Why cow prices have taken a hit
There has been a disproportionate drop in cow prices, normally only seen in drought conditions. Our livestock expert breaks down the figures for you.
Have farmers started reacting to a drought situation that hasn’t arrived yet, and in the process, opened the door for meatworks to take control of the market and drop prices lower than they need to be?
It is a question posed around the cow market.
The saleyard price average for slaughter cows dropped to 260c/kg liveweight on Monday this week, according to NLRS data.
It worked out to an average of $1501.
This is down more than $200 when at the start of February, the auction cow price was at 284c/kg liveweight, equating to a return of $1725.
It gets interesting when these figures are compared to the benchmark rate for export manufacturing or grinding beef sent to the United States, which is referred to as 90 chemical lean (90pc red meat 10pc fat blend) used for hamburgers.
The industry uses the 90CL trend line as a measure of demand for manufacturing product. And it has been getting dearer, not cheaper.
In early February, the price of 90CL was listed at 707c/kg landed in the US in $A terms. This week it was sitting around 830c/kg.
It means that the current price ‘gap’ between what exporters pay for cows in saleyards and what they can get for grinding beef in the US is vast: translation – processors should be making very good money.
Convert a liveweight price of 260c/kg to a carcass value, and it works out about 500c/kg dressed for saleyard cows against an export price of 830c/kg, leaving a trading ‘gap’ of more than 300c/kg..
Historically a gap of more than 250c/kg in the trading calculation puts the state of play in favour of processors.
The saleyard average for cows at 284c/kg a month ago converts to about 560c/kg carcass weight. At the time, the 90CL price was 707c/kg, meaning the trading gap was more than half that of today at 147c/kg.
So why are cows getting cheaper when export prices for manufacturing beef have been getting dearer?
Markets are a reflection of demand and supply. And as the above 90CL figures point out, demand is not the issue at present.
The answer appears to be supply. Delve into the latest kill data, and it shows a big lift in female slaughter numbers across all the main states. For the week ending March 10, slaughter rates were:
- Queensland, 19,029 female cattle, up from 13,987 a year ago;
- NSW, 15,159 females, against 11,425 head; and
- Victoria 9344, nearly double the 5808 of last March.
Old cows are among the first stock to be quit in tough times, as they are high feed maintenance and of lesser future value than young stock. Nevertheless, nearly half the 2100 cattle yarded at Wagga Wagga prime market on Monday was cows, including many PTIC females.
It’s not price enticing them as the market continues to retreat, and farmers are now receiving, on average, $700 less for cows compared to 12 months ago.
Farmers seem rattled by the dire predictions of dry weather and El Nino, and the figures above support the argument that we are seeing is a reaction to an event that, in reality, hasn’t even happened yet.
Usually, processors only get the gift of a 300c/kg- plus margin (saleyard cost versus 90CL price) for cows in drought conditions. Some timely rain could rebalance the figures, but conversely, little or no rain in the run-up to Anzac Day could trigger ongoing price pain for cows.
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