ANY move by the beef industry to mandate full public access to processors’ direct-consignment cattle price grids would have unforeseen negative consequences, sources close to the supply chain have told Beef Central.
On Tuesday, the Australian Competition and Consumer Commission released 15 recommendations in its final report, following its investigation of competition issues in Australia’s beef and cattle market.
One of those was that processors and other major purchasers of prime cattle should make their price grids publicly available, in a timely manner.
“Public availability of price grids would increase producers’ ability to access and compare prices. This would increase price discovery and the ability of producers to negotiate and make informed and timely decisions about who to sell their cattle to,” ACCC said.
One of Australia’s largest beef processors said his company would comply with any mandate to publicly disclose its price grids, if that’s what the industry chose to do – but he warned there could be unexpected downside.
To Beef Central’s knowledge, just one export beef processor of significant size in Australia publishes its current price grid on its website. All others provide grids on receipt of phone or email request from producers who are wishing to sell cattle.
“To my knowledge, our company has never knocked-back a request for a grid from a legitimate seller of cattle,” a spokesman for one large multi-site processor told Beef Central yesterday. “Under normal circumstances, they can have our grid in their hands within five minutes, if necessary. How much more public can they possible need to be?” he asked.
Cattle price grids as the industry currently know them first started to appear in the industry in the mid-to-late 1980s. The advent of fax machines was one of the tools that allowed a time-sensitive piece of price offer information like this to be circulated, and updated with some frequency, to producers.
Because of the ease of access to grids now made possible through the internet, any company’s current offer is literally five minutes away. Once received, they are easy to distribute to others. In fact Beef Central receives most processor grids each week in this manner.
Based on this, Beef Central has questioned large processors several times over the years, as to why they don’t take the ‘final step,’ and simply post the price offer documents on their website for all to see.
Consistently, there have been three main reasons given against such a move.
Potential to over-simplify the decision-making process
The first is that each company’s grid contains subtle (and sometimes large) variations, designed to reflect the markets being serviced by each individual company, and the way they structure their business.
There’s no doubting that cattle grids have become considerably more complex over the years. But so has the range of markets being serviced. Where once, some larger Australian export plants predominantly sold just a handful of items – principally 12 or 14-cut fullsets, and trim – today the range of items harvested from a carcase and the destinations they find themselves in are myriad.
That has necessitated adding additional criteria to direct consignment price grids, making them more challenging for the typical producer to compare. Some in the industry might in fact argue that this has been done deliberately, to muddy the waters over pricing.
On this point, another of ACCC’s review recommendations on Tuesday was that all cattle buyers should simplify their price grids, where possible, to ensure they are easy to interpret and compare. These measures would improve transparency and the ability of producers to negotiate and make informed choices about who to sell their cattle to, the industry watchdog said.
Top-sell prices in different processor grids often vary on carcase weight tolerances, carcase fatness and other important criteria. The nation’s two largest processors, JBS and Teys, for example have had a 1mm variance in some grids on minimum fat cover. In the premium market categories, one of those two processors still structures its grids for MSA cattle based on boning groups, while the other uses MSA indexes.
In essence, processors argue that this means that a producer who simply accesses two, three or more company grids on the net and prints them out to compare on price, is not comparing ‘apples with apples.’ That’s especially so for those producers who do not fully understand the subtle differences (see webinar references below).
Processors feel they may lose control of the negotiation process, and the particular features of their offer, by simply encouraging producers to download a grid off a website, and look at a dollar-figure in a particular grid cell.
“That would make the whole process way to simplistic,” one processor contact warned.
“The devil is in the detail, and it’s important that we have the opportunity to engage with a vendor wishing to sell cattle,” he said. “Any producer who is serious in the industry and has relationships with multiple processors have the grids explained to them, and go into the transaction with their eyes open.”
Potential for confusion when prices rapidly change
Permanent day-and-night access to grids via a website could also add considerably to confusion when cattle pricing is in a state of flux, processors argue.
“It might be OK when prices are relatively stable, and do not change from week to week,” one contact said. “But just this past week or so, some grids have changed three times or more. There’s potential for real confusion when somebody accesses the ‘current’ grid, and then wonders why the price has changed, by the time they get around to picking up the phone to sell their cattle, and the grid has changed.”
“We’ve thought about public grid disclosure at different times in the past, but it wasn’t worth contemplating because of the real risk of confusion. There will be weeks when there might be five different grids issued. It gets dangerous.”
Potential for greater market volatility
A third critical point raised by processors against ACCC’s call for public access to slaughter grids is the potential for greater volatility in pricing.
“On a falling market, like we are seeing at present, full public disclosure like this means the market will fall like a stone, as each processor monitors what the others are doing,” he warned.
