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Comment: What price will Chinese importers be willing to pay for live cattle?

Comment: What price will Chinese importers be willing to pay for live cattle?

Adam Giles from Hancock Prospecting told a live cattle forum in Townsville that the company was aiming to export 150,000 head of live cattle to China by the end of 2018 with possibilities this number could increase to 300,000 head in the future. 

This is certainly an exciting prospect for the Australian beef cattle industry.

Over the past five years, Australia has exported, on average, about one million head of cattle per year. 

Demand for an additional 300,000 head will support the continuation of a strong live export market and further diversify export opportunities.

The question is, however – what price will Chinese importers be willing to pay? 

With live export cattle prices still at high levels, could extra demand such as this see these high prices remain or will we see them rise or fall?

We have seen in recent history that China is a careful buyer when it comes to beef. 

In 2014, when a cattle shortage in the US drove prices higher, Australian exports of beef to China declined by 20 per cent – partly due to the demand from the US, but also due to the fact Australian export prices increased. 

When Brazil regained access to the Chinese market in 2015, Australia’s average per unit import price fell as a result of the increased competition. 

Over the past three years, China’s imports of beef have increased, yet, while Australia’s cattle and beef prices have been high, the South American countries have seen a much bigger growth in exports to China than Australia has.

While there will always be smaller markets within the broader China market and by generalising you lose the ability to identify these segments, it is fair to say that China is not a price setter when it comes to beef. 

The fact that beef is not a major part of the Chinese diet also plays a factor, with consumers easily switching to more regularly-consumed proteins if beef prices rise too much.

Average retail beef prices in China have remained relatively stable for the past three years around RMB 62/kg (about AUD 12.13/kg at current exchange rates) with wholesale prices slightly below this. 

Given limitations on domestic production and increasing access to imports, Chinese domestic wholesale beef prices can be twice as high as prices of imported product which in July the average was RMB 28/kg (about AUD 5.48/kg).

Depending on how the Australian live cattle are marketed in China, this import competitiveness will limit the upside for on what China is willing to pay for live cattle. 

Subtracting the cost of processing, handling, transport, etc. suggests that live export prices above AUD 3.00/kg may find it hard to be competitive in the Chinese imported beef market.

So we must be cautious in expecting China to be a driver of higher live cattle prices.  

However, the opportunity to grow a live cattle trade to China is a big positive for the industry, increasing the diversity of live export markets.