By Angus Brown | Source: MLA, ABS, ABARES.
We know finished cattle prices have been strong relative to store markets over the last year or so. Finished cattle have, however, been cheaper than we saw during the heady days of 2016. So, we’d expect beef to have become cheaper at the retail level, right? Wrong. But there are plenty of reasons why retail beef prices haven’t followed cattle prices lower.
The Australian Bureau of Agricultural Sciences and Economics (ABARES) calculate average retail prices for beef, lamb and chicken from the Australian Bureau of Statistics’ (ABS) quarterly Consumer Price Index data. The latest retail beef price was for the September quarter and they show a slight uptick in beef prices.
Figure 1 shows that at a retail level, beef prices rallied in September, moving 0.07% higher to $19.31/kg. The September retail value was marginally lower than the record set in March this year and basically the same as September 2017.
Retail beef prices have been remarkably steady since they broke through $19 back in March 2016. The spread between the retail beef price and the National Trade Steer (NTS) gives a very broad indication of how retailers are faring with beef margins.
In September, the retail beef price was 256% above the NTS. This means the price of retail beef was roughly two and a half time more expensive than the average saleyard price of trade steers. We can see in Figure 1 that while the retail beef premium over the NTS has risen from the lows of 185% back in September 16, it is still well below the historical range of 300-400%.
Retailers have clawed back some of the margins they lost thanks to the dramatic rise in cattle prices. Now that consumers are used to the new higher levels, retailers are unlikely to lower beef prices while margins are still historically tight.
Rising lamb prices and in-turn retail lamb prices, will also help support beef prices at the retail level. Figure 2 shows that retail lamb prices have rallied in September, hitting a new record high of $15.63/kg. Retail lamb prices were still just 5% higher than September 2017, despite a 25-30% increase in saleyard values.
Key points
* Retail beef prices remain close to record highs despite lower cattle values.
* The retail premium over saleyard prices remains low compared to historical levels.
* Rising lamb prices are helping support retail beef prices.
What does this mean?
With retail beef prices seemingly hitting a ceiling, it will help limit upside in cattle prices. While export markets are the main driver of cattle prices, the domestic market is our single biggest destination for our beef. It’s good news that consumers are used to higher values because they will add support when cattle supplies finally recover.
Retail lamb prices might also have some way to rise, given the more expensive stock. This should underpin beef prices as consumers substitute red meats.
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