By Matt Dalgleish | Source: MLA, Steiner, USDA, Trade, Mecardo.
Lower cattle input prices and improved beef export values during December helped the Mecardo processor margin model to finish the 2018 season on a contented note, moving back into positive territory after November’s dip into the red.
The $18 loss per head reported last month for November was revised down slightly to a $12 loss as updated data for offshore beef values and co-product prices saw some additional value clawed back by processors.
December saw a 9% decline in the processor purchase price of cattle, while beef export values across key offshore markets managed a 5% gain. Combined with slightly softer co-product values, down 3%, the total cut-out value for processors lifted 4% over the month.
The net result of all the price gyrations across domestic and offshore markets according to the Mecardo processor model was a profit of $141 per head for stock processed during December (Figure 1). This saw the annual average processor margin finish the 2018 season at $96.4 profit per head, just $3.60 short of our forecast annual average processor margin outlined in our August 2018 analysis of $100 per head.
Narrowing processor margins through the August to November period seemed to inspire more prudent buying behaviour from processors at the saleyard. The EYCI processor spread moved from a 4% premium in August to a 7% discount in November (Figure 2).
January processor spread data shows a slightly improved start to the 2019 season with the processor spread averaging a 6% discount, compared to the 7% discount seen during January 2018. Perhaps the improved finish to the processor margin during December 2018 encouraged a slightly more optimistic start to processor buying activity in 2019. Although we are still well short of the seasonal ten-year average processor discount usually expected in January of around 3%.
N.B – Input data to the Mecardo cutout model, such as beef export prices/cutout values and co-product prices, can be revised post reporting each month. These amendments can sometimes see the previous monthly margin figures revised to factor in the input revisions.
Key points
* The Mecardo processor cut-out model shows the processor margin moving back into positive territory in December 2018 with a $141 per head profit recorded.
* The annual average processor margin finished the 2018 season at a profit of $96.40 per head, compared to the $100 forecast in our August 2018 analysis.
* Improving processor margins can encourage more optimistic behaviour by processors at the saleyard and lead to a narrowing of the processor discount spread to the EYCI.
What does this mean?
The relatively strong relationship between processor margin levels and processor behaviour at the saleyard can be demonstrated by the pattern set by the rolling 12-month average processor margin compared to the processor spread.
Improved processor margins are often accompanied by processors paying up a bit more at the saleyard resulting in the spread discount narrowing. In the same way, worsening processor margins often see the spread discount deteriorate (Figure 3).
Share Ag News Via