COVID-19 crisis is taking its toll on US meat industry
The first quarter of 2020 will dictate over the evolution of US poultry and red meat industry until the end of 2021, warns the latest report issued by CoBank, a $145 billion cooperative bank serving vital industries across rural America.
Even if the beginning of the year was fueled with hopes of regaining access in the Chinese market for poultry and a drop in taxes imposed on US pork, the picture looks now grim due to the effect of the COVID-19 pandemic.
Analysts have identified labor and supply chains among the biggest challenges facing essential rural industries and, to some extent, the impact is already felt by poultry and red meat industries. Also, difficulties in shipments to external markets are expected to generate losses for producers.
According to the report, the US chicken industry entered 2020 with optimism largely driven by expectations for renewed exports to China. That focus swiftly changed to the domestic market in early March when the spread of the coronavirus dramatically shifted the US market to at-home eating, boosting chicken demand. Chicken production grew 7.7% in the first two months of 2020. nevertheless, higher figures of consumption in the domestic market have reduced the capacity for export.
The US cattle complex has seen a swift and sharp decline in the last month following the drop in global equities and oil prices. Since mid-January, April live cattle futures have fallen by approximately 25%. The beef complex profit pool is shifting in favor of packers at the cost of lower feeding margins. The loss of restaurant and foodservice customers due to COVID-19 will test beef prices this spring.
China's demand for US pork has set export records, but it hasn't led to strong prices or profit margins. While international demand has been significantly higher than last year, so has US pork supply. Hog producers are expected to realize negative margins through April before margins turn to positive territory this summer. To realize strong margins, producers will need strong export growth to continue.
"This quarter will largely define the next year in terms of the economy and how severe the damage caused by the coronavirus will be," said Dan Kowalski, vice president, Knowledge Exchange, CoBank. "Nearly everyone will be impacted to varying degrees and the pace of the recovery will be uneven. But the economy had been on good footing and it's entirely possible that we can get back to reasonable strength within a few quarters."
For beef and pork, US Meat Export Federation (USMEF) is creating a new strategy that could help exporters to capitalize on expanded access to China.
With the 30-month cattle age limit eliminated, beef and beef products (including processed products) from cattle of all ages are now eligible for China.
Beef and pork trimmings are also now eligible for China but must be labeled as “pieces.”
China is now open to pork and pork products that are slaughtered, further processed. Although the US has exported large volumes of pork to China in recent months, having more approved facilities and clear eligibility for processed pork products and trimmings should fuel further export growth.
In early March, China began allowing importers to apply for exclusions from duties imposed in response to U.S. Section 301 tariffs. When successful, this process can lower the effective tariff rate on US beef from 42% to 12%. For US pork, the effective rate for frozen muscle cuts can be lowered from 63% to 33% and the rate for chilled cuts can be lowered from 75% to 45%. For frozen pork offals, the rate can drop from 67% to 37%.
"As the COVID-19 situation continues to improve in China, we also look forward to scaling up our promotional efforts, showcasing the positive attributes of U.S. beef in restaurants, supermarkets and in the increasingly important e-commerce channels. New e-commerce promotions for U.S. beef and pork are set to begin in mid-April," declared Joel Haggard, USMEF senior vice president for the Asia Pacific.
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