When a representative of the National Beef Association notes the need for beef prices to be affordable for consumers, we can conclude that farm gate prices are getting into a satisfactory territory.
The challenge is to hold the level of prices we have before probing the market to see if it can sustain more. Numbers coming forward for processing are forecast to decline in 2015 and we immediately think less cattle means more factories chasing fewer cattle and therefore further increases in farm gate price. That is basic supply and demand economics but there is the small matter of bringing consumers along. That will be our great challenge for the coming year if prices continue on an upward trend.
Recent price rises have brought the five year trend for prices above the 50% mark again. Ordinarily we would put this on the page as a graph showing a nice steady increase but the reality is that this growth figure masks serious volatility in the trade over the past 18 months. That has undone the benefit for many people, particularly if they had bought store cattle at the top of the market and sold at the bottom. For such people sustained price rises since the autumn probably makes their situation feel even worse.
In an ideal world there would be a smoother market. Investors always advise to take a long term view when buying into the stock market and point to market performance over decades. There is very strong advice given against taking a short term view. Yet cattle aren’t shares that you can decide to hold for years, when they are ready for the factory they have to go regardless of trade at a particular time. The dairy industry hasn’t had its sorrows to seek in recent times but they do have a little more certainty in market indications for a few months ahead. So far this hasn’t been possible for beef and it is difficult to see how it could be reliably developed given the varied component parts that come out of the carcass, sold across a wide range of markets.
A feature of rising prices in recent times has been the insistence of having cattle in spec with serious deductions usually the order of the day where specifications aren’t met.
There is a much greater tolerance of this when the market is on an upward curve as opposed to the situation in the spring of last year when the overall market was falling rapidly.
One thing is for certain when virtually all of the cattle meet the premium specs it gives factories maximum flexibility and the opportunity to place the beef in the highest value markets.
There are reasons for optimism as we enter the New Year. Bringing consumers with us is necessary to maintain a strong UK market. However mainland Europe continues to be disappointingly weak and lucrative export markets are still out of reach. Better include the word “caution” as well when looking ahead!