The Mecardo processor margin model for August (the latest complete data available) came out at a loss of $130.35 a head. This is more than a $40 decrease since July, when the margin hit its highest point for the year at -$87.64. However, it is still considerably better for processors year-on-year, with updated data estimating they were losing $230.48 a head in August 2020.
On an average basis for the year, the processor is still worse off, with the average loss at $164.33 a head for the year-to-August. This is the biggest loss margin in the past two decades. For the same period in 2020, the average loss was $63.11, and it is worth noting that the entire year average was $120.15, which means it doubled after the spring.
The positives for processors has been the lift in co-product prices, with the total per head returns coming back at just shy of $291 in August, one of the highest prices on record, and close to 40% higher year-on-year. The US export price (90CL) has also been on the rise, averaging about 815¢/kg in August, up from 672¢/kg in August last year, and 22% higher than where it started the year.
On the flip side however, the national saleyard medium cow price averaged 655¢/kg (carcass weight) in August, up 17% on the same month the previous year, and having also jumped 17% since the beginning of 2021. And it goes without saying which side of the fence the Eastern States Young Cattle Indicator is on, averaging 1008¢/kg in August, compared to 770¢/kg for the same month last year. And it has only been surging higher since then, reaching another record of 1057¢/kg this week.
What does it mean?
Looking ahead, there is little to indicate any downward pressure on the beef sell price, with international economies bouncing back from Covid-19 and supply shortages out of South America, one of our biggest beef competitors. The same can be said for domestic cattle prices though, with a second stellar spring in the south buoying restockers and lotfeeders paying record prices.
- Processor margins fell further in August, having now traded in negative territory since April 2020.
- Despite young cattle prices continuing to reach new highs, the August processor margin was still 100¢/kg better year-on-year.
- Domestic prices continue to offset rises in export and co-product returns.
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Data sources: MLA, Mecardo