18 February 2014

4 minute read

Europe

These changes will take effect at most of the large beef factories and will involve penalties on out-of-spec cattle and a simplification of the payment structure with bonuses incorporated into the standard weekly quote, write LMC experts. 

Currently, the factories quote a base price for cattle, with an 8-14p/kg bonus payable for in-spec steers and heifers, over and above this base quote. From early April, this bonus will be stopped. Instead, this bonus will be incorporated in the prime cattle quotes, which will presumably be revised upwards so as not to disadvantage producers. Factories are also planning to introduced associated out-of-spec penalties are outlined below:

Farm Quality Assurance: In 2013, most factories increased penalties for non-FQAS cattle, with some now applying penalties of up to £150 per head on these cattle. These penalties are already in place and will continue from 1 April 2014.

Number of Farm Residencies: In-spec cattle are those that have resided on no-more than four farms. Cattle that have resided on five or more farms will be subject to a penalty of up to £150. This penalty is likely to vary from plant to plant.

Standstill: In-spec cattle are those that have resided on the last farm for at least 30 days. This will vary on a plant by plant basis and some factories may require a standstill period of at least 90 days on the last farm. Cattle that do not meet these standstill requirements will be subject to a penalty of up to £150. This is likely to vary from plant to plant.

Age: In-spec steers and heifers are those that are slaughtered under-30 months. This will vary on a plant by plant basis and some factories have an age specification of 36 months for steers and heifers. Cattle that do not meet these age requirements will be subject to a penalty of up to £150. This is likely to vary from plant to plant. Inspec young bulls are those slaughtered under-16 months. A penalty of 50p/kg is currently being quoted on over 16 month young bulls at most factories.

Country of Origin: In-spec cattle are of UK origin. Non-UK origin prime cattle are regarded as out of spec and producers should consult with individual factories about their payment policies on these cattle. Factories have indicated that they do not want Non UK origin cows. These cows will be subject to deductions which will be determined on a factory-by-factory basis.

Weight: Penalties are currently in place for underweight (<260kg) and overweight (>420kg) prime cattle. Weight remains an important part of the specification and it is likely that penalties will remain in place after 1 April 2014 on over/under weight cattle. These will be set on a plant by plant basis. We understand that some plants are considering reducing the upper weight limit for prime cattle.

Grade: We understand that there are no changes to the prime cattle price grid, notwithstanding the removal of the 8 - 14p/kg bonus for gold box grades that meet the other specification criteria. This will potentially reduce the price differential between current gold box grades and other grades of cattle.

Summary

The information above is indicative and it is likely that there will be differences in the specifications and associated incentives at different factories.

Context

These changes which are planned for the start of April, come after a 12 month period during which there were many adjustments to incentive payments for in-spec cattle. There were changes to bonus payments, increased penalties on non-FQAS cattle and on over-age bulls.

However, the payment system for cattle became increasingly complicated over the course of the last year and this simplification of incentive payments is to be welcomed given that it should make it easier for producers to understand how they are being paid for their cattle. In addition, the simplification of the payment structure makes price comparisons simpler and this should provide more transparency in the market.

There will be concerns among some producers that the removal of the 8-14p/kg in-spec bonus will disadvantage them somehow. However, assuming that the trade remains steady during the week that this new payment system is introduced, it is likely that there will be an increase in quotes. LMC will monitor developments in average prices before and after 1 April 2014 to ascertain any impact of these changes.

Producers will need to weigh up how these changes will impact their own farm business and consider whether they need to make any changes. In this regard, it would be useful for producers to speak with factory procurement staff to better understand the pricing policies of individual plants.

TheCattleSite News Desk