Beef confidence or bidding mania?

The most obvious, yet also the most elusive, is the potential opportunity to make a decent profit from drystock production. The margin is always in the middle. As everyone involved knows, the return from an enterprise is the difference between the purchase and selling prices, assuming similar production costs. Calves, weanlings, stores and all categories in between have risen in price – considerably so – compared to average historic values. That being said, the net margin may not be as positive as it seems. At this stage, price stability is even more important than further cattle and beef price rises, welcome as they would be to thousands of livestock farmers. There is a need for caution. Circumstances have conspired to drive prices upwards. A production deficit globally, allied to continuing consumer demand, even at elevated prices, is happily delivering higher returns for producers. Just as few predicted these significant price increases, neither can future price prospects be predicted with any degree of certainty. If the current trends continue, then there is little reason to doubt the robustness of the present state of cattle prices. The ‘if’, however, includes so many imponderables that there can be little guarantee of what market prices or prospects will be in even six months’ time.
Is some of this unbridled enthusiasm driven by over-exuberant confidence, or is it based solely on a reasonable assessment of market prospects for beef over the next two years. That, after all, is the timeline from calf to slaughter. The purchase prices of weanlings and stores are merely a shorter timeline, driven by the same criteria. ‘Tulip mania’ should not come to mind, as any agricultural economist would say that beef prices are only now entering a viability space for producers. Previous prices have been running close to or below production costs and were unsustainable in many instances, if not for the various subsidies and support schemes in place. These in turn have not only kept many cattle farmers in production, but they also have indirectly supported prices by allowing producers to continue buying and selling at prices that offered little margin.
Presumably beef processors can afford the prices they are paying for beef. Even with contracts to fill, paying more than can be returned from the marketplace would not be an economic proposition and unsustainable in the medium term. When market prices fluctuate in any commodity, however, there are always winners and losers. Observing that a competitor can pay €X/kg and presumably make a profit, does not mean that everyone can achieve the same outcome. The same applies to cattle producers. Repeating the mantra, the margin in the middle determines the profit. The buying-in price must match the selling price somewhere down the timeline. While a €5/kg liveweight price for a weanling purchased this spring is a baked-in financial commitment, the €8/kg deadweight price necessary to leave a margin in eighteen months’ time, is far less of a certainty. At current store cattle purchase prices, even with bonused-up slaughter prices now touching €8/kg, margin improvement will only be achieved through higher slaughter prices over an extended period. Upwardly mobile cattle and beef prices are not an Irish phenomenon. UK beef prices have already breached the €8/kg watermark with base prices of €8.30/kg (at time of print) US cattle prices are at historic highs, driven by scarcity and continuing demand buoyancy. Provided consumer/retailer resistance or increased third-country imports to the EU and especially the UK, do not seriously undermine current prices, then the outlook is positive. Producer confidence is high. A degree of caution should be equally important.