Li Yangchao: Frozen Product Subdivision Index Release & Market Analysis

Big data, as an important tool for enterprises to feel the pulse of trend of the industry, plays an important role in adjusting marketing strategies. Due to the particularity of goods circulation in froze product industry, good understanding of the price trend of frozen products domestic and overseas not only provides valuable reference for purchase and sales, but also embodies great significance to the circulation of goods in the overall market.

As the sponsor of CCII Index that went live in August 2019, the Research and Development Center of Codeal has been deeply cultivating sectors of meat and aquatic products, presenting the overall trend of the industry practitioners through the internationally popular Paasche index compilation method, thus proving reference for business decision making.

At the 2^nd “828” Frozen Product Exchange Festival on August 28, 2021, Dr. Li Yangchao, R&D director of Codeal, shared the report of “Frozen Product Subdivision Index Release & Market Analysis”, providing a detailed reading of the price index of domestic and overseas pork, beef, lamb and shrimp products and forecast for future markets.

Pork Index: the price index continuing its decline, and import not yet reaching best opportunity

The CCII pork price index includes pork price indices of domestic wholesale and import. The pork wholesale price index reflects the trend of domestic pork prices, and the import price index reflects the trend of imported pork prices.

Domestic Pork Wholesale Price Index

Pork Import Price Index

The pork wholesale price index is compiled on the basis of pork product prices in main wholesale markets in China.

Pork import price index is compiled on the basis of data collected from main exporting countries such as Spain, Brazil, Denmark, USA and etc. and is adjusted monthly based on the weighted average of price indices for products of large sales including hog head, hog hand, pork Side-3 Cuts, pork ribs and so on.

As we can see, the domestic pork wholesale price index has fallen since mid-January, down over 53% by Aug. 28, while the pork import price index went up by sending shockwave from January, rising by 2% up to Aug.28 compared to the beginning of January.

Regarding imported pork products, domestic wholesale prices of six main items including pork hind leg, pork ribs, pork Side-3 Cuts, pork belly, pork shoulder and pork front hock have dropped by 30% since January. Imported price movement was in line with that of domestic wholesale prices, falling by about 20%.

From Jan.01, 2021 to Aug. 04, 2021, comparison between domestic wholesale prices and prices (tariff and clearance fee included) of imported pork hind legs

From Jan.01, 2021 to Aug. 04, 2021, comparison between domestic wholesale prices and prices (tariff and clearance fee included) of imported pork ribs

From Jan.01, 2021 to Aug. 04, 2021, comparison between domestic wholesale prices and prices (tariff and clearance fee included) of imported pork Side-3 Cuts

From Jan.01, 2021 to Aug. 04, 2021, comparison between domestic wholesale prices and prices (tariff and clearance fee included) of imported pork shoulders

From Jan.01, 2021 to Aug. 04, 2021, comparison between domestic wholesale prices and prices (tariff and clearance fee included) of imported pork front hocks

From Jan.01, 2021 to Aug. 04, 2021, comparison between domestic wholesale prices and prices (tariff and clearance fee included) of imported pork bellies

The prices of imported pork hind leg, pork Side-3 Cut, pork shoulder and pork should are so far higher than the domestic wholesale prices, with over 10% of ratio spread. Besides, regarding the price movement, the import price is based on the prices offered from a large number of foreign suppliers whom it normally takes about one and a half months to deliver goods from the European factories to China, so we need to compare the current domestic wholesale prices with import prices one month and a half earlier, while combining them with the overall trend to determine the best timing of purchasing. Both domestic wholesale prices and import prices decreased in the first half of this year, so it isn’t the best time to import pork. Of course, if you plan to make a bet on the market development for the next six months or next year, it will be a different story.

Beef Price Index: in light of the general optimism about the overall market in the first half of the year, it has reached the best time to import.

The beef import price index is compiled on the basis of data collected from main exporting countries such as Uruguay, Argentina, Brazil and Australia, and based on the weighted average of price indices for products of large sales including beef shank, beef flank, beef outside flat, beef eye round and so on.

Domestic Beef Wholesale Price Index

Beef Import Price Index

The domestic beef wholesale price movement is different from that of pork prices. Beef wholesale prices have been basically stable since January this year, edging down only 0.7% up to Aug. 28. Beef import prices rose steadily by 20% up to Aug. 28 compared to the beginning of January.

For the specific beef sub-categories, domestic wholesale prices of imported sirloin, outside flat, eye round, shin, oyster blade and brisket have been keeping their rising trends from January this year, in line with that of import prices, both growing about 25%. The first half of this year is a proper time to import beef based on favorable price changes.

