Cattle price hikes keep producer hopes high

Whether producers will net more than a 50% share of cattle prices remains to be seen
  (Photo: Thinkstock BaylaBalla )

Cattle trade is looking up for producers as the market continues to the feel the effects of slower finishing and less abundant supplies, according to data from AHDB Beef & Lamb for the week ending 13 August.

However, the situation remains harder for processors, which face depleted chill-room stocks and little opportunity for replenishment of supplies.

Amid the competitive environment the GB all prime cattle indicator strengthened another 4p on the week earlier to reach 342.1p/kg. Prices are now at a point last realised on the run into Christmas last year.

Despite being slightly up on the week earlier, the number of cattle coming forward in the latest week was still trending notably below last year’s position, as has been the case for the past couple of months. At 28,700 head, estimates suggest that the number of prime cattle slaughtered was almost 1,000 head down on the corresponding week last year.

The value of high specification, fully farm assured commercial cattle remains robust and in-spec R4L steers moved up in value again, strengthening 4p on the week to reach 356.8p/kg. This took prices for these types over the five-year average for the first time this year. Heifers of the same specification moved up another 2p to average 355.0p/kg.

The current fine weather will undoubtedly have had a positive effect on demand for some cuts, in particular those that feature on the barbeque such as mince, burgers and steaks. However, while reports suggest that retailers are struggling to keep up with demand for these items, sales of more expensive roasting joints could well prove to be more difficult as the high temperatures continue. Nevertheless, given the supply/demand balance on the domestic market and the value of sterling against the euro reducing interest in Irish beef it looks likely that the trade will remain firm for the rest of the summer.

With a notable strengthening in cattle prices over the past few months against modestly easing retail prices, the gap between the two indicators has narrowed. In July, the producer share of the final retail price was calculated to be 48%, just over three points up on that in the low point of the year so far in April when cattle prices were under significant pressure.

While this may seem like some positive news, it is worth remembering that the producer’s share of the final retail prices is still below half and remains some way behind the five-year average (2011-15) of about 53%. Also, it is important to point out that the increase over the past three months does come on the back of the producer share in April being at its lowest point in around 10 years.

In the year so far, producers have consistently been receiving a smaller share of the final retail price compared to that in the same period in 2015. Despite the spread narrowing in the past three months and their share increasing, this position hasn’t changed. While retail and farmgate prices have both been lower than in the first half of last year, farmgate prices have been back to a much more significant degree.

Looking ahead, the improved outlook for the short term suggests that the finished cattle market may well continue to respond to tighter than expected supplies, lower imports and improved export opportunities.

While a great deal will depend on the evolution of retail prices, the better farmgate price outlook could well result in producers attracting a modestly more favourable share of the retail price in the coming months. Whether or not it tips over the 50% threshold remains to be seen.

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