Chinese production, consumption and coordination of disease outbreak responses looms large over a rapidly shifting global economy, a reality emphasized during a discussion on international trade at the recent K-State Cattlemen's Day in Manhattan, Kan.

The two biggest news stories to come out of China in recent months concern diseases that have taken a dramatic toll on livestock and humans in their own country and around the world.

"They can't catch a break," said Derrell Peel, a livestock marketing specialist at Oklahoma State University who delivered the morning keynote address. "And what happens in China has a big impact around the world."

Market observers have long feared the unprecedented bull-run in equities and stocks would be upended by a hard-to-predict "black swan" event. The culprit appears to have arrived in the form of COVID-19, a previously unknown strain of respiratory virus that started in China and is now spreading uncertainty and panic around the globe.

The term "black swan" was first coined by trader and author Nassim Nicholas Taleb to describe random, unpredictable situations that fall outside of normal expectations but end up having a disproportionate impact in the areas of science, finance or technology.

Peel said the current situation differs from other recent market shocks, such as last August's packing plant fire or the first confirmed U.S. BSE case in late 2013, which were relatively straightforward and short-lived.

"Those were specific events where fairly quickly we could get a handle on the timeline for recovery. This is much more fluid. We don't when it peaks, and we likely won't know for months," he said.

The outbreak has disrupted normal seasonal price trends, taking the wind out of wholesale beef prices that normally increase in early spring.

Peel advises cattle producers against trying to "wait out" the current market downturn but rather to anticipate continued disruptions to supply chains, logistics and the overall macro-economic picture.

"It's not a matter of days. I think it takes weeks, maybe months, to get through this," he said.

However, the current market turmoil most likely won't change the bigger story of long-term global market trends, he said.

The moral of his talk was this: what happens in China doesn't stay in China. As the Asian nation of 1.4 billion people becomes more integrated into the world economy, it exerts an outsized influence, including altering international trade flows.

"Worldwide beef imports are growing 26.9 percent," Peel said as he displayed a series of charts. "All of the net growth in global beef imports is coming from China. And this was happening even before African swine fever broke out."

Last year's AFS outbreak is believed to have cut China's hog numbers in half and has gone on to plague other countries, mostly in Southeast Asia and Eastern Europe. The U.S. has already developed an emergency response plan that would immediately shutdown all movement of hogs if the fatal disease is ever detected in the U.S.

Traditionally China's beef consumption was limited to what it produced. Now that is changing, Peel said.

"Prior to 2013, China was not even a factor in global beef trade — now it is the driver — so that's been a massive change in very short period of time," he observed.

So far Brazil, Argentina, Australia and New Zealand have supplied China's demand growth, leaving the U.S. on the sidelines, although domestic beef exports are on the rise, he added.

Asia is already an important export destination for U.S. beef. Two of the country's best export markets are located there: Japan, which is currently the most important in terms of size and value, and South Korea, which has been the fastest growing the last five or six years, Peel noted.

President Donald Trump's recent signing of a "phase one" deal with China could also be significant, even if the U.S. only picks up a small fraction of China's overall demand.

"We don't have to try to dominate the Chinese market, but if we could get even 2 or 5 percent of that, it would be a big deal for the U.S.," he noted.

 Skewers versus steaks

China's culinary preferences differ noticeably from those in the U.S., with skewered meats much more comon than steaks. But Peel believes it's an opportunity worth pursuing, comparing it to another important export market closer to home, Mexico.

Over time the U.S. and Mexico have developed a highly integrated market that benefits them both, he said.

"Mexico 30 years ago didn't start off as the broad-based market it is today," Peel said. I"t took time to develop that."

In a separate breakout session, Francisco Najar-Villarreal, a graduate student at K-State, talked in greater detail about Mexico's evolving beef market.

Najar-Villarreal, who was previously employed by H-E-B, the well-known Texas grocery chain, decided to follow in his father's footsteps by pursuing a doctorate in meat science at K-State. He plans to return to H-E-B after graduation to work as a meat buyer.

The San Antonio-based supermarket chain has expanded south of the border and now operates around 50 stores in central and southern Mexico, he said.

In 2017, Mexico adopted a new quality grading standard, similar to the U.S. model, which was intended to bring more sophistication and consistency to its domestic industry, he added.

Americans and Mexicans both share a concern with protecting the integrity of their beef markets, he noted.

"You have a problem with your southern border, but we have a problem with our southern border too," he said.

The U.S. cattle herd of 93 million head dwarfs the Mexican herd of 16 million. Even with such a lop-sided differential, one million head of cattle still get exported from Mexico to the U.S. every year, he said.

At the same time, cattle are illegally crossing from Latin America into Mexico, he said.

By adopting more sophisticated grading standards, Najar-Villarreal said the country hopes to prevent foreign cattle from being passed off as Mexican born and bred, while also incentivizing a higher quality product, creating a more educated and discerning consumer and achieving better price transparency.

Currently around a quarter of all cattle harvested in Mexico grade low-choice or select compared to more than 60 percent in the U.S., he said.

Another strategy for improving meat quality is for retailers to coordinate more closely with the source of their beef, he said.

Walmart caused a stir late last year when it announced that it would begin operating its own packing facility in southeast Georgia, which would allow the company to work directly with beef producers and feeders while bypassing the meat packers.

H-E-B is pursuing something similar, Najar-Villarreal said, adding that by cutting out the packer, large retailers are hoping to get "more pieces of the cake."

"We'll see more of that happening," he predicted, adding that H-E-B is bringing a group of Mexican ranchers to tour Kansas beef facilities in April.

Other countries have used the American model — and free sharing of education and technology — to improve their own beef industries and supply more of their own beef internally. Russia is a prime example.

Peel was asked whether China might follow a similar path toward becoming more self-sufficient in beef production.

While China's focus is currently on rebuilding its pork sector — along with recovering from the human coronavirus — the idea has merit, according to Peel, who has traveled extensively in China in recent years.

"There is potential to increase their beef production, and I suspect it's considerable," he said.