Wholesale beef environment looking a little brighter

Jon Condon, 28/08/2012


The domestic wholesale beef market appears to be emerging, slowly, from a horrific two-month period where prices on a wide range of cuts sank to extreme lows, due to poor demand and export-driven oversupply.

Reliable trade sources contacted by Beef Central yesterday, while still cautious in their outlook, signalled that the worst might now be behind the wholesale trade.

While the general trend might be $1-$1.50/kg higher on steak cuts, a few specific items, like grainfed cube roll were now recovered to more realistic prices around $17-$18.  They sank to as low as $14/kg in recent months.

Recent low rates of beef kill have also served to ease the supply pressure on the domestic market, after earlier being awash with product intended for export, which for various reasons, including subdued demand and unfavourable exchange rates, failed to make it onto a container vessel.

Processors generally have elected to reduce kills to suit market conditions, rather than continue to produce beef that would ultimately be difficult to find a home for.

One large beef wholesaler with exposure across the three eastern states said last week was probably his company’s best trading week for some time.

“We’ve been trying to clean-up our position, pushing very hard, but it has come at the expense of margin,” he said.

He suggested wholesalers generally had been prepared to cop a smaller margin in recent months, just to shift product. But that was unsustainable long-term. His margin was probably back 5c/kg on where it sat this time last year – a very significant decline in a high-turnover, low margin business.

“But wholesalers just have to keep pushing product through. Eventually you start to roll-out of dearer meat and into cheaper meat,” he said. “You’re best to take your medicine and move on.”

The trade, generally, was trying to re-establish a higher wholesale price level heading into September, when weather conditions would start to warm up and grilling cuts would again grow in popularity.

While the market does not yet reflect any ‘significant’ increase, that might not be far away.

Most better quality steak cuts were now $1-$1.50/kg better than where they were earlier, and could start to gain more momentum heading into September.

“Everybody is currently asking that much more on cube rolls and strips, while rumps are probably 30-60c higher, depending on the item,” our contact said.

On YG-cipher grassfed rumps, the east coast wholesale market is currently around $7/kg, with five-rib cubes, $12.50. Grainfed YG is around $7.80 to $8.50/kg on rump, depending on weight and product, striploin around $11.50-$12 depending on weight range, with cube rolls that got down to $14/kg during the depths of the slump, now recovered to $17-$18/kg, depending on weight. One outlier caught with stock was a little cheaper on $15.50 for heavier, 100-day cubes. 

Adding to the trade’s recent woes was the increased cost-burden brought on by the Federal Government’s new carbon tax. Electricity bills issued this month, for July, are reflecting the higher energy costs brought on by the tax, further eroding margins.

“That’s also impacting on the psyche of the consumer, and it flows back along the chain in terms of demand and price sensitivity. It’s still a very tough trading environment out there, for all stakeholders along the chain,” our wholesaler contact said.

He thought the market might show signs of improvement by the end of September, or early October.

“We’re going to have to see higher prices. The grainfed market is going to have to reflect what has happened in the US with feedgrain prices, and that will flow-on here in grainfed prices, also. It has to.”

In another pointer to improved trading conditions ahead,  the Australian Agricultural Co in its recent half-year report to shareholders told the market that in its wholesale meat division, trading margins were expected to improve in the second half, due in part to seasonal demand, as well as the company’s price structure of forward purchases for wholesale beef.      



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