AS the Australian cattle market comes down the other side of an all-time peak in prices, the time is ripe for a serious producer change of mindset.
Think not about what price the market will deliver for your cattle over the next six months but what you need to get to still be here 10 years down the track.
That was the avante-garde approach presented by experienced market analyst Angus Gidley-Baird at the recent Graham Centre Beef Forum in Wagga Wagga, New South Wales.
As is generally the case at beef forums, which way the cattle market is going to turn was one of the key topics but Mr Gidley-Baird, Rabobank’s senior analyst animal proteins, said there had never been a better argument for long-term planning and taking up tools like forward contracting.
He advocated a move away from focusing on the best price on the day to looking at average returns over a 10-year period with the view to achieving a sustainable margin that allows for re-investment in the business.
Mr Gidley-Baird said the capacity for Australia’s industry to initiate a futures market for cattle was close to zero but forward contracting was very real at the moment.
“Instead of saying I have 100 steers that will be 350 to 400 kilograms next week, you could say in a month or two they will be 400 to 450kg and call a feedlot and see what you can get then and lock that in,” he said.
“It’s not for everyone or everything.
“But it’s a question of what options do you have as a beef supplier to manage some of the risks you are facing.
“Grains have futures, spot and forward; dairy has milk supply agreements and more and more forward contracting is happening in lamb industry.
“Why isn’t it big in beef?
“When you know what it costs to produce a kilogram of beef, you know what price you need to consistently receive to make your business sustainable.”
Mr Gidley-Baird said it was not necessarily the highest price on the day you should be chasing but rather the price that allows you to plan.
He listed three main reasons forward contracting was worth talking about at the moment.
Price volatility was first.
“It won’t overcome that but it allows us to plan for it better,” Mr Gidley-Baird said.
“If we know prices are going down, which we expect at the moment, can we lock something in for part of the production we have.”
Secondly, it has the potential to improve specifications and feedback.
“We now have a greater ability to objectively measure our product so we’ll be able to tailor the product we have to meet a market,” he said.
“It will help our buyers, who aren’t selling cattle but rather beef on a plate, if we can match up what we sell with what they sell.”
Finally, it will help facilitate the development of specific products, with branding – all of which require a supply chain.
And therein lays the greater, long-term advantage.
“Holistically there is a win to be had here for the industry,” he said.
“Australian beef has to identify a specific product and a specific market and we can only live on the clean and green image for so long.
“We can’t turn up in China and expect to stand next to Brazil and say buy Australian, it’s exactly the same as Brazil but dearer.
“We have to create something that gives us the ability to leverage value.
“We have that if we can create something that allows us to say retailer X wants this, producer Y can sort that.”
Mr Gidley-Baird said it came down to capitalising on new ways of doing things that will deliver an advantage over our global competitors.
The first step is a change in mindset about cattle prices on the part of the producer.