Winter respite, spring sorrow
- Beef processor margins in July narrowed to a loss of $214 per head, the “best” month so far this year for the nation’s cattle abattoirs according to the model.
- Throughout the balance of winter and into spring margins have eroded further into negative territory with the September 2022 margin sitting at $377, so far this month.
- Annual average processor margins sit at a loss of $298 per head, which about $150 worse than would be expected based on the historic scatterplot of cattle slaughter to margin performance.
The beef processor margin model saw some improvement in the margin during July as softer domestic cattle prices began to take some margin pressure off abattoirs. In July the margin model managed it’s “best” month so far this year with an average monthly loss per head of cattle processed recorded at “just” $214. However, since July improving cattle prices have seen the processor margin model head south again with successive months of widening negative margins recorded.
The margin as at the final week of September 2022 sits at a monthly average loss of $377 per head of cattle processed, which is the lowest monthly margin recorded so far this year. Although it is not the worst processor margin on record, that was in October 2021 when the margin slumped to $434 per head.
The historic monthly margin since 2000 is shown below and highlights just how sour the current situation has turned for beef processors, according to the processor margin model, with much of 2021 and 2022 spent in extremely poor margin territory. Analysis of processor margins as a proportion of the national heavy steer price are probably a better way of looking at the margin trend, as this compares margins relative to cattle prices, so it takes into account that cattle are more expensive these days.
For example, a $100 per head processing margin earned on a $1,000 dollar per head animal back in the early 2000s is the same as a $200 per head margin earned on a $2,000 per head animal today. Looking at the margin trend in percentage of heavy steer pricing terms shows that current margin losses are near extreme levels historically, but not beyond the extreme range (as outlined by the dotted orange lines).
Based on a September average monthly loss per head of cattle processed of $377, the annual average margin for 2022 presently sits at a $298 per head loss. A comparison of the annual cattle slaughter levels to the average annual margin highlights that the current level of beef processor losses are beyond what would be anticipated, according to the line of best fit.
With cattle slaughter forecast at 6.6 million head for 2022 an annual average processor loss closer to $150 per head is what would be expected, but with margins heading south into spring it will take a decent turnaround in processor fortunes for the remainder of the year to get the annual average losses back nearer $150 per head and this seems unlikely.