The Glanbia/Kepak Twenty20 Beef Club: Here’s everything you need to know…

Earlier this morning, Wednesday, April 3, Glanbia Ireland and Kepak Group announced the introduction of the Twenty20 Beef Club.

This ‘club’ will involve the rearing and finishing of calves – originating from Glanbia suppliers’ dairy herds – under a guaranteed-pricing model in a Kepak slaughtering facility.

All inputs such as: fertiliser; nutrition (feed, milk replacer, crunch, etc.); and animal heath products (with the exception of prescription-controlled antibiotics) must be purchased from Glanbia.

A farmer growing their own grain will be permitted to use this as feed providing full tracability is available.

Therefore, the initiative will operate on a ‘closed-loop basis’ providing full traceability to the consumer.

Sustainability

The collaboration between the two industry players aims to provide some price certainty and economic sustainability from a farming point of view, while also focusing on environmental sustainability.

As part of the scheme, a technical support programme will be rolled out to the farmers involved – both beef and dairy – with an objective that will improve lifetime performance and breeding – in particularly beef traits coming from the dairy herd, while also reducing the environmental footprint.

Glanbia will contribute to a ‘Club Premium’ which will be available for members; they will also enroll the farmers in the programme, while in addition putting a support network on the ground.

Kepak will provide a pricing structure and a guaranteed market for the ‘club calves’, while also providing technical advice on optimal slaughter time and animal performance.

The Twenty20 Beef Club involves three fundamental components:
  • The production blueprint;
  • The pricing framework;
  • The advanced payment package.

The production blueprint

The first year of the programme will operate under a pilot phase with the hope of developing into a five-year initiative.

Target numbers:

  • 2019: 6,000 calves;
  • 2020: 20,000 calves;
  • 2021: 50,000 calves;
  • 2022: 50,000+ calves.

Both spring-born and autumn-born calves will be eligible for the programme, which will commence on April 15, starting with 2019 spring-born calves from the dairy herd.

The objective going forward will be that somewhere in the region of 1,000 Twenty20 Beef Club steers and heifers will be slaughtered each week, providing a level supply throughout the year.

The programme will involve the processing of steers and heifers and will exclude bull beef. All the main breeds are eligible with the exception of Jersey and Jersey-cross calves.

The cut-off age is 30 months; however, targeting to reduce slaughter age and aiming for an average age of 24 months at slaughter is a key objective.

In addition, suckler farmers can put their suckler-bred animals forward that meet the programme criteria; however, they must also take on board at least 25 dairy calves from a Glanbia herd to rear to be eligible for the programme.

There is no maximum number of calves per farm involved.

As part of this blueprint, technical advice on: breeding; nutrition; animal welfare; and grassland management will be available to the participating farmers.

There will be a very strong focus on genetic evaluations, genomics and the Dairy Beef Index (DBI). A panel of DBI sires will be provided that dairy farmers can choose from. Straws can be purchased from any AI company once the bulls are on the recommended panel.

Farmers using Friesian sires will use the beef sub-index within the Economic Breeding Index (EBI) as selection criteria. Going forward, the eating quality index – which is being developed by the Irish Cattle Breeding Federation (ICBF) will also be used as selection criteria.

Throughout the programme, Kepak will provide guidance on slaughter readiness and market requirements, while all inputs purchased will be monitored through a digitalised input recording system.

Every farmer involved will be a member of the club; whether they are supplying or finishing the calf, farmers must follow the protocols for eligibility.

Under the programme, the animal can be moved as a calf, weanling, yearling or be 15 months-of-age or any age; however, an animal is only allowed one movement (zero-to-one movements).

The pricing framework

The Twenty20 Beef Club involves a guaranteed-pricing model and other premiums.

This involves: a market price or average quoted price (AQP); a club premium; a club protocol bonus; a breed bonus; and a club seasonality bonus (April, May and June).

The market price or AQP is calculated through relevant agri-media sources that report that price on a weekly basis.

Therefore, all reported prices – for steers and heifers – from Republic of Ireland processors will be averaged and taken as a base reference price for that week, which is then fed into the QPS system.

The breed bonus will be paid for Aberdeen Angus and Hereford steers and heifers within the programme.

The seasonality bonus is available at certain times throughout the year to allow for supply leveling and encourage farmers to produce at particular times of the year (April 6c/kg, May 10c/kg and June 6c/kg).

Typically, April and May finishing is done in the shed; so this bonus is to encourage farmers to sustain the feeding over that period in the shed, so they will qualify for an additional premium for doing so.

The weight requirements for the steers and heifers is from 280kg up to 360kg.

The club premium will be paid to all members; it is made up of a premium anywhere from 15c/kg to 25c/kg.

Where the market price (AQP) is at or above 385c/kg, the club premium will be 15c/kg. So farmers will be starting off at a base of 400c/kg at that point.

Where the market price (AQP) falls under 385c/kg, the club premium will increase cent for cent with any market decline. So basically, what this means is, if the market price is 384c/kg, a 16c/kg premium is applied bringing the base price back to 400c/kg.

In addition, if the market price or AQP amounts to 382c/kg, an 18c/kg premium is added and the base price returns to 400c/kg again.

The maximum club premium is 25c/kg. For example, where the market base (AQP) is 375c/kg, a club premium of 25c/kg applies and that’s a 400c/kg base price.

However, when it goes beneath that, so for example a market price (AQP) of 374c/kg, 25c/kg is added bringing the base price to 399c/kg.

