What are beef processors making out of slaughter cattle?

Jon Condon, 05/12/2013


Beef Central’s report last week, “A$ falls to three-month low, but will export processors share the love?” has triggered discussion about current processor returns, and how much they have been impacted by currency movements, drought oversupply and other factors.

A contact from a large export processing operator has agreed to provided data on his company’s current margins on slaughter cattle, contrasting southeast Queensland kills last week, with those from two months ago, this time a year ago, and 12 months before that. 

The figures below are actual figures for one specific, large southeast Queensland plant, based on what Beef Central believes to be reliable data. Margin figures will inevitably change from one processor to another, based on the scale of their operations, efficiency, market access and countless other factors. But the general trend is the key message here.

It clearly shows that a typical SEQ processor was making good money on slaughter cattle last week – particularly cows. Even better two months ago, when the drought supply-side pressure was still on in earnest. Cow profits back then went past 50c/kg, or $125 on a 250kg carcase.

But have a look at some of the figures posted this time last year, and two years ago. What can only be described as horrific losses, as slaughter cattle supply was heavily-squeezed by two back-to-back excellent seasons. Steer and cow back in November 2011 represented losses of $148 on a 330kg grassfed steer and $100 on a 250kg dressed weight cow.

In discussions with Beef Central as recently as last week, one reader struggled to accept that processors are prepared to kill cattle at all, during times that they know are going to be loss-making propositions. The truth is, it happens with some frequency, as our figures below show.

Why? Because all large Australian processors are locked in a deadly struggle with international competitors, and to simply walk away from long-term supply arrangements with large international customers would inevitably cost the company more than killing cattle for a period at a considerable loss.    

The figures below are based on processor margins for last week – broken down into livestock cost to the processor, what the margin was as meat, and what the different was (profit/loss).

Two figures are provided – one for 4-6 tooth grassfed steer, and the other for heavy cow. In addition, for comparison, NSW figures for last week are also published below, for comparison with Qld.

The key point worth noting are that there are big swings from year-to-year, and season-to-season in processor profitability, and that processors often spend near as much time in red ink territory as in the black.

Based on the data below, on a 330kg 4-6 tooth grassfed steer carcase, this processor has swung between a best profit of $66 in September this year during the oversupply peak, to a whopping $148.50 loss on the same animal in November, 2011.

Full-mouth cows aren’t that different: This processor was seeing a profit of $125 on 250kg heavy cows in September, with losses as high as $100 in November 2011.

Here’s the data, for readers’ interest:


Last week:

Grass Ox (4-6T) – Cost 340c/kg; return 345c/kg – net 5c/kg profit

Cow (8T) – cost 280c; return 315c – net 35c/kg profit

September 2013:

Grass Ox (4-6T) – cost 320c; return 340c – net 20c/kg profit

Cow (8T) – cost 265c; return 315c – net 50c/kg profit

November 2012:

Grass Ox (4-6T) – cost 335c; return 310c – net loss 25c/kg

Cow (8T) – cost 275c; return 260c – net loss 15c/kg.

November 2011:

Grass Ox (4-6T) – cost 360c; return 315c – net loss 45c/kg

Cow (8T) – cost 315c; return 275c – net loss 40c/kg

NSW (last week’s figures, for comparison with Qld’s same week, above)

Grass Ox (4-6T) – cost 315c; return 350c – net return 35c/kg

Cow (8T) – cost 285c; return 320c – net return 35c/kg.


Prefacing the margin information above, producers should remember that there has in fact been a 40c/kg rise in grid prices ex Southeast Queensland over the past three months, since the depths of the drought-induced turnoff.  

Recapping some of the points made in last week’s report, a large processing contact made the point that there was not necessarily much direct relationship between livestock grid prices set by processors and currency movements.

“Supply issues this year have pretty much overwhelmed any currency component,” he said.

“Meatworks buyers are obviously well aware of what’s going on in supply. While there has been a drop in the dollar which has been beneficial to processors – there’s no question about that – the big kills that have been witnessed over the past nine months have overwhelmed that.”

“And overseas meat buyers, seeing those high rates of kill this year, inevitably seek to purchase at a lower price level, simply because of the abundance of product available out of Australia.”

Another factor often raised by staff on the export meat sales desks is the tendency for importers, monitoring the currency movement, to seek to share in that trend, by trying to negotiate a lower price in US$ terms in recognition of the currency effect.

“A lowering in the dollar does not necessarily go straight into the exporter’s pocket. Often it is shared – sometimes substantially, depending on beef supply and demand – with the importer, in the form of a lower price, in US dollar terms,” our contact said.

“But now, we’re coming into a period where supply will be limited, and processors who are keen to pick-up supply, are likely to have to pay a bit more for it.”

Another factor sometimes raised by export processors is the lag effect between cattle purchase and when that beef is sold onto the world stage – sometimes at a currency price that has changed substantially since the cattle were procured. International meat sales being made today in some cases reflect livestock purchases made in late October or early November.

“Unlike a trader, the export processing company is simply selling the product and covering the exchange rate as they sell forward. A trader, on the other hand, might be looking to gain a margin from the currency, but that’s not the case for processor-exporters, because they are not speculators,” our contact said.

As a general comment, the processor said there was no question that the movements in the currency this year had improved returns for export processors.

“They will make no apologies for that, because for the previous two years, the reverse applied, with some very big losses recorded.”

Evidence of that is clearly reflected in the data above.

“Producers would like us to share the love when cattle prices are in decline due to oversupply, but are not interested when profitability circumstances weigh heavily against the processor,” Beef Central’s contact said.





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