October 12, 2010

UK beef processors urged to provide cost-based contracts

The UK National Beef Association (NBA) is pushing for more processing companies to contribute to future beef supply stability by offering cost-based supply contracts to professional feeders that can produce in-specification cattle over 2011 and beyond.

It is worried that many established finishers are holding off buying replacements this autumn - which could mean an unwanted drop in breeding herd revenues, as well as substantially less prime cattle moving through larger plants next year.

Corporate slaughterers in the Republic of Ireland (ROI) are making an effort to maintain throughput either by creating new contract links, with pre-nominated prices for steers and heifers lying around 35p-42p (US$0.55-$0.66) above current market averages, or establishing cost-based schemes to pull a new entry of dairy bred bulls into grass/forage-based finishing systems.

"Large numbers of feeding farms are nervous about their reliance on weekly price changes, mainly arranged as a result of a series of inter-abattoir Friday phone calls, and are starting to say that if they are to spend good money re-stocking their yards they need more reassurance about future revenue," explained NBA director, Kim Haywood.

"If processors want forward commitment from their suppliers they must make forward commitments themselves. Feeders are understandably nervous about rising grain, straw and fuel costs and it is no surprise that their confidence is evaporating when prime cattle values are falling on a weekly basis at the same time," she added.

The Association expects processors holding regular supply contracts with the UK's biggest retailers to be among the first to make a serious effort to protect their increasingly vulnerable throughput position by signing up a life raft of feeders.

It suggests they could begin by following the Irish example and offer at least 40p (US$0.63) more than they are at present for cattle finished after the New Year - followed by regular, three-monthly price reviews in which adjustments take account of available cattle supplies as well as cost increases.

"Processors are also invited to test an accurate, cost-based formula and see what kind of reaction they get. Such a move is about to be made in the ROI where companies desperate to counter anticipated reductions in slaughter cattle over 2011-2012, and hope to make up numbers by persuading new dairy bull finishers to sign up with them," Haywood said.

"They have been offered contracts based on standard costs and future pricing structures could include a guaranteed minimum as well as a meaningful bonus for hitting the bulls eye on a range of specification targets.

"Similar imagination, based on acceptance that cattle supplies will soon become dramatically tight, is needed here in the UK. Processors supplying supermarkets cannot risk being left high and dry because the best organised finishers have deserted them," she added.