Winter trade squeezes profit

WINTER cow markets are shaping up to become a difficult trading period for export beef processors.Although prices for 90CL (chemical lean) cow beef in the US grinding beef market have remained relatively stable for the past three months, averaging a tick over 300 cents (Australian) a kilogram FAS (free alongside ship), saleyard prices paid for cows over the same period have increased sharply and are squeezing processor margins.Observing buyers at the Colac market last Thursday, it was obvious that processors are under financial strain. Starting bids from all buyers, even on the smallest pen lots and single sales, were always right up on the mark – a fair indication that best prices were being submitted at every chance.Another good indicator that markets are being keenly contested is the huge price differential that now exists between over-the-hooks rates and the physical market which is now as much as 30-50c/kg.Market reporter Eric Gstrein of the National Livestock Reporting Service said that recent talk among the buyers suggested that prices over the next week or two must come back or several plants might decide to close in the not too distant future.“Mid-June could see some movement on this front” he said.Current weekly slaughter figures also indicate processing numbers have tightened considerably. Beef slaughter in Victoria for May was 20 per cent lower than in March.Experienced cattle buyer Peter Byrne said this week: “How long plants will remain closed this year is anyone’s guess”.South Australian exporter, Teys Bros, has already indicated it will close its Naracoorte plant on July 6. But Teys buyer David Woollard told Stock & Land that no date had been set for the plant to start up again.Looking at cow market results early last week, it’s clear the situation has in fact worsened. At Pakenham on Tuesday cows were traded for an average of 285-295c/kg which is a “live” price within 10c/kg of the FAS money which exporters are paid for their product after it is processed, packed and shipped to the wharf.At Camperdown a run of medium to heavy weight dairy cows achieved average prices of 290-300c/kg, while at Shepparton medium cows made 122-148c/kg lwt which was the equivalent of 270-280c/kg according to the official NLRS report.A close examination of historical cow market data reveals that FAS prices for the past nine months have averaged 322c/kg while physical saleyard prices have averaged 239c/kg. This provides a processor margin of 83c/kg for the September-June period while over the past five weeks the margin has been as fine as 36c/kg due to an average FAS price of 300c/kg compared to a saleyard average of 267c/kg.The average processing margin for past three years has been 60c/kg.