By Matt Dalgleish
Check out the original article here.
- The monthly processor margin recorded an average loss per head of cattle processed of $253 for June 2021.
- May 2021 saw the margin model calculation revised up from a $306 per head loss to a $283 per head loss.
- The average annual beef processor margin for the 2021 season currently sits at a loss of $305 per head of cattle processed.
Domestic cattle prices increased from May to June, lifting input costs to processors. However, beef export prices over the same time frame rallied by a greater magnitude, which allowed processors to retain a bit more margin. The monthly average margin, according to the Thomas Elder Markets (TEM) beef processor model improved to record an average loss per head of cattle processed of $253 for June 2021.
Additionally, fresh updates to some of the beef export prices for May 2021 saw the margin model calculation revised up from a $306 per head loss, as reported last month, to a $283 per head loss. The improved margin in June and the revised May figure means that the average annual beef processor margin for the 2021 season currently sits at a loss of $305 per head of cattle processed.
A recent ABC Rural report quoted Australian Meat Industry Council’s (AMIC) Patrick Hutchinson, that “processors were losing about $350 per head and most have been in the red for 12 months now”, which is a statement that is broadly supported by the TEM margin model.
It is a timely reminder to outline that the TEM beef processor margin model is a theoretical tool that estimates the average monthly margin faced by a representative processor, which gives an approximate guide to how margins in the sector are faring based on key cost and revenue inputs to the model.
The TEM margin model was built using the Australian Meat Processing Corporation (AMPC) margin model as a guide. However, the TEM model is entirely independent of the AMPC version and is calculated and published without any input or direction from AMPC representatives. The historic chart below highlights the similarity in outcomes between the TEM and AMPC model and reinforces the fact that, while the models are built in a similar fashion, they contain different input variables and generate slightly different outcomes each month.
The AMPC published a report in 2019 that provides more information about the construction of their model, which provided monthly margin data from January 2008 to December 2018.
Measuring the TEM monthly processor margin as a proportion of the national heavy steer prices (on a cwt basis) demonstrates that over the last two decades margins have averaged approximately 11% of the respective heavy steer price, with normal fluctuations between a loss of 15% of the heavy steer price to a profit of 40% of the heavy steer price.
Historical movements highlight that processor margins would be considered at extreme levels when losses are beyond 40% of the heavy steer price or when profits are more than 65% of the heavy steer price. The improvement in processor margins over the last two months has seen the margin, as a proportion of the heavy steer price, moving back into a region that is not considered extreme with it currently registering a loss that is 35% of the current heavy steer price.