Source: Rita Jane Gabbett, MEATINGPLACE, 6/13/17


USDA’s announcement yesterday that the technical details have been hammered out to allow U.S. beef shipments to China is good news in the long term, though it could tighten fed cattle supplies in the short term as operators pull more heifers into reproduction and stem cow slaughter, according to one analyst.

“Now that the deal is complete on reasonable terms (30-month mandate similar to Japan) during a critical time for making future herd decisions, we expect operators to pull more heifers into reproduction and stem cow slaughter. This could have tightening effect on fed supply through the summer of 2018, which could pressure packer margins (offset by better exports), but set up stronger supply in 2019,” Jeremy Scott, restaurant and protein analyst for Mizuho Bank, wrote in a note to investors. 

Calling the deal “a potential game changer for the industry,” Scott said the rapid expansion of chained burger fast food restaurants in China is contributing to an acquired taste for fattier cuts.  

The deal could also “set a floor in breeder inventory levels,” which could mean a more sustainable supply environment for beef processors, Scott added.

Wins on offal, chilled product
Two aspects of the technical details hammered out this week seen as big wins for U.S. beef exports are the wide range of beef offal products approved for export to China and the approval of chilled beef for export.

U.S. Meat Export Federation spokesman Joe Schuele told Meatingplace the chilled beef approval would give U.S. beef a leg up in the high-end restaurant and retail markets in China, noting that Australia has tried for some time to win the right to export chilled beef there.

Also a plus, the wide range of offal products China has agreed to accept from the United States.  
“China demand for offal products could be a game-changer for the drop credit (by-product values),” said Scott.

Time and money
While celebrating the news, the U.S. Meat Export Federation noted there will be costs to meeting some of the criteria China has set forth.

“It is important to note that the market-opening agreement includes requirements that will involve a period of adjustment for the U.S. industry. Meeting these requirements will add costs and this will mean that U.S. beef is priced at a premium compared to other suppliers in the market,” a USMEF statement explained.   

Schuele told Meatingplace the most tangible requirement China has set forth that would increase costs for U.S. beef suppliers would be residue testing for synthetic hormones or beta agonists.

“At least initially, the most likely way for an exporter to be certain his product will not be rejected is to use cattle raised in a non-hormone treated program,” said Schuele. U.S. beef producers would likely need a premium for their cattle to incent them to raise cattle in this way, because slower weight gains add to their cost of production. It remains to be seen whether Chinese importers will pay that additional cost.

“Exporters will have to give producers an incentive … . it needs to make economic sense for them,” said Schuele.

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