Price strife for feedlotters
While cattle farmers ride the high-price wave of the supply and demand curve, those in the feedlot industry are seeing margins squeezed to almost unviable levels.
With cattle numbers the lowest in many years, producers are collecting upwards of $850 to $1000 a head.
But according to WA Lot Feeders Association president and Kerrigan Valley Beef owner Trevor Hinck, this pricing upside was not filtering through to the value-adding industry, where calves are brought in and fed for 60 to 90 days in feedlots, and on-sold to processors.
Mr Hinck said while wholesale prices were starting to move, they still did not represent a positive margin for the feedlot industry.
"The sale yards prices are moving so quickly that it's very hard for the wholesale industry to keep pace," he said.
"This is a great situation for the cattle producer, and it's great news for them, but we need the entire supply chain to be profitable.
"But there is no reason why the wholesale price for beef should be as low, given the strong export demand for beef at the moment.
"Wholesale prices are too low to be sustainable in the long term."
Mr Hinck delivered a warning to domestic retailers and consumers that WA beef would ultimately be sold to the highest bidder.
"We have a good safe product here in Australia and the rest of the world recognises this but the domestic market hasn't worked this out yet," he said. "Australian consumers don't see our beef as a premium product, they see it as just a staple commodity - which it is not.
"If the export market starts to overtake the domestic demand for beef in WA, then our beef will end up sold to the highest bidder.
"The domestic market has to keep pace with international demand, and this is not being reflected on supermarket shelves here in Australia"
But Mr Hinck said after many years of low cattle prices, and with many farmers leaving the industry, the challenges with supply would not be solved overnight.
"It will take many years for the supply to catch up with international demand; in fact, maybe it never will," he said. "The sheep and pork industry has been through this, and now it's happening in the beef industry.
"The high prices being demanded by cattle producers are simply a reflection of low stock numbers, and it's a good time to be a cattle producer. "The simple answer is that the consumer must pay more for their beef."
WA Beef Council chairman Ivan Rogers, who runs Kylagh feedlot in Tammin, is more confident about the future of the industry.
Mr Rogers believes wholesale and retail market pricing will catch up with current cattle prices.
He said the majority of high- grade beef on supermarket shelves was currently supplied by feedlots.
"I'm confident that we will get the wholesale and value-added sector of the supply chain back into a positive margin situation," he said.
Mr Rogers said the feedlot sector was pivotal to the beef supply chain because it was able to supply high quality in specification beef throughout the year, irrespective of seasonality.
"Because of this key role, there is no choice, we have to make it happen," he said.
Mr Rogers said herd numbers nationally had shrunk from 26 million head in late 2013 to just 23 million.
"It's been a really significant downtown in the national inventory and the South West of WA has mirrored that in percentage terms," he said.
"We are also coming off a very low price base and it's probably taking the marketplace some time to adjust to higher beef prices that have resulted from shrinking supply and growing export demand.
"We believe this is temporary."
Mr Rogers said some of the disparity in pricing could be attributed to forward contracts.
"The store price is generally a spot price, while the price for cattle coming out of a feedlot or from the processing sector is quite often a forward contracted price," he said.
"When you get a fast moving store market, the contracts can be two or three months out, meaning the value-add sector can move out of the money, and that's what is happening, that's where the current pain is.
"It is important for industry at all levels to work together so there is a clear understanding of capacities to produce and the cost of production.
"By having these conversations, we trust that future supply contracts will reflect that move in the market."
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