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.