Comment: The quarterly beef price gap
COMMENT: As we enter the final quarter of the year, we see again in recent weeks a growing price gap between Irish and British/EU beef prices.
Analysing similar statistics from recent years, we see a very similar trend over time, namely Irish beef prices are strongest during the first half of the year and weaken competitively in the second half of the year.
The following chart, Agriland_Charts, illustrates the price difference in cent per kg / DW between Irish and British R3 Steer prices in the five years between the first quarter of 2008 and the last quarter of 2012. A clear trend emerges, the price gap between UK and Irish prices are most competitive in the first half of the year, but widens as the year progresses. For example in 2012 the British R3 Steer price was 15.4 cents per kg / DW higher than the equivalent Irish price in the first quarter of the year (ie January to March), but, by the last quarter (October to December) the price gap had widened to 67.5 cents per kg / DW.
The reasons behind this widening price gap over the year may lie in the seasonal nature of Irish beef supply. A key production and marketing advantage of our beef production system in Ireland lies in our grass based production system.
With predominant spring calving, many calves born in the spring of last year will be ready for slaughter over the coming months. This leads to peaks and troughs in the number of beef animals sent for slaughter over the course of the year.
Looking at total prime cattle slaughter (ie Steers, Young Bulls and Heifers), in Ireland over in the five years between 2008 and 2012, there is an average 14 per cent increase in factory supply in the second half of the year. To put this in perspective, an equivalent slaughter of seven months of stock passes through meat plants in the second half of the year when compared with the first six months of the year.
Britain on the other hand enjoys a much consistent supply over the course of the year with much lower variation in supply. On average between 2008 and 2012 there was only a marginal three per cent increase in prime cattle supply though British slaughter plants.
Within these Irish prime cattle figures, the fluctuation in supply is much more pronounced in steer cattle. The average steer factory throughput in the first half of the year in the years between 2008 and 2012 was 254,843. We see the average factory throughput jumps to 355,005 in the second half of the year during same time period. This is equivalent to a 100,000 head or a 40 per cent increase in supply between the first and second half of the year.
One striking theme arises from Irish cattle throughput and price data, we are seeing the same repeatable trends occur year after year. Many questions arise as to what we can do to reverse these trends and more importantly improve price consistency for Irish beef farmers.
Does the industry need to modify its grass to beef strategy or place greater emphasis on our quality and sustainability advantages? Or, should the industry increase its marketing and promotion efforts internationally at key times during the year, or increase innovation to help counteract these predictable cycles?
By Tom O’Callaghan
Tom O’Callaghan has 15 years of global experience in the agri-food sector, including dairy, meat, consumer package goods, bio-fuels and farming-owned co-operatives. He is currently focusing on emerging area of improving efficiency through agri-analytics and is advising on agri-food and farm efficiency expansion across Eastern Europe and former Soviet Union countries. He is also the ex-ceo of ICOS.