Limited substitutability and capacity contraction: Explaining China's beef price divergence

Over the weekend, a large-sized plant in Jilin Province raised its live cattle purchase price by Yuan 0.40/kg, and other two plants in Shandong and Zhejiang lifted the carcass purchase price by Yuan 1.00/kg and Yuan 1.00-1.10/kg, respectively.

The divergence between frozen beef and live cattle prices partly reflects the nature of frozen beef stocks, which limits their transmission to live cattle prices. Imported frozen beef is held mainly at ports, in traders' cold storage, and in the trading segment, flowing primarily to B-end channels like hot pot, prepared dishes, and catering processing.

Domestic live cattle correspond to hot fresh carcasses and fresh-sold beef, supplied mainly to supermarkets, farmers' markets, and fresh-product catering.

The two types of supply differ markedly in cut structure, processing attributes, and product form, and their substitutability for each other is low. Even if imported frozen products in cold storage are abundant, they can hardly directly fill the temporary gap in domestic live cattle slaughter.

In the domestic market, the frozen product storage capacity rate of slaughter enterprises monitored by Mysteel fluctuated between 22.49% and 22.61% in September 2026, ending the month at 22.49%, a relatively reasonable level. Over the same period, the fresh sales rate of sampled enterprises held steady at 79.66%-79.68%.

This shows that no inventory backlog has formed in the domestic slaughter segment: the domestic chain is dominated by fresh sales and production scheduling based on orders, and slaughter enterprises' demand for live cattle purchases is rigid. The pressure of 1.3-million-tonne inventory is concentrated in the import trading segment and affects imported frozen product prices, not domestic live cattle prices.

Second, the continued contraction of China's beef cattle production capacity is the underlying logic supporting the upward trend in live cattle prices. When the breeding segment has been persistently loss-making, some farmers have accelerated the culling of breeding cows, and production capacity at the breeding end is on a declining trend.

In addition, beef cattle have a long growth cycle, and there is a clear lag in the transmission from declining cow inventories to fattened cattle supply; short-term restocking cannot generate effective increments. According to data from 64 sampled enterprises of Mysteel, the beef cattle inventory by end-September 2026 was 101,100 head, down 1.49% month-on-month and down 7.27% year-on-year, the lowest level since data became available in September 2025. Beef cattle inventory has continued to decline from 107,600 head at the beginning of the year, and the capacity destocking trend is clear.

Sample slaughter volume in September was 8,510 head, up 32.14% month-on-month and up 11.10% year-on-year. Slaughter volume increased in a phased manner, and inventory continued to fall, which means current slaughter is more a consumption of existing cattle sources than an increment brought by capacity recovery.

The weekly average slaughter volume in September was 11,255 head, slightly lower than 11,667 head in August. Available fattened cattle for slaughter have been tight, and large slaughter plants, in order to ensure operating rates and fresh product supply, have actively raised prices to procure cattle, pushing live cattle and carcass purchase prices higher.

Constraints on the import side further amplify the support for domestic spot beef prices. Brazil's and Australia's beef quotas for China have been exhausted, and excess imports will be subject to an additional 55% tariff beyond the quota. The United States has become a net beef importer, and global beef supply is generally tight. As a result, expectations for additional imported arrivals in the future have weakened. The market has formed a consensus expectation of higher import costs going forward, and traders' willingness to hold back sales and support prices has strengthened. Current frozen product inventories more reflect stock accumulation formed by earlier arrivals, and space for new replenishment is limited. Therefore, the suppressing effect on domestic cattle prices has weakened accordingly.

On the demand side, the fourth quarter enters the traditional peak consumption season for beef. Falling temperatures drive a recovery in hot pot and stewed-dish consumption, banquet and gift-box stocking gradually begins, fresh product orders from slaughter enterprises increase, and procurement demand for domestic live cattle rises accordingly.

The weekly average slaughter volume in September rose to 11,255 head, of which the week of September 25 reached 11,808 head, the highest in nearly three months, showing obvious pre-holiday stocking characteristics. Frozen products more serve the function of raw materials for the processing end; when peak-season fresh product demand is released, domestic live cattle resources are still the first to be consumed.

Looking ahead, high frozen product inventories will still impose a certain constraint on the upside of domestic beef prices, mainly through two paths: raw material substitution at the processing end and consumption diversion. The room for sustained large increases is therefore limited. However, the tight pattern of domestic fattened cattle supply is difficult to reverse in the short term. The September inventory data showing a 7.27% year-on-year decline indicates that capacity recovery has not yet begun. Coupled with hard constraints on global beef supply, the center of domestic live cattle prices may remain on a relatively strong trajectory.