From Jan.01, 2021 to Aug. 04, 2021, comparison between domestic wholesale prices and prices (tariff and clearance fee included) of imported beef sirloin

From Jan.01, 2021 to Aug. 04, 2021, comparison between domestic wholesale prices and prices (tariff and clearance fee included) of imported beef outside flat

From Jan.01, 2021 to Aug. 04, 2021, comparison between domestic wholesale prices and prices (tariff and clearance fee included) of imported beef eye round

From Jan.01, 2021 to Aug. 04, 2021, comparison between domestic wholesale prices and prices (tariff and clearance fee included) of imported beef brisket

From Jan.01, 2021 to Aug. 04, 2021, comparison between domestic wholesale prices and prices (tariff and clearance fee included) of imported beef shin

From Jan.01, 2021 to Aug. 04, 2021, comparison between domestic wholesale prices and prices (tariff and clearance fee included) of imported beef oyster blade

Lamb Price Index: UP 25%! Lamb carcass can be imported the first half of this year

Domestic Lamb Wholesale Price Index

Lamb Import Price Index

The lamb price index is compiled on the basis of data collected from main exporting countries such as Uruguay, Australia and New Zealand, and based on the weight average of price indices for products of large sales including lamb carcass, lamb four quarters and so on.

Wholesale and import price movements of lamb were in line with those of beef. The domestic lamb wholesale price index started to go up from beginning of this year, then went down in early April, falling by 3.4% up to Aug. 28 compared to early January. The import price index of lamb had been basically stable since January this year, before it grew in early June, rising by 12% up to Aug. 28 compared to early January.

For the specific sub-categories, domestic wholesale prices of lamb carcass have been rising from January this year, in line with that of import prices, both growing about 25%. The first half this year is a proper time to import lamb carcass in terms of price changes.

Vannamei Shrimp Price Index: Import and wholesale prices rising, with wholesale prices up 23%

The Vannamei Shrimp wholesale price index is compiled based on the wholesale prices of products of large sales including Vannamei Shrimp 30/40,40/50,50/60, and 60/70. The Vannamei Shrimp import price index is compiled on the basis of import prices from shrimps with specifications of 30/40,40/50,50/60 and 60/70.

The domestic wholesale price index of imported Vannamei Shrimp went up steadily from January this year, reaching 23% as of Aug. 28, and the Vannamei Shrimp import price index grew from January, hitting 6% up to Aug. 28.

Domestic Wholesale Price Index of Imported Vannamei Shrimp

Vannamei Shrimp Import Price Index

For the specific sub-categories, domestic wholesale Vannamei Shrimp prices of 30/40 and 40/50 specifications have been rising from January this year, in line with those of import prices, both growing about 30%.

Comparison of Vannamei shrimp 30/40 between domestic wholesale prices and import prices (tariff & clearance fee included) dated from Jan.01, 2020 to Aug.04, 2021

Comparison of Vannamei shrimp 40/50 between domestic wholesale prices and import prices (tariff & clearance fee included) dated from Jan.01, 2020 to Aug.04, 2021

Summary: pork, beef, lamb and Vannamei shrimp showed different price movements in the first half of the year, with pork price falling, while domestic wholesale and prices of imported beef, lamb and Vannamei shrimp in overall rising trend.

What is the movement of meat and aquatic prices in China from September to December?

Pork price movement: Domestic wholesale prices are basically stable, with little space to surge or slump

First, looking at the historical pork price data, which provides us a clearer picture of situation of this round of pork price reduction: pork prices have started to decline after the Spring Festival this year, but still some higher from the 2018 and first half of 2019 levels.

The reason why the pork price gets lower this year is because it is time for pork to become cheaper.

The cyclical fluctuation of pork prices is related to hog’s production cycle: it takes 7-8 months for a piglet to grow into a breeding sow, about 4 months of pregnancy for a sow, 1 month of lactation, and another 4-5 months fattening of a piglet, before it becomes marketable, gets slaughtered and then is eventually brought on the dining tables. One full cycle takes total 18 months.

So, when live hog prices rise, restocking of sows for family farms increases because of breeding profit boost, then pork prices start to drop after 18 months due to supply growth. After the decline in hog prices leading to reduction of sow restocking, pork prices will pick up 18 months later due to the decrease of pork supply. Adding the time taken to change restocking volume and to reduce the price by pork supply increase, a full hog cycle spans about 3-4 years. Hog prices in China have gone through five full cycles since 2003.

