Over the last couple of weeks I have tried to get a spreadsheet up and running that would give an indicator as to just how much the meat off your beast in a certain weight earned in overseas markets.
I noticed that Mercado had been working on lean processor margins in trying to get a grip of who gets what share of the export dollar.
From my point of view no matter how careful I am or anybody else is for that matter, we will never get to know who gets what from export beef. There are simply too many issues to even get a near picture as to whether or not the processors are making a profit or loss.
Some of the complexities that I found:
- Severe penalties that in some cases are way over the top. Take heifers: no evidence suggesting that there’s any less saleable meat from a heifer despite this they attract penalties.
- Dentition: it is common for large discounts for cattle only to find that the meat off these animals goes into the same boxes with non-discounted product.
- Butt shape another scheme, the list goes on.
- Grid prices vary drastically. Example: 0 -2 teeth 275 to 349 kilograms at $5.30 MSA, non-MSA could expect $4.90. Or a discount on a 300 kg carcass of $.40 a kilogram or $120. MSA does not affect overseas and this discount is not taken into calculations!??
On the other hand one large processor buys the side of a carcass, (for the purpose of this exercise) 92kg side carcass at $4.10/kg and one side comes in at 88 kg brings $2.35/kg a massive discount of $206. Total carcass weight being 180kg minimum. *prices are old
One would expect the two sides to be boxed in the same boxes at the same sale price. How can this be justified? The processors don’t have to.
Processors can sell primals at premium prices on the domestic which brings much more than the average export price. Then they are increasingly forming relationships on the export market whereas they supply case-ready meat at a premium price.
The simple fact is that processors are not obliged to justify any discounts. To actually follow a beast through a works at a set price is practically impossible and without looking at a processor’s books without a creative accountant one would have no idea if they are losing money or making a modest profit.
Relationships built on trust
In order to move forward the industry needed a foundation of stronger supply chain relationships built on trust (TEYS). Who could disagree?
The problem is that self-regulation never works where money is involved.
A great start for a new relationship between producers and processors would be for the processors to push for independent graders. And then work with producers to make sure that the whole supply chain is open and transparent. With a bit of genuine good will processors and producers could work together to secure the future of the whole industry.
Is this the worst case scenario?