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2021, Confidence Comes From Original Intention——Liu Xiaofeng
Source: | Author:GMTT | Published time: 2021-01-19 | 1044 Views | Share:

The year 2020 is destined to be an extraordinary year, especially for frozen people. The roller-coaster ride at the end of last year, followed by the outbreak, suppressed domestic consumption and then affected foreign supply. In particular, the recent outbreak of frozen products’ novel coronavirus in many places has put people in a repressive atmosphere. It makes people ask if the industry still has a chance in the future.

 

In fact, if we zoom in on all the disasters that have occurred in human history, COVID-19 may be just one example. As recently as the 20th century, mankind has experienced: The 1918 Spanish flu, an influenza virus that infected about 3% of the world's population, killed an estimated 100 million people; The second World War began in 1939 and lasted six years. It has claimed the lives of some 70 million victims of war and genocide; There are earthquakes, tsunamis and countless other regional disasters. The epidemic will pass and the development of human civilization will never stop.

 

The development of the frozen product industry will not stop, but it will change.

 

The African Swine Fever and COVID-19 outbreaks have only accelerated change. Even without these black swan events, change will come.

 

China's frozen products industry into the technical operation period

Take imported beef as an example, we can find that China's imported beef has experienced an explosive growth in the past 9 years. This is directly related to the growth of domestic consumption and the shortage of domestic beef supply. But the recent two years have also seen signs of a slowdown in import growth, as consumption has slowed. As a kind of bulk product, the development course of meat is also traceable. After the Bonus Period, Capital Flowing in, Financialized, Scaled and Formulated, we judge that the frozen product industry has entered Data Support.

 

Insight

Overall in the inventory digestion phase

The key indicator to reach this conclusion is the monthly average import growth rate. Against the backdrop of the epidemic, the average monthly import volume in 2020 is still 26% higher than that of the same period last year. However, due to the continuous high growth and the impact of the epidemic on domestic consumption, we can also find that the import volume has dropped continuously in the last three months. Therefore, we can judge that the whole domestic imported beef is in the inventory digestion stage, which will continue to form pressure on the price. Although this data is simple, but the import of beef trade related to the core concern of all enterprises.

 

The market had begun to weaken before the outbreak

Spot price movements for Brazilian FFQ Cuts monitored by MIG have fallen by about 30% from their peak by the end of December 2019.

Source: MIG Research

 

By observing the historical spot price trend of Brazilian FFQ Cuts, we can find that the price fluctuation range of this product is mainly between 35-43 in the past two and a half years, which can help us grasp the real market value balance strategy of this product. This data can also help large factories, catering or retail enterprises that need this product to keep abreast of market trends.

 

The meat market has diverged, and the pig market is stronger than the cow and chicken market

 

The above chart of the average price of imported meat can reflect the trend of supply and demand of imported beef meat in China. Since the middle of 2018, China's demand for imported meat has been gradually increasing due to the impact of ASF and the increasing trend of smuggling to customs clearance. At the end of 2019, the market entered the phase of high inventory digestion and the average price also appeared a rapid decline. This data can be provided to bulk traders, infrastructure providers and financial sector bulk data support.

 

By comparing the price trends of different meat products, we find that the price fluctuation range of cattle and chicken products is significantly greater than that of pig products in 2020. Pork prices have been supported by a lack of domestic capacity. This reflects relatively firm pork prices and an oversupply of cattle and chicken products.

 

The upward wave band of the market down period

In the overall decline of the market, whether there are also uplink band opportunities? We choose a more representative trade category of Brazilian FFQ Cuts. The data are based on real trade offers from Brazilian factories and represent the cost price structure of goods arriving in China in the next 2-3 months.

Historical futures price of Brazilian FFQ Cuts

Source: MIG Research

 

Even in this year's overall price decline, we can still find some bands of rising prices.

 

For example, from the fourth week (34 weeks) of August this year, as shown in the figure above, the price of the front set of Brazilian FFQ Cuts rises all the way to its peak in 42 weeks after the National Day, and then starts to decline.

Through this data, we can find out the price of Brazilian FFQ Cuts futures products and gain the core bidding ability. At the same time, we find that the current price has been in a downward cycle, which can help us make a better global procurement strategy and schedule.

 

China's import volume is expected to remain high in December

Led by MIG Research, through the core algorithm, the forecast of China's total landed volume in the next month is deduced. At present, it can provide a predictive index, which has been verified by a lasting regression and has about 85% regular monthly accuracy. It can well guide the judgment of future inventory and supply and demand in the political and legal industry, so as to make business decisions.

Source: MIG Research

 

The accuracy of this model in predicting beef imports from Brazil is 84% (except 2020.1-3) with an error of less than 20%. According to the forecast, the total CIF volume of China's beef imports in October was 169,000 tons respectively, and the actual CIF volume was 171,000 tons, with an error of less than 1%.

 

In December, the total arrival quantity of beef imported from China is forecast to be 194,000 tons (if there is no large-scale demurrage).

 

Index of live cattle prices in the world's leading producers

Count the live cattle trading prices in Uruguay, Brazil, Argentina, the United States and Australia separately

Source: World Beef Report

 

As can be seen from the recent chart of the price trend of live cattle, the price of live cattle in Brazil remains high, the supply shortage of cattle in Uruguay has eased, the price has also dropped significantly, and the price has become more competitive.

 

The price of live cattle in the world's leading producer represents the base price of the whole industry and is influenced by weather and policy as well as supply and demand. The price of live cattle in the world's leading producer represents the cost of live cattle traded in the world. This data determines the cost line of beef products worldwide. Based on the cost line, the profitability of abattoir, the impact of special events and the general direction of future prices can be well judged.

