Australian beef processors reeling as profit margins continue to plummet

Things have gone from bad to worse for Australian beef processors, with a combination of soaring domestic cattle prices and input costs leading to the worst profit margins on record. Average monthly margins for abattoirs plummeted from a loss of $357 per head of cattle in September to $433 in October, according to modelling by Thomas Elder Markets. TEM analyst Matt Dalgleish said the annual average margin for 2021 was now sitting at a loss of $321 per head of cattle processed. “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,” he said. “Any way you want to look at it, this is the worst time we have seen for Australian beef processors.” Both the Western Young Cattle Indicator and Eastern Young Cattle Indicator have repeatedly smashed their own records this year, with both now sitting above 1100c/kg — a price once considered unthinkable. Mr Dalgleish said processors were copping it in every direction, with cattle input costs increasing by 3.2 per cent over October, operating costs increasing by 2.2 per cent and average beef export revenue values falling by 2.0 per cent. “The combination of rising cattle input prices, higher running costs (due to) electricity and wages increasing, and lower beef export values are making for incredibly tough times for beef processors,” he said. Some processors, however, are weathering the storm. Dardanup Butchering Co chief executive Mark Panizza said the multi-faceted WA business — which processes paddock to plate beef, lamb and pork for the Australian market — had been far less impacted than large beef exporters. “Because we’re a multispecies plant, when it gets tough in beef something else picks up to take the slack a bit and we can cut back our beef numbers,” he said. “Some of those (beef) plants on the east coast, particularly the Queensland ones, are closing earlier this year for maintenance so they can get some respite from the losses that they’re incurring.” Mr Panizza said beef was fast becoming a luxury food in Australia, with more consumers turning to chicken and pork instead. And with the domestic cattle supply under pressure, he predicted the situation for beef processors would get worse before it got better. “The red meat sector is really, really tough for processors and it’s not going to improve until such time as we get some (cattle) numbers out there that can push the price back,” he said. “The only way to do that is if heifers are held back for breeding stock, and then the cows they would normally send for slaughter get another chance to have another calf.” There are some positive signs for processors, with Meat and Livestock Australia’s latest projections showing the national cattle herd is on track to grow to an above-average 26 million head this year after falling to an all-time low of 24.6m head in 2020. After several years of drought in key cattle-producing regions across Australia, favourable weather has been driving the national rebuild, which is expected to continue into 2022 and 2023. Mr Dalgleish said there had been some strong gains in beef export prices in November, which could indicate some respite for processors, though it would depend on how much higher domestic cattle prices went. “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,” he said.