Under the condition of basically stable demand for pork, the determinant of pork price depends on the supply of pork. However, the number of piglets by every sow is essentially the same, as well as totally about 9 months of pregnancy for a sow, location and fattening for a piglet, so the current pork supply volume depends on the number of breeding sows in stock 9 month before, in other words, the current pork price is decided by the number of breeding sows in stock 9 month before.

From January 2011 to April 2021, the Number of Breeding Sows in Stock and Growth Rate

The figure above shows the change in the number of breeding sows in stock and growth rate in China between January 2011 and April 2021. The number of breeding sows in stock decreased month by month from January 2014, then it dropped sharply after the outbreak of African Swine Fever in end 2018, before finally rebounding from September 2021. Since then, the number of breeding sows in stock has been increasing, with a rate of over 40% in the first quarter of 2021 compared to the preceding quarter.

(No Figure Provided)

Above figure shows changes in the number of breeding sows in stock and average pork price trend in main domestic wholesale markets between January 2010 and April 2021.

The number of breeding sows in stock dropped significantly after the outbreak of African Swine Fever in 2018, reaching a low point of 20.21 million in September 2019, corresponding to a price high point of 53.55 yuan/kg. Historically in August 2021 the pork price was 22 yuan/kg, corresponding to the 31 million herds of live hogs in stock in November 2020, and the number of breeding sows in stock being close to 30.5 million herds with an average pork price of 22 yuan/kg in December 2018, both basically close to each other. So, if one needs to forecast pork prices from September to December, he should know the number of breeding sows in stock 9 months before. The number of breeding sows in stock from December 2020 to March 2021 was around 30-33 million, similarly corresponding to a price range of 22-23 yuan/kg between August 2018 to January 2019, hence it can be predicted that the average pork price in September to December will be approximately 22-24 yuan/kg. In other words, the domestic wholesale pork prices during that time will be basically stable, with little space to surge or slump if there isn’t any unexpected event.

There is a roughly 9-month lag between pork prices and the number of breeding sows in stock

Dated from January 2010 to April 2021, Reciprocal Relationship between Average Pork Prices in Main Domestic Markets and the Number of Breeding Sows in Stock

In the past two years, the volume of pork import has continuously reached new historical peak, with the Customs data showing 1.193 million metric tons in 2018, 75% and 108.3% rising year-on-year to 2.108 million and 4.39 million metric tons separately in 2019 and 2020, as well as 2.3 million metric tons in the first half of this year, up 8.5% from the same period last year.

Over the past 15 year, imported frozen pork has basically remained accounting for 2%-5% points of domestic pork supply. It contributes 2%-5% points when domestic pork supply is normal, increasing to 4%-5% points when domestic pork prices going up and in short supply. China’s imports of frozen pork accounted for 10% points of domestic pork supply in 2020, means which has already played an important role in the pork supply.

Beef price movement: import beef prices may encounter 20% increase in January 2022

In the past 10 years, the volume of in stock beef cattle in China has reduced year by year, but with the recovery in recent two years. Studies show that, there is a boom in beef consumption when a country’s GDP per capita reaches $1000 to $1500. China’s per capita GDP achieved $1000 in 2001 for the first time in history, and then exceeded $10000 by 2019, while the domestic beef consumption rose rapidly with a growth of 43% from 5.614 million metric tons in 2005 to 8.84 million metric tons in 2020. An outbreak of African swine fever in end of 2018 resulted in a rapid demand for beef as a substitute. A total volume of 8.84 million metric tons of beef was consumed nationwide in 2020, up 6% year-on-year. Beef has occupied from 5% to 15% of entire meat consumption in China, while pork shrinking from 90% to 75%. Strong demand has pushed constant increase in beef prices.

Volume of Beef Cattle in Stock (per 10000 herds)

Consumption accelerating

China has to import beef because of not enough production on its own. Volume of beef imported has risen year by year from 695,000 metric tons in 2017 to 1.6595 million metric tons, with the annual import amount reaching 56.861 billion yuan, seeing a yearly increase of 60%. China has become the world’s largest importer of beef. In the past two years, import volume still has grown though the rate has slowed down due to theCovid-19 Pandemic. Customs data show a 13.7% increase to 1.13 million of beef imported, accounting for 25% points of total beef consumption.

At the same time, rising domestic demand has triggered constant growth in beef prices, further boosting beef imports.

Movement of Beef Wholesale Prices and Change in Import Volume

In addition to strong demand for beef in China’s domestic market, beef prices have risen in many countries and regions around the world since 2021, and there are many important factors driving beef prices in major global beef markets.

