The Mid-Autumn festival has passed, indicating that the third quarter will soon be over. Q4 for many companies is a quarter of the transition. On the one hand, they want to make a perfect end to this year. On the other hand, they want to organize their thoughts for next year.
At this time last year the main topic of discussion in the market was whether to continue to make offers against the backdrop of rising overseas offers. Looking at it now, the buyer who chose to continue the offer was undoubtedly right. But at the time, many people were not quite sure about the extent of the tightening of smuggling channels, the impact of the ASF epidemic, and so on.
2018.09.27 Mr. Simon Quilty, consultant of MIG, shared the impact of ASF in the global expert link session of "MIG China Imported Beef Market Analysis Conference"
Uncertain Market
This has been a good year for most of the
businesses that do the imported beef trade. As smuggling was tightly controlled
and the ASF epidemic shifted consumption from pork to beef, the price of imported
beef gradually increased to its highest level in history.
We found two phenomena. One is that more than 90% of the
top 20 importers so far this year have been in the industry for more than three
years. Failure happens overnight, and it works in this industry as well.
Many outsiders see only the traders' moments of
brilliance, but the years of accumulation and even losses that preceded them
may be experienced only by the parties themselves. The threshold of beef trade
seems very low, but in fact, the requirements for participants are higher.
Second, most of this year's profits come from orders in
the second half of last year and the first half of this year. Marked by SIAL in
May, although the domestic spot price keeps increasing, the offer price of
foreign futures has also increased significantly, exceeding the increase of
spot price. Now, inverted futures price has become the new normal. In this
situation, making a profit is more difficult.
That is why some importers, while making money this year,
are anxious. Because they don't
know what's going to happen next year, and at the end of the day, they're
insecure because of the uncertainty in the market.
This insecurity comes not only from importers, but also
from other participants in the whole industrial chain. For example, due to the
high price of live cattle and the shortage of cattle sources, some abattoirs in
Uruguay have suffered operating losses and had to consider the mode of
substitution or even sell assets. In order to expand the supply channels, some
importers seek for cooperation with slaughterhouses in more countries. However,
the resources of slaughterhouses are limited, and the door is already crowded
with other importers, facing the pressure of competition.
Some big restaurant chains are under pressure from
suppliers to raise prices amid fluctuating prices. On the one hand, they keep
looking for substitutes with lower prices; on the other hand, they hope to find
more importers to cooperate, so as to avoid the situation of running out of
goods.
Some traders, in order to have a stable source of capital,
will choose more than one capital side, and even some capital side's capital
cost is obviously higher than the market level, but it is more stable than
putting all eggs in one basket.
For the stable development of business, some enterprises
give employees more incentives in terms of equity. Through our investigation of
some enterprises, we find that there are many reasons for the failure of
enterprises that quit the industry due to poor management. But companies that
have been profitable for a long time in this industry have one thing in common:
the stability of their core teams.
Reasons for uncertainty
We randomly ranked the importer share of a
large Brazilian exporter's exports to China in a given month in 2017 and 2019.
The comparison shows that only one of the top ten importers is the same, which
objectively reflects the relatively loose cooperation between exporters and
importers.
Although we have also seen successful cases of cooperation
on import and export commodity brands in the market, we have seen more cases
where the cooperation was interrupted after one or two years due to the
inability to ensure lasting profits.
Importers and exporters in China usually cooperate in two
ways. One is brand monopoly or agency. By cooperating with the upstream to
monopolize the right to sell the factory's brand or position in the domestic
market. The second is mass imports. Make use of capital advantage to purchase a
large number of target products and obtain preferential prices based on the
average market level.
But either way, it does not change the source of this
instability: exporters seek to maximise profits from fluctuating prices.
In 2015, MIG put forward a point: Against the backdrop of
the booming middle class consumer market represented by China, the global beef
price has shifted from supply-driven to demand-driven since 2015. Supply-driven
markets are characterized by cost pricing, while demand-driven markets are
characterized by demand-driven pricing.
Taking Brazil as an example, we took the period from May
2018 to April 2019 and compared the price of live cattle in Brazil with the
price of Brazil's FFQ 7 Cuts purchased from China in Brazil. We found that
the price of Brazil's FFQ 7 Cuts increased significantly, while the
price of live cattle in the same period was relatively stable or even slightly
declined.
Who makes the middle profit? The first is the
slaughterhouse, which controls both the cattle supply and the pricing power.
The other links of the industrial chain are secondary.
But slaughterhouses are typically cyclical businesses.
When times are good, profits are high. When
cattle sources are reduced, there will be a loss due to insufficient
utilization rate. For example,
some factories in Australia even stop production when there is a shortage of
cattle.
Understanding is the foundation of communication, and understanding this is the
foundation of effective communication with exporters.
-MIG Research 2019
-World Beef Report
Find some certainty in uncertainty
In the final analysis, pure trade models
are hard to build sustainable barriers to. Importers usually extend the first
or second level industrial chain upward or downward to improve their anti-risk
ability.
MIG believes that there are two layouts in the upstream of
the industrial chain, trade and terminal, and one in the supply chain of
service tools and logistics. A sustainable model with strong anti-risk ability
can be formed, and the supply chain can be stable.
Any market has a similar history. Firms that
grow savagely at first and then have more of the key elements of the industry
to lay out remain. Take Japan as an example. After years of development, Japan
is now polarized. On one side are the large importers represented by NH Foods,
Starzen, etc., who have either deployed upstream slaughterhouse resources
globally, or deployed processing plants or cold-chain logistics systems
domestically. On the other side are small importers who import 1-2 containers
each month, and they usually have their own terminal resources.
The seemingly unstable beef supply chain, if carefully
analyzed, we find that each country's industrial chain and some certainty.
Argentina's live cattle stock, for example, is stable, and there is some room
for growth in the future. For example, the trade volume between China and
Uruguay is stable. Uruguay ranks among the top three exporting countries all
the year round, thanks to the stable political relations between China and
Uruguay and Uruguay's unique natural resources. For another example, the beef
supply in the United States is relatively stable, because the mature and
developed fattening system in the United States enables it to have a more
stable production compared with grass feeding. In fact, Chinese imports of
American beef have increased year-on-year for three months in a row, even under
tariffs and hormone restrictions.
MIG Research
2019 Chart of US exports to China
MIG has accumulated resources in overseas upstream
for many years, and hopes to help industry colleagues in overseas upstream to
form a more stable supply chain. If you are interested in learning more, please
fill in your contact information in the following link, we will contact you.
A lot of things are interlinked. Just like in a
football match, if you keep on passing the ball, even if you can score a goal
once in a while by virtue of the strikers' super personal ability or good luck,
the chances of scoring a goal are very small. Take it easy and play with it.
Although this is slow, but as long as the content of play, play your own
advantages, the goal is sooner or later.
Similarly, the chances of making a quick buck betting on
the market are slim. You should follow your own pace, one step at a time.
Although slow, but as long as the direction is right, success is inevitable.
Every step forward is not easy, but it must be inevitable.
It takes more than ability, heart and sometimes a little luck, but there are
always opportunities for those who are prepared.
Meat International Group(MIG)
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