QMS Market Commentary: Christmas Countdown Underway For Beef Producers

Christmas is that time of year when producers, particularly prime cattle finishers, look for a rise in market prices.

High quality beef is generally considered to have matured on the hook for a minimum of 21 days and many would say 28 days.  Working backwards from a consumption date of Christmas day or New Year’s Day and it quickly becomes apparent that the purchase of livestock for these festive meals will be completed by the end of the first week of December. For some processors Christmas purchasing is already well underway.

“There is a general perception of a significant price movement in the run up to Christmas,” said Stuart Ashworth, Head of Economics Services, Quality Meat Scotland.

“However, the biggest movement in recent years was in 2010 when the average price increased by 5% between the beginning of November and the second week of January.” 

A look at prices over the past few years suggests, said Mr Ashworth, that 2010 was an unusual year. 

In 2010 prices rose 2.8% during November and kept rising through to January but you have to go back to 2006 to see a similar increase during November.  It is much more usual to see a rise of 1-1.5% during November, while in 2007 cattle prices actually eased over the course of the month. 

The picture is equally mixed through to the beginning of January.  In 2011 - 2012 the price fell between December and January as it did during the three Christmas periods in 2005, 2006 and 2007. 

“So the continued increase in price during December and into January seen in 2010 looks unusual.  The more typical scenario is an increase of 1-1.5% during November followed by a further slow increase of up to 1% through December before prices ease back into the New Year,” said Mr Ashworth.

So what is happening this year?  Over the first fortnight of November the average steer price in Scotland has lacked direction, increasing in the first week of November and falling in the second week. 

This apparent lack of Christmas spirit is perhaps not surprising, observed Mr Ashworth, given the continued caution of consumers. According to the Office of National Statistics the general annual inflation rate increased to 3.2% during October and food price inflation ran at 3.1% compared to 1.9% in September.  Beef and lamb price inflation also increased but one of the biggest movers was potato price.

“A further feature of the overall GB cattle market is a slow increase of supply.  Price-reporting abattoirs, for example, currently show a supply about 1-2% below last year compared to a 6-7% shortfall in September.  This modest improvement in supplies is acting as a break on prices. 

“So too is a similar slow increase in cattle supplies in the Republic of Ireland.  Throw into the mix a year-on-year deterioration in exchange rate of about 7% - making Irish supplies more competitive in both the UK and European market - and the current lack of direction in the cattle market becomes more easily understood.”

However, while producers may not see a Christmas lift of the proportions seen in 2010 or 2006 they are currently seeing a price of around 361-362 p/kg deadweight  which is 5% above this time last year and at a record high. 

“The challenge for the producer, of course, is to contend with high input costs, in particular feed, at a time when the requirement for purchased inputs has increased due to slower livestock growth rates.  The effect has been compounded by the reduced quality and available volumes of many of the main inputs required for livestock production,” added Mr Ashworth