In Feb-23, a case of mad-cow disease, also known as bovine spongiform encephalopathy (BSE), was identified in a nine-year-old bull from the Northern State of Para, Brazil. This is the latest case of BSE in the country, following occurrences in 2012, 2014, and 2019. The occurrence of BSE in Brazil, the leading supplier of beef in the world, has raised concern within the global beef industry, as cases of classical BSE can spread rapidly through herds causing severe health risks to humans that consume infected meat.
As a result, key markets have reacted to the news by placing bans on beef of Brazilian origin. During the first week of Mar-23, Thailand, Iran, and Jordan have all placed temporary bans on imported beef from any province in Brazil, while Russia placed restrictions on beef originating from Para State alone. According to the Brazilian Ministry of Agriculture, the discovery triggered an automatic ban on Brazilian beef sales to China, Brazil's largest market. Additionally, the US states of South Dakota, Montana, and New Mexico also reintroduced bills to suspend beef imports from Brazil to the US.
The impact of the bans could be far-reaching, significantly affecting the export of beef, one of Brazil's major food export products. Brazil’s exports of processing-grade beef to the US have increased significantly in recent years. In 2022, Brazilian beef exports to the US reached USD 904.1 million, a 12.8% YoY increase. In Jan-22 alone, beef shipments from Brazil to the US rose to USD 522.3 million, a 500% increase compared to the previous year. Therefore, if restrictions are placed on Brazilian beef entering the US, Brazil stands to lose out on potentially USD 913.1 million in beef sales in 2023. China is the leading destination for Brazilian beef, and the ban could significantly reduce Brazil's export revenue. According to Tridge, the ban on Brazilian beef to China is set to result in a potential loss of USD 8.06 billion in 2023 for Brazil, about 61% of Brazil's total beef exports.
One of Brazil's competitors in the beef market, Australia, could take advantage of the ban of Brazilian beef imports by China, the US, Thailand, Iran, and Jordan. Already, the Australian cattle herd, in particular, is expected to reach 28.8 million in 2023, a 4.5% increase compared to 2022 and the highest in over a decade. This positions the country well in supplying those markets that Brazil can not export to any more. And India will be able to replace Brazil supplying the Asian and Middle-Eastern markets as it has been the biggest competition in these regions. According to the USDA, Indian beef production is also expected to rise to 4.42 million mt in 2023, a 4% YoY increase, allowing India to boost their exports to markets such as Thailand, Iran, and Jordan.
The recent bans have also impacted global beef prices. In Iran, a bullish price trend has prevailed over the past two weeks owing to restrictions on Brazilian beef imports. According to Tridge price data, wholesale prices of fresh whole beef in Iran rose to USD 47.02 per kg on the 27th of February from USD 33.57 per kg on the 30th of January, a 40% increase. Domestic prices in Brazil traded down as the ban on exports to China increased beef supply in the local market. Consequently, in Sao Paulo state, the CEPEA/B3 Index for fed cattle closed at USD 3.42 per kg on the 28th of February, a 9.8% MoM decrease.
Source: Tridge, CEPEA
The ban on Brazilian beef has not, however, affected prices in the Chinese market. The easing of COVID-19 restrictions resulted in strong imports of beef from Australia, the US, Argentina, and Uruguay which also created sufficient/ beef in the Chinese market. As a result, the loss of Brazilian beef has not startled the fundamentals in China. Based on Tridge price data, wholesale prices of beef at Guangxi market fell slightly from USD 12.97 per kg on the 6th of February to USD 12.71 per kg on the 6th of March.
The Brazilian government is working on having the export bans lifted in the coming months, following reports from the World Organization for Animal Health (WOAH) that the BSE case identified in Brazil is atypical. According to WOAH, unlike classical BSE, atypical cases have a negligible effect on herds and do not present any risk of contamination. It is expected that this will embolden Brazil in their negotiations. As a result, the ban on beef exports from Brazil to China could be lifted within the next three months, allowing the South American country to regain hold of the Asian market. Also, the bans placed by Thailand, Russia, Jordan, and Iran are temporary, and it is expected that the bans could be lifted before the end of the first half of 2023. For the remainder of the month, Brazilian beef prices look to trade downwards owing to increased local supply following the export restrictions. However, chicken remains the preferred meat for Brazilian consumers as chicken prices remain significantly lower than beef prices. Chinese beef prices are expected to remain within a narrow range over the next month as volumes from competitors offset the deficit caused by the ban on Brazilian beef.
For related stories, please refer to the links below.
1. Implications of the Temporary Suspension of Brazilian Beef Exports to China