LMC Report: More on the New Pricing Structure

UK - The dust is starting to settle on the new pricing structure introduced by the meat plants over the last fortnight. The rationale of the new regime is to get more in-spec cattle (sometimes referred to as the Gold Box), and for most plants this means steers/heifers under-30 months and between 280-380kg CW.

13 November 2009

2 minute read

Europe

For the meat plants, the logic is straightforward. The proportion of over 30 months (OTM) steers/heifers has been creeping up along with the volume of heavier cattle over the last year. These heavier, older cattle do not fit the requirements set by most of the large supermarkets and furthermore, their carcases are more costly to process and the cuts are often unsuitable for retail packing. The meat plants are being very stringent in applying this new pricing structure and while bonuses are available on in-spec cattle, deductions are being applied to out-of-spec cattle. These bonuses / deductions are described in the tables below.

It is scarcely surprising that the meat plants are so keen to correct any imbalance in the slaughter mix. In some weeks in 2009 the proportion of OTM steers/heifers in the weekly kill was as high as 30 per cent and the proportion of carcases outside the 260-400kg weight band was over 20 per cent. In contrast, sources in GB state that the proportion of OTM steers and heifers in its slaughter mix is around two per cent. The question is, what impact will this new pricing structure have on producer prices in the short and long term?

The short-term impact of this is already becoming clear. It would appear that there has been an immediate impact on average prices with steer and heifer prices up slightly. Furthermore, there are some significant changes in the prices paid for certain grades.

The longer-term implications are less clear. It is worth reiterating that the new pricing structure should be welcomed and that it ought to be a longterm development that has the potential to deliver an increase in average prices. However, this is not the first time that there has been an incentive designed to discourage overweight and OTM cattle and in the past these schemes have become progressively relaxed as cattle became scarce. For this reason LMC will be using the price reporting system to monitor the proportion of stock in the “New Gold Box” and the differentials paid for those cattle. This information will be reported in the Bulletin.