LMC Report: Impact of New Pricing Grid

UK - It is now over a month since the factories introduced the new pricing grid amidst considerable opposition from some quarters and silent satisfaction from others. To help ensure that the debate on the issue remains informed, this article will remind readers of the reasons for its introduction and explore its impact on farmers and its potential for reducing the proportion of “out of spec” cattle.
calendar icon 11 December 2009
clock icon 3 minute read

Only 34 per cent of Steers and Heifers “in spec”

The justification given by the meat plants for the new pricing grid was that an increasing proportion of cattle were “out of spec”. The data certainly supports this claim. For example, the proportion of OTM steers and heifers in the slaughter mix is up from 18 per cent in 2008 to 25 per cent this year to date. The proportion of cattle falling outside the 280-380kg weight range is also up slightly since last year. In this year from the start of April to the end of October:

  • 75 per cent of steers and heifers were under 30 months (Age)
  • 68 per cent of steers and heifers killed out at an “in-spec” grade (Grade)
  • 62 per cent of steers and heifers killed out between 280 and 380kgs (Weight)
Unfortunately this does not mean that around two thirds of cattle are in spec. It simply means that 75 per cent of steers and heifers meet at least one element of the criteria. Only 34 per cent of cattle are meeting the required combination of grade AND age AND weight at slaughter. This is illustrated in figures 1 and 2. When this is broken down further, it is clear that only 31 per cent of steers meet the specification for grade, age and weight while 37 per cent of heifers are in spec.


Figure 1. Getting into Spec.

At this stage there is some acceptance that the high proportion of “out of spec” cattle is doing little to advance the price of prime cattle in NI vis-à-vis prices in GB. There is also some acceptance that stronger incentives were needed to get more cattle into spec. The new pricing grid has provided these incentives, however, some cattle have not met the specification and incurred deductions and some cattle have received a bonus and therefore a higher price.

It is therefore worth examining the initial impact of the new pricing grid on farmgate prices. From an analysis perspective, we are fortunate in the respect that the introduction of the new pricing grid did not coincide with any general change in price which would have made it difficult to distinguish the impact of changes in the pricing grid from any general change in price.

Figure 2. Proportion of in-spec cattle for weight, age and grade

Slight increase in average prime cattle prices

Looking firstly at average prime cattle prices, it is clear that these were very stable for the eight weeks preceding the change in the grid. The introduction of the new grid widened the differentials between categories with steer and heifer prices increasing by about 1-2p/kg in the weeks following its introduction. With more young bulls out of spec, the price of these fell by about 6p/kg over the first three weeks of November. This is illustrated in Figure 3 (next page). Overall, average prime cattle prices were about 0.5p/kg higher in the first three weeks of November compared to October, demonstrating that on balance there were slightly more winners than losers following the introduction of the new grid. From the point of view of bonuses and deductions, the reported prices show that the bonus prices are being paid on in-spec cattle. For example, in the last week of November, the average price of all R3 steer/heifers was 264p/kg. However, where these R3 steers were between 280-380kgs and under 30 months, the average price was 269p/kg. This is in line with the new pricing grid where the base R3 quote was 260p/kg and the bonus is 8p/kg.

Further Reading

- You can view the full report by clicking here.

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