Any way you look at it the combination of rising cattle input prices, higher running costs (with electricity and wages increasing) and lower beef export values are making for incredibly tough times for the nation’s beef processors during October. The EP3 beef processor margin model shows average monthly margins sliding from a loss per head of $357 in September to a loss of nearly $433 in October, the worst monthly margin on record since early 2000.
This brings the annual average margin for 2021 to a loss of $321 per head of cattle processed. Everything seems to be going against the processors at present, with cattle input costs increasing by around 3.2% over the month, operating costs increasing by 2.2% and average beef export revenue values falling by 2.0%. The only gain for processors was a 2.7% increase in average co-product prices.
There have been some strong gains in beef export prices in recent weeks during November so that may show some respite for processors in the next update to the margin model later this year, but it will depend on how much higher domestic cattle prices can go with the Eastern Young Cattle Indicator (EYCI) hitting a new high of 1111 c/kg cwt just yesterday.
An assessment of the margin losses versus the price of cattle shows that in percentage terms the current margin losses are the worst on record, even accounting for the current high cost of cattle. On a proportional basis margin losses are at 52% of the heavy steer price, which is beyond the historic extreme loss boundary, as identified by the 95% range (orange dotted line).
Indeed, anyway you want to look at it, this is the worst time we have seen for Australian beef processors. It is likely we will start to see some rationalisation of the sector into 2022 as it looks to be a while before beef processing will get back to a more positive margin outcome.
Please note, the EP3 processor margin model can be adjusted retrospectively as updated input data is made available.