The club protocol bonus is 12c/kg and is similar to the QA payment; the bonus is paid for adherence to the programme’s blueprint including the Bord Bia requirements.

For the first two years of the programme, grades which normally would not qualify for the QA 12c/kg payment will receive a 12c/kg protocol bonus; so P+ and O- grades will qualify for this protocol bonus during the first two years.

This will allow both Kepak and Glanbia to work with the farmers involved to increase carcass grades and quality with improved performance.

The club breed bonus is capped at 10c/kg for Hereford and Angus which will be confirmed annually and will be paid regardless of carcass grading.

Therefore, the typically non-qualifying grades for the Angus and Hereford bonus will be paid once they are within the weight requirement of 280-360kg for the first two years.

Example: Twenty20 Beef Club pricing structure

The following example is based on a 335kg Angus animal (R=/R-) and slaughtered in April.

The market price (AQP) within the programme arrives at 400c/kg on a given week. There will be a club premium of 15c/kg.

There will also be a protocol bonus of 12c/kg (akin to the QA bonus covering all the grades that normally don’t qualify for the initial two-year period).

There is 10c/kg breed bonus and a seasonality bonus as of 6c/kg (April).

The total price the farmer will receive for a R=/R-, Angus steer or heifer in April weighing 335kg is 443c/kg or €1,484 head.

All prices include VAT

For example, if the price moves to 410c/kg base price as the AQP on that week, everything remains the same and leaving a total price of 453c/kg or €1,517/head for the same 335kg, Angus, R=/R- animal.

Moving to the opposite end of the scale, at a AQP of 375c/kg on a given week, there will be a 25c/kg bonus because the price has been reduced cent by cent below 385c/kg to the maximum club premium of 25c/kg.

So, 375c/kg plus 25c/kg and all the other bonuses leave a total price of 428c/kg, which works out at €1,433/head on the 335kg, Angus carcass.

If we go to a base price of 350c/kg (AQP), the maximum bonus within the programme is 25c/kg; the farmer will also qualify for all the other bonuses. That gives a total price of 403c/kg for the 335kg, Angus animal which amounts to €1,350/head.

Moreover, the bottom (AQP) price within the programme for the first two years is 350c/kg. So, if the AQP price goes to 330c/kg, the minimal price will be 375c/kg (350c/kg + 25c/kg).

An O+ animal will lose 12c/kg on the 443c/kg price and that’s equivalent to €40 (12c/kg x 335kg) on that carcass and an O= animal will lose 18c/kg on 443c/kg, which amounts to €60 (18c/kg x 335kg) on the 335kg Angus carcass.

Customer and farmer protection

Within the programme, there are two cut-off protection prices – one which protects the customer and one that protects the primary producer.

The customer protection price is 455c/kg excluding seasonality bonuses. From a farmer protection point of view, there is a floor of 397c/kg (R=/R-).

However, this feeds in the QPS grid, so 12c/kg would be deducted for an O+ animal, while 18c/kg would be deducted for an O= animal; these are the minimum prices within the programme for the first two years.

In light of where things are at in the UK at present, there is a clause within the programme around Brexit. Both Kepak and Glanbia are locked into year one of the programme; 6,000 calves will enter the scheme in the next four-to-six weeks regardless of Brexit.

However, if Brexit throws up an unfavorable position, the programme will be reviewed; but year one is locked in. There is also a clause if something unforeseen happens within a farm situation. For example, TB or ill-health, etc.

The advanced payment package

The final piece of the jigsaw is an optional programme available initially in the pilot phase.

The basic idea here is the availability of a finance package in the pilot phase to the Glanbia club members, and subsequently to all members (subject to credit approvals etc.), whereby they can receive up to €770 per animal in the club.

Then, they would receive a monthly payment from the third month to the 20 month of €35/head.

When an animal goes to slaughter, that price plus interest (at a rate of 3.75%) would be deducted from the slaughter value, returned to the lender and the balance back to the farmer.

The need for this service will vary among different farms and different enterprises.

As mentioned above, the programme will open on April 15 and interest for both 2019 and 2020 will be welcomed.

Farmers interested will be required to make an effort to improve the breeding protocols going forward and start implementing some of the benefits that will help the probability of gaining access to the scheme the following year.

If the scheme is oversubscribed, objective criteria such as: trading history with both Glanbia and Kepak; their adoption of the breeding criteria; their ability to follow the programme; and the facilities they have on farm will be looked upon.

The primary objective is to improve lifetime performance, lower slaughter age and – in so doing – there will be a substantial impact on reducing the carbon footprint per head; also, all the feeds used will be enhanced with methane reducing agents.

The use of stock bulls will not be ruled out in the future; when the index becomes available for stock bulls, the criteria for these will be implemented for future breeding.

In terms of calf price, this will be agreed between the dairy farmer and the beef farmer; no stakeholder will be involved in this process.

Also, there will also be randomly selected genotyping (10%) built into the programme.

While other calves can be purchased from other sources for dairy calf-to-beef systems on farm, these will not be entered into the club.

However, in order to follow protocol, farmers – with these calves – must maintain the closed-loop supply on the farm and purchase inputs from Glanbia.

Each year, the protocols will be examined and agreed upon as a farmer enters the programme. At the beginning of each year, there will be new guidelines with regards to the DBI.

Once a farmer signs up for the programme, that farmer is locked in until the calves are slaughtered. The programme will not change for the farmer that enters in 2019, based on changes to the programme in 2020.

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