THE risk of smaller abattoirs being gobbled up by bigger, multispecies players is growing as cattle prices linger in very high territory and the tsunami of cost pressures on beef processing shows no signs of easing.
From labour shortages and virus outbreaks to shipping freight woes and trade deal pressures in global markets, Australia's processors are currently facing the toughest trading times and largest per-head losses in 20 years, a Meat & Livestock Australia webinar heard.
Thomas Elder Markets analyst Matt Dalgleish said there was a real risk this year would see processor exits.
Smaller, independent players without the economies of scale and regional diversity of larger companies may not make it.
From the perspective of a competitive cattle market, that was concerning, he said.
Data analysis over the past 15 years shows that when processor margins go into negative territory, they marry up with plant closures, Mr Dalgleish reported.
"There is a strong relationship between extended times of negative margins and rationalisation," he said.
While some industry leaders have suggested there is little more consolidation possible in the sector, Mr Dalgleish said it had already started last season.
"We saw a family-run abattoir in Victoria taken over by an offshore player and a big operator from Brazil take over some abattoirs in Western Australia," he said.
"Beyond beef, we have also seen the likes of JBS extend their holdings of processing in the pig sector."
While cattle supply is short in Australia, in the United States the herd is in its third year of liquidation and that has meant high turn-off and lower prices for livestock - and northern American processors making record profits.
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"So for a company like JBS, the losses here in Australia are being offset on a global basis by strong margins elsewhere," Mr Dalgleish said.
Profit margins for processors both last year and this year are very much below what would be considered normal.
The per-head losses did show some very slight improvement between January and February but the overall average loss for this year to date is sitting at $308 a head, according to modelling.
"When we go through dry times and periods of high slaughter, where numbers exceed nine million head per annum, processors are able to make strong profits," Mr Dalgleish said.
Last year, slaughter figures dropped down to 6m head and MLA is now forecasting a 2022 annual slaughter of 6.65m head.
Mr Dalgleish said that suggests we should see the processor margin model start to move towards the $100 to $200 loss range.
"We still have a long way to go before they reach a level of profitability, though."
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