“Under the current arrangements, I always hear about everyone elses’ grids from producers looking to sell us cattle when the other grids are going up – but never when they are on the way down. But if all grids are going to be published on the internet, the volatility in pricing could be much more extreme.”
One processor said his business had submitted to ACCC during the inquiry process that on a falling market, full public disclosure of grids could see prices come back ‘very quickly indeed.’
Yet another factor in the consideration is the fact that for some companies, and in certain stages of the price cycle, grids are at times ‘just the starting point’ of the negotiation process. It’s not uncommon, especially on a rising market, for some processors to offer “plus-5” or more, especially on cattle that they know are likely to perform.
Webinar explains carcase feedback and price grids
One of ACCC’s other key suggestions from Tuesday’s final report was that buyers, agents and producer representative bodies (led by the CCA) should expand their engagement with producers to enhance industry understanding of price grids and their interpretation.
There has been an exceptionally strong response to Beef Central’s first 2017 webinar being held tomorrow lunchtime, focussing on factors that producers need to be mindful of when assessing carcase feedback and price grids, that directly influence the farmgate price of cattle.
Well over 400 participants have already subscribed, but there is still time for others to register their interest. For those who are busy at the time the webinar is aired live, it’s still worth registering as a participant, because a weblink to the recorded program will be emailed to you for viewing at your leisure, afterwards. For those who have already registered, we encourage you to lodge any questions on the topics in advance, to optimise the chances of a response from the webinar speakers.
Tomorrow’s webinar, starting at 12.30pm QLD time (1.30pm NSW/VIC), is a joint initiative of Beef Central and FutureBeef. Click here for more details.
Finally after 4 years since my PPP plan was first floated – the conversation starts.
Thank goodness and after 1000’s of hours fine tuning, second guessing etc- I would like to list the givens of the beef business + the super simple solution around all this posturing!
#Aust cattle industry is geographicly diverse,huge breed variation in performance and adaptability BUT if all comes down to 4 main drafting gates-
– Live export
– Feedlot-grainfed
– Export kill
– Domestic kill
#Many breeders have animals that could slot into one or more categories.
#80+ % of commerce @ farmgate go as direct consignment and only bulked up market reports and mostly out of date grids as a guide as to what happened ( yesterdays news is fish wrap!!??)
#WITH the concentration of the secondary outlets ie Live ex co’s, Feedlotters and their associated processors +BACKgrounders for the same………….the only real COMPETITIVE tension for base market pricing –derives from these sectors competing.
#”Value based marketing” “Premiums” etc are only as good as the base water mark-SO how is this set under the above scenarios.????
# I agree that to tamper with one sector- could be costly & pointless –we must be VERY careful to keep this fair and simple for all players along the line!
SOLUTION
#Dept of ag – must install a web portal ALX Aust Livestock Exchange for any commerce that doesn’t see an auction situation ie the 80% of secondary-at present
# A+, saleyards,store sales, online –bid the grid etc –fine……………………….
# The govt must mandate that secondary co’s list their Grids/offers on the ALX for their non auction purchases. Like now –they will have total control over their offers/terms specs,duration,quantity of offer,pricing grids etc
#The ALX would be a national site but could have groupings per state.IN realtime we as producers would have the whole spread of offers and can work out whether we can supply specs, freight components to compare offers etc = COMPLETE realtime info at our desks anyday any hour.
# No different to ebay, the ASX, online banking etc A producer can lockin a portion /or all the offer as they see fit.
# No diff to buying an airticket- mastercard secures a seat & only the unsold portion is left till all sold on plane. A producer could secure a b-double of steers to a feedlot by putting his PIC in system. Eg 896 left in forward offer grid – he secures 96 so the next person has 800 available. If an offer didn’t fill- it could expire in a time deadline and the Company would have full control to create their competitive edge
#This “lockin ‘ would be a binding contract and would be self regulating over time as a bad record ( like ebay would allow people to be barred from the platform (only if a sensible disputes process fails to sort)
#There would be no privacy concerns as –like say QantasThe passengers booked names aren’t showing –only the seats left!
#Dept of AG’s one off cost to set up the ALX could be no more than say a Virgin airlines website…….. so with 4000+ public servants on the payroll there- they could do this within existing budgets
After 40 years in this game-I’m certain that this is the only change that will have meaningful benefits for stability and all our futures.
We will have to light a fire under Barnaby Joyce as I have little faith in all politicians to do something for the countries future!
Rob Moore Qld.
If Beef Central receives most processor grids each week – why not publish these on the Beef Central web site?
We’ve thought about it at times. The risk, however, is that they may quickly go out of date – especially as they are being received second-hand. As this article illustrates, it has not been uncommon recently for processors to change grids three times in a week. There is no way we could be confident that any grid we publish is still current – which could damage, not improve price transparency. The quotes we publish each Tuesday in our weekly kill report are accurate, within a couple of hours of us posting the item around Noon.
