Thread by @audiocomedian

More on our earlier tweet on the beef order and our reaction: This order is for boneless * A * beef, or in common terms cow. Most cow that is processed in Australia is for domestic use or export in quarters. Aussie cattle can include a “patch” with hormone growth promotant (HGP)

or be raised hormone free. Coles beef is sourced from HGP free cattle as is the beef exported to China. HGP improves the weight gain for cattle on feed significantly and can be the difference between profit and loss in a feedlot. Cow has the designation * A * to distinguish it

from other grades of beef (eg young prime steer * YPS *) and is also is related to cost.

Normally, big orders from China are for quarter beef (* A *) - cheaper to process in China. Boned * A * beef orders would mostly be handled by abattoirs with offices in China (JBS, Teys)

or have distribution partners in China (Harvey Beef etc). Remaining abattoirs who supply China could be considered niche (provide Wagyu or Grain fed like John Dee) and don’t process cow into cuts only into quarter beef. Not many facilities would be able to source and be willing

to use precious boning room time to process cow into boneless cuts.

Thus 80-100 containers (160 animals per container on the cut spec they are looking for) for delivery before year end (on the water no later than December 4) and still meet existing contracts for other export

and domestic * A * beef will place a strain on stretched supplies which are under contract for local orders. Remember, China requires HGP free cattle.

Many parts of the main cattle areas in Australia are in drought and as we head into the spring, farmers are on the look out for

rain. We have had a large turn-off of cattle already this year, so rain will encourage farmers to hold back animals in hopes of restocking or increasing weight on the animals with fresh spring grasses.

Into an expectant market comes this small order (only really 16,000 head).

This order is on top of existing demands on the HGP free supply (for China and Coles locally). An order such as this at the periphery in a supply constrained market with already heavy demand has a real potential to cause a sudden and sharp price reaction as abattoirs try to fill

it. The question then becomes, at what price will China be able to fulfil this order. We know firsthand that this order is from a provincial SOE (vs Beijing) and that they committed to supplying it. We suspect it is related to the ASF issues in this particular province and the

need to offer protein substitutes.

Thus our concern. In and of itself, this is a nothing order. It is just hitting a supply constrained market (drought) which could easily tip into tighter supply with rain (withholding supply to fatten animals and get a better price) which

would have significant impacts on grid prices abattoirs need to pay to get stock to fulfill both existing domestic and export orders. Will the abattoirs eat the price increases?

Hell no - this will be passed on to the consumer in some form.

So, a small order at the wrong time in a tight market could have the potential to unleash food inflation onto the Australian consumer. Think it will be limited to just the Australian market?