 

Opinions

How far are we from pricing power

China is the world's largest importer of beef and its consumption is among the fastest growing in the world. The representative said that China's influence on foreign exporters was also growing. In terms of products, Chinese parts such as beef tendon and brisket are the traditional parts in demand in China, and their pricing is mainly influenced by the Chinese market. On the national side, only a few countries are quite dependent on the Chinese market. For example, more than 60% of Uruguay's beef production capacity goes to China, so its price is greatly influenced by China. Most other countries, such as Argentina and Brazil, are relatively unaffected by the Chinese market. Therefore, although China imports a lot, its impact on prices is limited for most countries whose main destinations are domestic demand markets or other countries.

 

Of all the exporters, why is Brazil of particular concern?

Brazil already accounts for half of China's imported beef market. According to the latest data, Brazilian beef imports to China accounted for half of the Chinese market in October, reaching an unprecedented share. On the one hand, it benefits from the sound economic and trade exchanges between China and Brazil. On the other hand, it also benefits from the steady and increasing beef production capacity of Brazil. It is worth noting that about 80% of Brazil's production capacity is supplied to the domestic market, with only a small share of exports. Therefore, we have recently noticed that despite the sluggish consumer markets such as China, the price of live cattle in Brazil remains high due to the recovery of domestic consumption and the tight supply of cattle sources in Brazil.

 

Source: MIG Research

 

More attention has been paid to risk control, and the listing of hog futures deserves attention

Supply chain finance companies usually put risk control in the first place, because only if risk control is done well, can they have the basis to make scale. Industry firms will also pay more attention to risk control because, if the market is not well managed, they may make three years of money and lose one year. Please refer to the history article "Risk Assessment and Management of Imported Meat Trade and Supply Chain Business".

 

Hog futures will be listed on Dalian Commodity Exchange on January 8, 2021, marking the first financial product of the meat industry to be listed. The most basic function of futures is to provide hedging tools for industry users. As an industrial user, you can use hedging to do physical transactions. Therefore, the listing of hog futures is of great significance to the meat industry.

 

Advocacy

Recently, many places in China have found positive results of imported frozen products, which aggravates people's anxiety. We think this situation may continue for some time, but it will not change the demand for imported meat in the Chinese market. On the one hand, the positive rate of cold chain food is very low, about 0.48 per 10,000. The Beijing municipal government said at a press conference on December 1 that "imported cold-chain food is of low risk and can be normally purchased and eaten with good personal protection". In addition, imported meat has become an indispensable source of protein on the table. On Dec. 17, MRM released its 36th frozen pork reserve. According to statistics, this time the supply of 20,000 tons, which itself also reflects the import of meat as an indispensable complement to the protein demand. Take beef as an example. China's beef imports in 2020 are predicted to be 2.036 million tons by MIG. According to the data, China's beef consumption in 2019 was 8.329,300 tons, meaning imported beef accounted for about 25% of the country's total beef consumption. Moreover, the production of domestic beef is mainly in the west and north. Considering the limited transportation radius, regionally speaking, the proportion of imported beef consumed in the eastern and southern regions of China even exceeds 50%.

 

Therefore, we also propose the following: First of all, the mentality is not to panic, to understand the government's approach. In order to protect people's life and health, the government should cooperate with the relevant government departments, go to the normal cold storage screening, accounting and testing. Secondly, pay attention to legal compliance and scientific methods. The state has promulgated relevant laws and regulations, which actually provide methods and paths for doing things. We can do it according to the law and regulations. Finally , attitude, pay attention to the way of communication. Due to the wide scope of inspection and testing involved, each place or each level of the country involved more people, it is inevitable that there will be some mutual understanding. The more at this time, the more attention should be paid to the way of communication, tone as much as possible, to avoid negative emotions caused by some unnecessary communication barriers.

 

If you have any questions, please come and talk to MIG.

 

2021, Confidence Comes From Original Intention

 

In 1453, less than two years after he became king at the age of 21, Mohammed II led an army of 80,000 troops to attack the Byzantine empire's capital, Constantinople. After 53 days of fighting, Constantinople was captured on May 29, and the capital was moved here. Byzantium's empire fell. King Mohammed II won the battle for many reasons, including the use of advanced cannons. But most important is its confidence to defeat the enemy. The confidence came from his desire to revitalize the Ottoman Empire.

 

Original Intention is the driving force for persisting in a career. This is especially important in a changing world.

 

It has been said that in the multitude of human activities, the only permanent law is change. As a result, businesses that are content with only today will find it difficult to survive in the uncertain tomorrow.

 

We observed the top 10 beef importers in the past 9 years, with great changes from year to year. If we choose two adjacent years, only about 30% of the enterprises can be listed continuously. This reflects the changes in the industry from the side, and when you zoom in, the whole industry is changing. For example, if we look at our company's list of customers or suppliers, how has it changed compared to three years ago?

 

The market is changing, the industry is changing, but the market demand is not changing. Consumer demand for safe, nutritious and tasty frozen products is growing. Food and beverage demand for quality and affordable meat supply is still increasing. Customer demand for quality of service is also increasing. There will always be opportunities, but for those who are prepared.

 

Management guru Peter Drucker said that successful people start with important things. Moreover, only do one thing at a time.

 

Perhaps each of us can ask ourselves, what is the most important thing? What is worth doing with all your heart?

 

As the saying goes, to eat full by grain, to eat well by meat. As the saying goes, to eat full by grain, to eat well by meat.

 

The total amount of meat imported this year is expected to reach a record 8 million tons, making up for the shortage of protein in our country, and enriching the table choices for our people, making meat available and affordable. Every one of us is a participant and contributor, and we will continue to forge ahead together in 2021