Beef processor margins in the red

Beef processor margins in the red


Beef
FIGURE 1: Processor margin (seasonal). The Mecardo processor cut out model has the annual average margin for 2018 at a healthy $90 profit per head, despite the narrowing margins since the middle of the year.

FIGURE 1: Processor margin (seasonal). The Mecardo processor cut out model has the annual average margin for 2018 at a healthy $90 profit per head, despite the narrowing margins since the middle of the year.

Aa

In this week's Mecardo column, Matt Dalgleish reported that processor margins have slipped back into negative territory for the first time this season.

Aa

PROCESSOR margins have slipped back into negative territory for the first time this season.

They have registered an $18 loss per head of animal processed for the month of November according to the Mecardo cut-out model (Figure 1).

A combination of falling beef export cut-out values (down 2.5 per cent) and lower co-product values (down 5.5pc) since July has reduced processor revenues over the last five months.

Taking into account increased cattle prices (up 3pc  since July), this has resulted in downward pressure on margins over the past few months.

On an annual basis, the processor margin currently sits at an average of $90 profit per head processed. Robust margins this season are not surprising given the destocking that has been underway.

During herd liquidation, it is normal to see processor margins benefit as destocking allows processors to source cheaper input cattle.

Australian Bureau of Statistics data for September shows that the female slaughter ratio since May has remained above the levels seen during the liquidation experienced during the 2014/15 seasons.

At an annual average of 50.7pc for 2018, the female slaughter ratio remains at levels consistent with herd liquidation.

Based on MLA annual slaughter estimates, we can expect to see close to 4 million head of female cattle slaughtered this season.

There is a reasonably strong positive correlation between annual female slaughter levels and the annual average processor margin (Figure 2).

FIGURE 2: Female slaughter vs processor margin. Annual female slaughter provides an indication of the annual processor margin. The 2018 forecast has been downgraded to approximately $100 per head, which is still a good margin when looking at historical levels.

FIGURE 2: Female slaughter vs processor margin. Annual female slaughter provides an indication of the annual processor margin. The 2018 forecast has been downgraded to approximately $100 per head, which is still a good margin when looking at historical levels.

As female slaughter levels increase beyond 4 million head per annum, processor margins tend to expand above $100 profit per head.

Similarly, as the female slaughter levels decline under 3.5 million head per year, the annual average processor margins shrink into negative territory.

What does it mean?

With the herd remaining in liquidation phase and female slaughter levels likely to finish the season near 4 million head, the annual average processor margin remains on track to complete 2018 at around $100 per head.

The story Beef processor margins in the red first appeared on Farm Online.

Aa

From the front page

Sponsored by