REDUCED cattle prices are unlikely to flow through to retail beef anytime soon, given consumption is growing and butcher’s margins are still historically below par.
The latest meat retail figures from the Australian Bureau of Agricultural Sciences and Economics have beef up ever so slightly, by 0.07 per cent, in September to an average $19.31 a kilogram.
For the past two-and-a-half years, retail beef prices have sat around the $19/kg mark, showing no signs of buckling to the pressure of heavy competition from other proteins nor being affected by a declining cattle market.
Meat and Livestock Australia’s marketing expert Lisa Sharp said in the most recent quarter, average price growth had been driven by a change in the mix of beef cuts purchased.
“We are seeing a faster rate of growth in consumers purchasing premium cuts, versus value cuts such as mince,” she said.
“We have also seen less beef being sold on promotion.”
With mince averaging around $9/kg and prime cuts around $24/kg, a consumer trend shift like this certainly has the weight to deliver strength to retail prices.
Consumption in the latest quarter had also seen positive growth in both volume, driven by increased shopper frequency, and value due to that change in beef cut mix, Ms Sharp said.
Alongside those consumer dynamics, analysts say the drop in cattle prices this year has still not gone anywhere near leveling out the record rises beforehand.
Mecardo’s Robert Herrmann reported that while the retail beef premium over the national trade steer price had risen from the lows of a 185pc premium in September 2016, it was still well below the historical range of 300 to 400pc.
With consumption appearing comfortable with the new higher shelf price tags, retailers are unlikely to lower beef prices while margins are still historically tight.
Adelaide butcher Trevor Hill, owner of Bruce’s Meat in Torrens Park and a member of the Australian Meat Industry Council’s retail group, said with processing facilities now often only working three days a week, their upkeep expenses were relatively high and therefor kill costs per beast had gone up.
Independent butchers were small retailers without a lot of bargaining power and typically had a limited choice of where they could source supply, he said.
“That makes us price takers and we are affected by the larger input costs at the bigger end of town,” he said.
“In reality, we’re not sourcing beef any cheaper despite the shift in the cattle market.
“Meanwhile, our energy costs have doubled in the past ten years and staff wages have gone up 25pc.”
The latter, he said, was not necessarily CPI increases but on the back of a genuine skills shortage in the business.
Mr Hill believes there will be even more pressure for butchers to charge more for beef next year.
“As people start to restock when the rains fall, you will see a dramatic increase in price of beef at every level of the supply chain,” he said.
“However, for the independent butcher beef has now hit a price point where the difference from supermarket prices means we can’t ask any more.
“Supermarkets have used beef as a loss leader - mince for $5.99 a kilogram and porterhouse for $27/kg is a direct attack on the smaller independent retailer.
“Quality and service is important to the consumer but not at $14/kg more.”
What that meant, Mr Hill explained, was the butcher would likely be forced to rely more on other proteins to hold up profit margins.