Processing

Processor margins’ sink to record lows

Beef Central, February 12, 2021

TYPICAL beef processor margins on slaughter cattle have produced losses exceeding $300/head for the first time, a recent analysis has shown.

A theoretical monthly processor margin calculation made by Thomas Elder Markets suggests losses during January averaged $310 per head*, across adult slaughter cattle.

As the graph below shows, this is the lowest recorded monthly margin (or more accurately, negative margin) since records began in early 2000.

“Looking at the margin model for the start of the season, it is pretty clear that it has been a shocker of a beginning to the year,” TEM analyst Matt Dalgleish said.

“It’s never a good thing for a supply chain to have a key participant suffering financially and it makes it difficult to see how finished cattle prices can continue to push higher during 2021,” he said.

The record loss trend for processors on slaughter cattle was flagged in this weekly kill report published back on 19 January, when both grassfed steers and cows were at least $300 in the red.

As Beef Central reported last week, Victoria processor HW Greenham closed one of two lines at its plant in Tongala due to cost and supply pressures, and in December, Monbeef, a hot boning processor near Cooma in NSW closed its plant for eight months.

* Note – The TEM processor margin model can be adjusted retrospectively as new input data comes to light. The January 2021 figures include co-product pricing and some export pricing that is yet to be updated fully for the month of January, so the $310 figure may be adjusted slightly in future analysis releases.

 

Click here to access original TEM article.

 

 

 

 

 

 

 

 

 

 

HAVE YOUR SAY

Your email address will not be published. Required fields are marked *

Your comment will not appear until it has been moderated.
Contributions that contravene our Comments Policy will not be published.

Comments

  1. Garrey+Sellars, February 15, 2021

    I don’t believe one word – if they were losing 300 dollars per head, they would shut the doors. It is only producers who have to some how keep going when we were running at 80% below CPI.

    On face value, it might defy simply logic, Garrey, but there’s a whole host of reasons why processors are prepared to kill cattle while sustaining such losses.
    The first is that most of them have long-standing, deep supply relationships with large customers overseas, and indeed, in Australia. Simply shutting their doors would ‘gift’ that hard-won meat business to other Australian processor competitors, or worse, competitors overseas. Once lost, such business inevitably proves to be very hard to re-gain.
    The second is to do with preservation of skilled labour. Closing a meatworks through low profitability inevitably sees staff drift away to other regions, or other occupations. Once lost, it is incredibly hard for a processor to raise a skilled workforce, to recommence operations.
    Thirdly, it’s about simple competitive rivalry. Closing a plant, effectively gifts those cattle to a processing competitor somewhere else.
    It’s a complex situation, but there are reasons why processors are prepared to limp along under the current conditions. Editor

  2. Val Cormack, February 12, 2021

    In 2014 and 2015, one processer made $500 net profit on a steer, and another processer made $800 net profit on a cow. All these large profits were being made while world beef prices were
    at record prices, and cattle prices were low.
    Would you like me to name the processers?

    Yes please, Val. Your claim over profits certainly exceeds any margin figures we have ever seen for processing, and certainly does not align with TEM’s own graph, published in this article. The highest point it reached (and only very briefly) was about $350/head, and indeed, +$200 margins have been seen only three times in the past 20 years. Let’s ask the processors you name, directly, whether your claim is accurate. Editor

Get Beef Central's news headlines emailed to you -
FREE!