Chinese beef firm blames falling prices for first-quarter loss

By Mark Godfrey

- Last updated on GMT

A sales executive said it had been 12 years since China recorded a fall in beef prices
A sales executive said it had been 12 years since China recorded a fall in beef prices

Related tags: Livestock, Cattle

One of China’s most ambitious cattle breeders and genetics companies, Xinjiang Tianshan Animal Husbandry Bio-engineering Co, has blamed a fall in beef and mutton prices for what it predicts is a $2m loss in the first quarter of 2016.

Reports from some of the country’s top meat-producing regions have suggested a 10% softening in beef and mutton retail prices in the first quarter of 2016, in contrast to soaring pork prices. China’s westerly provinces, like Xinjiang (Tianshan’s home base) and Gansu, have been rapidly increasing their animal husbandry and red meat industries, but meat executives now see the increased volumes and influx of competitive imports as dragging down prices, which are still high by international standards.
 
Farmers appear to have killed off herds early, due to worries over fodder prices, leading to a supply glut. “It’s the first time in 12 years we’ve seen beef prices fall,​” noted a sales executive at Wudi Huaxing Bohai HeiNiu Breeding Co, one of the country’s leading vendors of calves and store cattle to feedlots. The firm, based in Shandong province, a traditional heartland of China’s cattle industry, has cooperated with Tianshan in the past on breeding programmes.

Founded in 2003, Xinjiang Tianshan Animal Husbandry Bio-engineering Co has positioned itself as the leading provider of genetics and artificial insemination to China’s beef and dairy farms. It also offers consultancy services on feeding and breeding programmes.

Tianshan copies US

The growing scale of firms like Tianshan appears to be driving up Chinese cattle numbers, and putting pressure on prices. Chinese corporate analysts are divided over Tianshan’s recent strategy of replicating the business model of China’s large pork integrators – a strategy that would see Tianshan moving beyond its expertise as a breeding firm to operate feedlots and slaughterhouses. The company signalled its intent with the purchase this spring of a controlling stake in beef feeder and processor Hemu Yangguang for RMB273 million: the deal gives Tianshan a foothold in the high-margin ‘ecological’ (a term used in Mandarin to suggest uncertified organic-themed product) beef sector.

Tianshan, in its own statements to investors, said it was following what it termed a US-style system of corn-fed beef for sale to high-end Chinese restaurants. The company has claimed to have better Angus breed cattle than meat produced from Australian and New Zealand grass-fed stock, which is commonly imported to China. The firm built up its herd using purebred breeding stock imported from Australia. Apart from Angus, the firm has bred Holstein, Simmental and Charolais as well as Limousin purebreds. Based in the city of Changji, the firm also sells calves to breeders and, more recently, got into the milk business.

High-end benefits

Tianshan’s potential appears to be premised on growing Chinese demand for western-style meat products and fine dining. According to a recent analyst’s report on the firm circulated by leading brokerage house Changjiang Securities, Tianshan will produce 14,000 purebred Angus bulls per year in 2018 – a doubling of the current figure – according to the securities report, which also projects a rosy 40% profit margin per beast. The Tianshan ‘company and farmer’ model sees the firm providing cattle and/or finance to farmers with cattle later bought or collected by Tianshan for slaughter.
 
The Changjiang report predicts overall company profits of RMB390m in 2016, hitting RMB2bn in 2017. The report predicted long-term profitability for Tianshan on the back of domestic beef market, which Changjiang puts at RMB400bn. It claimed Tianshan would benefit from the high-end market which, over the past nine years, “grew 100-fold​” thanks to “the middle class and the rise of Western cultural influence​”. The high-end market is “insulated​” from turmoil whereas Australian imports are “unable to meet the needs of high-end restaurants” according to the Changjiang report. Likewise, a clampdown on smuggled US meat has created demand for high-quality local supply, claims Changjiang.

Related topics: Financial, Analysis, China, Lamb, Beef

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