Brought to you by AG Concepts

Tuesday, July 18, 2017

Unseasonally dry spell supports processor margins

By Matt Dalgleish  |  Source: MLA, ACA

Key points

  • The Mecardo processor margin model shows a positive margin for June of $29.80 per head
  • The percentage of purchases of EYCI cattle at the saleyard during June/July increased from 12 to 18%.
  • Weekly volumes of EYCI cattle going to processors at the saleyard increased from under 2,000 head to over 3,000 head during June/July

2017-07-18 Cattle Fig 1

2017-07-18 Cattle Fig 2

2017-07-18 Cattle Fig 3

Above average cattle throughput, on the back of a drier than normal June, has resulted in some softening of saleyard prices. This has provided some support to the processing sector during a time in the season that normally experiences a tightening of processor margins.

Indeed, weekly cattle yarding figures for the month of June shows an 8.5% increase in throughput compared to the longer term normal seasonal yarding levels, with a weekly average of 51,000 head changing hands over the month compared to 47,000 head, based off the five-year average seasonal flows for this time of the year.

The resultant softening in saleyard prices, on the back of the increased supply, providing some continued relief for meatworks with the Mecardo processor margin cut-out model showing a consecutive month of positive margin as the June calculation eases slightly on the month prior to sit at a profit of $29.80 per head of beast culled – figure 1.

The move back into the black during May and June has prompted an increase in processor activity at the saleyard in recent weeks. Figure 2 shows that throughout June the percentage of EYCI cattle sold to processors at the saleyard increased steadily from a seasonal low of 12% of total sales in early June to peak at 18% (a seasonal high) in early July. It could be argued that a percentage increase in processor purchases could be impacted by reduced activity from lot feeders and restockers, which wouldn’t be a surprise given the rally in feed grain prices and the dry start to Winter.

However, a look at actual volumes of EYCI cattle being purchased by processors, as shown in figure 3, indicates a definite lift in processor activity at the sale yard over June, with weekly volumes lifting from below 2,000 head per week to above 3,000 head. 

What does this mean?

The normal seasonal cycle for processor margins would suggest a tightening is on the cards as we head further into Winter, although the continuation of a dry Winter and the prospect of a dry Spring is likely to soften the magnitude of the tightening of the processor margin. Given the price correction so far it seems unlikely we will see a repeat of the August 2016 trough in processor margins (losing in excess of $150 per head – figure 1) as we head into the second half of this year.

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 

x

Sign up for a FREE BASIC SUBSCRIPTION now to read this article.

Mecardo will send you its latest market analysis outlook delivered to your Inbox as it's published.  You will also receive one month Premium access for free.

You tell us what information you want to hear about, so you'll only be alerted to information that is relevant to you.

Learn more about Mecardo Sign Up Now!