Beef Exports Leads to Saturated Market and Depressed Prices
In South America, Argentina is the country that relies the most on the Asian giant for beef exports. However, this market is now saturated and prices have been depressed.
China has become both a solution and a problem in the agricultural commodities business. As the world’s largest buyer of various products, including soybeans, beef, wheat, and barley, China’s importance as a demander has become a matter of national importance for countries like Argentina, Brazil, and Uruguay. Argentina, for example, directs nearly 80% of its beef exports to the Asian market. The other two countries are also dependent on China, although to a lesser extent. The need for sales is even more urgent for Brazil, the largest member of Mercosur, with significant productions of soybeans, corn, and beef that need to be quickly placed in the world, or rather in China due to the repositioning of buyers. Brazil’s movements saturate this market, but the rest of the countries are not far behind.
As a result, South America is pressuring a buyer, China, that is not currently in its best moment and is reportedly holding stocks that could take 3 to 6 months to channel. This inevitably leads to price adjustments, with reports of prices being up to 40% lower than those paid in better times, averaging last year.
Apart from other issues that may be questioned regarding China’s government, the impact of the pandemic and Xi Jinping’s subsequent obsession with Covid Zero have particularly affected the middle class, which was showing increasing enthusiasm for beef, even of better quality. For now, things have not returned to what they were.
China’s economy stumbled in May due to lower-than-expected industrial production and retail sales growth. As a result, the economic rebound seen earlier this year lost momentum in the second quarter, leading China’s central bank to cut some key interest rates for the first time in almost a year, with expectations of more cuts to come.
The post-Covid recovery has not been easy. Economists have revised down their forecasts for China’s GDP growth. Retail sales, a key indicator of consumer confidence, increased below expectations. The Caixin Services PMI fell in June to the lowest level since January, providing further evidence that this key activity indicator is cooling in the immediate post-Covid Zero period.
To make matters worse, the yuan has lost ground against the dollar, dragged down by concerns about China’s growth, as well as its growing divergence in monetary policy with the United States. This should imply less purchasing power for imports from the Asian giant.
It is understandable that beef exporters are pressuring what appears to be a saturated market because diversifying the business is not so simple. Unlike an industrial scheme, production cannot be easily stopped, and therefore, export accounts end up in the red.
For the first five months of 2023, Argentine exports to China grew by 17% compared to the same period in 2022, but with weak prices, resulting in a total amount 21% lower than the revenues for the January-May period of the previous year. This is partly due to the intense drought that led to a significant outflow of manufacturing cows from the fields.
In May, Brazil exported 111,000 tons of frozen beef to China, the highest monthly volume since the records of August-October 2022, and 70,000 tons higher than the 41,000 tons in April. In a way, Brazilian exporters caught up after being out of the game for four weeks due to an atypical case of mad cow disease.
Certainly, in June, they continued to ship at a good pace, with a high proportion destined for China. However, this does not imply satisfaction with the state of the business, as a Brazilian trader stated, “China buys a lot and pays little.” Brazil is already debating its high dependence on the Asian giant, currently without a solution.
In June, Uruguay reduced its exports to China, with 15,565 tons, 2,380 tons less than in May. China’s share in Eastern sales fell to 58%, the lowest proportion since August 2020. This is related to the unsatisfactory prices paid by China.
In addition
What challenges do South American beef exporters face in diversifying their business and how does it impact their accounts
E that economic activity continues to cool in the post-pandemic period.
To make matters worse, the yuan has weakened against the dollar, which could result in less purchasing power for imports from China.
South American beef exporters are feeling the pressure of a saturated market, and diversifying their business is not an easy task. Unlike industrial production, beef production cannot be halted with the push of a button, leading to red accounts for exporters.
Argentina’s exports to China grew by 17% in the first five months of 2023 compared to the same period in 2022, but weak prices resulted in a total amount 21% lower than the previous year’s January-May period. This is partly due to an intense drought that led to a significant outflow of cows from the fields.
Brazil, on the other hand, exported a record high volume of frozen beef to China in May, catching up after a temporary halt due to a case of mad cow disease. However, Brazilian exporters are not satisfied with the state of the business, as China buys a lot but pays little.
Uruguay also reduced its exports to China in June, with unsatisfactory prices being one of the reasons. Oceania countries, on the other hand, saw an increase in exports to China in May, reaching the highest monthly volume in three years.
Rabobank has warned of a surplus of protein available in the market and in storage, leading to poor demand and downward price pressure in the Chinese market.
Importers claim to have high stocks of beef bought at high prices and are taking advantage of the current low prices to average out. China’s purchases in May exceeded its monthly supply needs for the first time since October last year.
Argentina’s heavy dependence on a saturated Chinese market calls for diversification and finding new markets to avoid overreliance.
Argentina’s heavy reliance on China for beef exports has led to a concerning situation of market saturation and depressed prices. Diversification of export markets is crucial to safeguard the country’s beef industry from such vulnerabilities in the future.