If we knew we could receive grids direct from processors – as they are revised – it would be a different story. In this case it would be our pleasure to publish them, within minutes of receival.
A polite reminder that genuine, full names are required for future reader posts, please Mr Rumpole – as per our long-standing comment policy, accessible here
Editor
“Well done to Beef Central and FutureBeef for holding this webinar. The complexities of purchasing cattle on a weight and grade basis over the scales is not understood by our industry and the difficulty of matching the timing of when the stock are ready for slaughter and when the abattoir has space for their kill often leads to mistrust on both sides of the transaction.
Over time it is in the interest of both parties to develop a close relationship so the animals can be presented in prime condition for slaughter and the processor can extract the maximum value from the meat, offal and by-products produced. My experience is that most producers achieve this level of comfort with one or two processors and have no surprises when they receive their feedback sheets.
It is important for the producer to be present whenever possible as his livestock are killed so he can see the quality of his carcass with their hide off. He or she should be aware of the specifications of the carcass pre the scales and witness the pre trim and understand why the product is downgraded if necessary. Again it is the relationship between the processor’s livestock buyer and the producer that will underscore the trust necessary for a sale this year and into the future.
Of course there are many other factors important in securing a livestock sale. With the price premium for MSA graded meat, pH is critical. To minimise the likelihood of it being greater than 5.7 we try to deliver to our local abattoir. So distance to market is an issue for those supplying to MSA specifications. For those supplying to export markets, muscle score, fat score, dentition, marbling, fat colour and meat colour are important. These will be known to the processor from prior year records and reflected in their grid price to meet the market conditions at the time.
Ability to get space for your kill can be a problem. More recently there is space available as numbers are short. However as feed shortens the time is approaching when we will again need to call upon our relationship with the processor to gain access. During the last severe drought we were asked by the processors’ livestock buyers to book our cattle in for slaughter well in front and without known pricing. Producers try to turn off their stock to an abattoir in prime condition to maximise their return and revenue for the processor from sales of meat, offal and by-products. Conditions dictate the relative importance of grid pricing.
When at AMH we had 20 or more break square models to determine the price we could afford to pay for livestock depending on how they were to be cut. The models were sensitive to exchange rate, market prices, operating costs and overheads. At the end of each day we knew what profit or loss we had made. The business was run on weekly financial reports and the monthly results were prepared for the board and to confirm our weekly numbers. Each week the management team looked at what we achieved last week, what we were doing this week and what we planned to do next week. In processing your window for influence is very short. Fortunately we had a talented team and for the most part enjoyed what we were creating as flexibility was introduced to put an end to strikes and give greater certainty to a worker’s take home pay.
Those producers who today seek out competing abattoir grid prices do so to ensure they are getting a fair price from their livestock buyer. Some need to balance live export with slaughter. Hot boning is a further complication in this mix. It is best processing spent bulls and cracker cows. Now some processors will argue this but as a generalisation it is true.
From my experience I can see no reason why grid prices should not be published. Yes some definitions will need explaining to the industry but this is already happening to regular clients. There is no genie in that bottle. It will not lead to a significant change in where processors source weight and grade cattle. You never know it may discourage the processor collusion that is happening in some saleyards across our industry and to local trim activities that reduce the price paid for weight and grade livestock but I suppose that is what DEXA technology is about.”
One of the issues with posting prices in public that I see, is the potential for ‘price signalling’ especially in competitive situations.
It is one of the mechanisms that service stations use “legally” to signal to their competitors up the road that it is time to up the price for the next cycle.
The supplier then has to be really careful that it doesn’t become that and used as a communication tool – illegal if it is done.
It could backfire against the industry if that was done.
Public disclosure of processor grids will tamper with competitive tension. It won’t help those producers who struggle to achieve the best and fairest price for their carcases. Don’t forget that’s what we sell on a grid, a carcase not a live animal. The most important thing anyone in business should do is produce the best quality market suitable product possible. Obviously environmental constraints must be considered in the grazing industry. Then the most important thing is to know how to live, breathe and compare price grids. Just as important and far less transparent is to know that different processors and different plants operate differently. Clearly understand that if two processors are operating with exactly the same price grids, your financial result may still be very different because of all the subjectivity and fudge factor along the way.
I agree with the processors reported in this article, publicly disclosing price grids is not the answer. Just like any other business, education, understanding, wide open eyes and respectful relationships are the key to maximising returns.
I don’t see anything wrong with the current system. The grids are there whenever I want one.I send mostly to one processor but use the others to check the price.
I am reminded of Shakespeare’s “Me thinks he doth protest too much!”