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By Matt Dalgleish | Source: MLA, Steiner, USDA, ABS, Trade, AMPC, Mecardo
At Mecardo we spend many hours with data, busily forecasting and modelling agricultural markets. We’re also keen on constant improvement, so when we see an opportunity to advance our offering, we jump at it. Last year the Australian Meat Processor Corporation (AMPC) published a report on a processor margin model that was built in a similar fashion to the Mecardo processor cut out model and we thought it a good opportunity to upgrade.
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It is a time consuming process to collect all the data that goes into the Mecardo cut out processor model and the story is similar for the AMPC model. While they are similar models they use some different data reference points, one key difference being that the Mecardo model is based on cow input pricing while the AMPC model works off steer input pricing.
Figure 1 compares the two margin models and shows that when the cow to steer prices vary significantly, like at present, the processor margins can diverge. However, using the monthly ABS reported female cattle slaughter ratio we weighted the two processor margins to create an industry-wide representative processor margin model that uses both cow and steer input prices.
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The output of this weighted Mecardo-AMPC processor margin model is highlighted in Figure 2 and it shows that since 2000 the monthly margin has averaged $35 profit per head (black dotted line). The normal range for fluctuations in the margin each month can vary between a $55 per head loss to a $125 per head profit, as shown by the 70% range boundary.
Read the AMPC report on their processor margin model here.
Key points
* The Mecardo processor model differs from the AMPC processor model in that it uses cow price inputs rather than steer price inputs
* A new weighted processor model has been created using the female slaughter ratio that blends the AMPC and Mecardo processor models together to achieve an industry-wide representative model
* The new processor model shows meat works earnt strong profits during May at $276 per head of animal processed
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What does this mean?
In recent months cattle meat works have become extremely profitable, exceeding the upper boundary of the 95% range, with the May processor margin hitting $276 profit per head of beast processed. However, the seasonality chart (Figure 3) shows that it is not uncommon to see the processor margin peaking in May, as outlined by the long-term average margin pattern.
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