Abattoirs count their losses as cattle prices surge

Australian abattoirs have been losing an average margin of $300 per head of cattle this year as local prices continue to surge. The latest figures show beef processors are copping the highest losses in more than two decades, as record local cattle prices outperform export price movements. With Australia’s cattle herd in the midst of a major rebuild, Thomas Elder Markets analyst Matt Dalgleish said local prices were being driven up by tight supply and a low slaughter rate. Mr Dalgleish said this was causing the worst hit to beef processors in the 21 years Thomas Elder Markets had been gathering and modelling data. “The 2016-17 period was the most recent time we went through a strong rebuild of the herd, and we saw fairly high losses back then of around $120-$130 a head,” he said. “So we’re talking current levels that are more than double what was the worst previously.” Beef export prices have been improving amid a global tightening in supply caused by trade disruptions to Brazil, as the world’s biggest beef exporter grapples with a mad cow disease outbreak. Argentina — whose beef exports are about half that of Australia’s — has been restricting exports in a bid to control food inflation. With more than 70 per cent of Australian beef product shipped overseas, this would usually be good news for local abattoirs and their bottom lines. But while export values have gained between 30 and 40 per cent since 2018, the local cost of cattle has risen by 60 to 80 per cent. “The US are going through their third year of a destocking phase, so they’re producing some good volumes and that’s part of the reason why the global export price hasn’t outperformed the Australian situation,” Mr Dalgleish said. “Because the supply picture, while it’s tightened with Brazil and Argentina’s woes, hasn’t tightened enough to replicate the tight situation we’re seeing in Australia. “The anecdotal word on the street from processors is that it’s the toughest time they’ve seen ... even the ones that have been around for 30 or 40 years.” Mr Dalgleish said Australian processors could make profits up to $400 a head in drought years when the slaughter exceeded nine million head. But during years of restocking, when that figure drops towards the six million mark, their margins tended to plummet. With Meat and Livestock Australia forecasting a slaughter of 6.3 million for 2021 and 6.8 million next year, Mr Dagleish predicted hard times would continue for abattoirs. “We’re still on the lower end of normal and that’s probably meaning we’re going to see an average annual loss next year of around $100 a head,” he said. In July, the Eastern Young Cattle Indicator surpassed 1000¢/kg for the first time in history. It has repeatedly broken its own record since, reaching a peak of 1057¢/kg on October 6 before falling to 1043¢/kg the next day. On Monday, it was at 1044.28¢/kg, while the Western Young Cattle Indicator — which cracked the 1000¢/kg for the first time in April — was at 1018.28¢/kg.