High demand in local market of USA has pushed beef prices going up. The US beef industry is under a demand-driven market situation for reasons such as the meat grab game between domestic restaurant and retailing industries, and strong exports to foreign markets. Whole and retail prices of beef jumped 18.5% and 11.5% respectively in April compared with that in 2019.

Frequent rains in Brazil put off slaughter and affected exports. The main promoting factor of higher beef price is that, exports of beef to China have been reduced due to the slowdown of beef cattle slaughtering in the aftermath of continuous rainfall in Brazil, despite weak domestic demand for beef. In addition, many factories in Brazil chose to postpone cattle sales until reaching the desire weight of beef cattle, resulting in much less supply than demand. Constantly going up of purchase price of live cattle has caused local cattle farmers to find ways to retain cows, further limiting Brazil’s supply of live cattle. Although the price of Brazilian cattle began to weaken at the end of April, the reduction in supply will limit further price decline.

Reduction in supply in Australia drives up beef prices. The number of Australia’s cattle is at its lowest level in more than 30 years after years of drought and massive livestock clean-up. With the seasonal improvement of conditions in 2020 and 2021, fierce competition to increase storage occurred among major local beef farmers. Calf prices rose nearly 30% month-on-month in February 2020, and another 20% growth in February 2021.

Besides, several top beef processing plants were shut down by Australian Customs in 2020, causing the volume of beef imported from Australia to shrink sharply. Various factors have led to higher prices for imported beef.

Then, where will the beef price move in September to December? We choose beef prices in domestic wholesale market and actuals prices for live cattle in Brazil for analysis.

The movement of beef prices in domestic wholesale market was periodic and seasonal within the ten years from 2011 to 2021. According to the basic rule, the period between February each year and February in the year after makes up a cycle, with the decline in prices basically taking place from February to June, and the rise in prices between June and February of the following year. Based on this cyclical and seasonal nature, the fall of beef prices in domestic wholesale markets is predicted to continue at least until June this year, down about 1.8%, then beef prices are expected to keep rising after June, reaching 9.5% by February 2022.

As per data of Brazil live cattle price from 2011 to 2021, price fall and rise are roughly taking place between January and September, and between September and January next year respectively, but some specific individual years would be quite different. For instance, Brazil live cattle price has been constantly increasing from April 2020, so it is impossible to accurately predict the price trend in next three months based on data of 10 years, only in the light of price changes in most years, the price of imported beef may fall in June to August this year with an estimated level of 17% off, and it may rise after August, with 20% up by January 2022.

Movement of Vannamei shrimp pricing: peak season of consumption is coming and will lead to continued price increases.

Wholesale and import prices of Vannamei shrimp have been in rising trend since January this year. Especially from mid-June, domestic prices of Vannamei shrimp have started to increase.

What is the reason for this round of price increases?

Firstly, the rise of all kinds of comprehensive costs for Vannamei shrimp. The impact of the epidemic leading to congestion of pork terminals around the world, results in the growth of fees such as demurrage and container usage fees, as well as reduction of Customs clearance efficiency, hence costs increase. There is also a cost of delay when it comes to the lead time.

Secondly, multiple costs of repeat tests and insecticide spray.

Thirdly, goods that have arrived recently are all high-priced items, which were ordered at prices above $6 one month ago. These items can’t be sold at previous prices to avoid any price inversion. Besides, cost increase has contributed to this round of price rise.

Fourthly, due to very serious epidemic in India, Vietnam and other places, many Vannamei shrimp processing plants were closed. After Ecuador, India and Vietnam are the second and third largest exporters of Vannamei shrimp to China. Because of lockdown and the closure of processing plants in these areas, dealers have to import more Vannamei shrimp from Ecuador alone.

In 2020, Ecuador’s Vannamei shrimp import volume reached 358,000 metric tons, with annual imports amounting to 12.2 billion yuan. In the first half of 2021, China imported 242000 metric tons of Vannamei shrimp, exceeding the import volume in the first half of last year. In addition, with the recovery of European and American markets, the growing market demand leads to higher prices of Vannamei shrimp.

In the second half of the year, important holidays such as Mid-Autumn Festival, National Day and Spring Festival are approaching, and the peak consumption season is coming, by then import prices and domestic wholesale prices will continue to increase.

Focused on market prices, improving the risk-control capacity of frozen product enterprises, and empowering efficiency for practitioners of frozen product industry, R&D center of Codeal will continue to provide customers in the industry with detailed meat and aquatic price data. Successful application for the membership can help you access free price weekly reports.

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