With falling market prices, how can beef producers maintain positive margins?
At the time of writing, the GB all prime average deadweight cattle price has fallen below the 5-year average with more than a 40p reduction compared to this time last year.
AHDB Stocktake figures suggest making profitable returns from beef finishing is challenging enough without further pressure from poor market prices.
Current Market Analysis
2019 has shown great volatility with prices showing abnormal trends. This has been caused by an imbalance of supply and demand.
(1) SUPPLY HIGH
The year started more than 10p lower as higher stocks were carried through winter caused by summer drought preventing grass finishing
(2) SUPPLY HIGH
Stocks have accumulated due to uncertainty surrounding EU market access post original Brexit deadline of March 29th.
Slaughterings increased due to more over winter finishing and producers wanting to sell stock before Brexit deadline
(3) SUPPLY REDUCED, DEMAND INCREASING
Slaughterings reduced due to spring turn out.
Demand increases with late Easter (21st April) and onset of BBQ season
(4) SUPPLY HIGH, DEMAND LOW
Demand reduced as processors still moving pre-Brexit stock and consumers following the seasonal trend towards less roasting joints. Early June wet weather also reduces consumer demand for BBQ cuts
2019 and early 2020 slaughterings are expected to drop by 3% as a result of fewer animals on the ground.
Strong cull cow prices seen in the first half of 2018 followed by the summer drought has caused the UK breeding herd to reduce by 2% this year. Herds were not however replenished with replacements as Brexit uncertainty discouraged herd expansion plans, instead 2018 saw a higher than average number of heifer slaughterings. Herd size contraction in 2018 resulted in 48,000 fewer calf birth registrations compared to 2017. Fewer registrations is also predicted for 2019.
What is the Market Outlook?
Prices could be seen to recover towards the end of 2019 and into 2020 as supply prospects look low and demand may be enhanced by the new Chinese trade deal which may see shipments sent as early as winter 2019.
The fear now is if processors continue to utilise winter stocks and prices remain where they are, will the market plummet further in the run up to Brexit round 2 at the end of October, as seen in March? It is thus suggested that farmers should be establishing businesses that can profit with low prices and prosper with high prices.
How to Profit in the Low and Prosper in the High
A resilient beef finishing enterprise will be founded on effective rationing.
Using our Beef Margin Over Feed Costs calculator we can see that Days to Finish can be reduced by 81 days when the animal’s DLWG increases by 0.6kg. Even though the diet cost is £0.70 more expensive, at the average GB market price (w/e 29/06/2019) the MOFC increases from £0.03/day to £0.36/day, equating to over a £3000 increase in total margin.
Working with You
We can offer consultative services which include an evaluation of the current ration alongside forage nutritional analysis. From this information we can reformulate rations to improve animal performance and gain greater MOFC.
Contact Chris Freeman on 07767007067 or email email@example.com