Within the agriculture, the beef sector is currently enjoying a boom, with finished cattle prices having increased by c. 27% over the past year. Deadweight cattle prices are now well north of 600p/kg DW, meaning that a typical 400kg carcass is worth c. £2,500, up by approximately £500 on the year.
At the farm level, a breeder/finisher producing a 100 head of finished cattle per year, should see sales increase by c. £50k, with no material increase in costs, meaning that the price rise experienced should drop straight to the bottom line.
Cull cow prices have seen even larger increases, with cull cow prices up by c. 38% year on year, with well fleshed cull cows now making over £2,000/hd. Of course, continuing producers will have to pay more for replacements so the impact here on net profitability may not be as great.
The price rise has been largely attributed to a tightening supply due to the long-term decline in beef cow numbers. In 2014 Scotland had 436,526 beef cows, but this had dropped to 382,558 by 2024, representing a 12.36% decline or 54,000 cows over a decade
High quality protein diets are also back in fashion and the UKs population continues to increase. These two factors will have put a solid floor under demand.
Processors will also have high fixed operating costs and will be more inclined to bid up prices to maintain throughput and plant viability as cattle numbers shrink.
We would make the following observations on the situation.
- In the absence of imports supply is likely to remain tight for some time give the long-term nature of beef production and the difficulty of dialling up supply in the short term. Conception to slaughter takes over two years and it will take over 4 years for any replacement cows conceived today to start producing offspring that will enter the food chain. Greater retention of heifers for breeding now could also reduce supply in the short term.
- There is also unlikely to be a rush of new entrants into beef production given the amount that would have to be invested in building and the scarcity labour with the required skills. In the short term at least, any new entrant would just be taking over a herd from a producer exiting the sector, so there would be no net increase in production.
- Increased profitability will lead to increased tax liabilities, so some thought will need to be given as to how this will be managed. The level of taxable income is already likely to be higher over the next 4 years (for sole trades and partnerships) due to the spreading of additional profits arising from basis period reform in 2023/24.
- Increased profitability should provide committed beef producers with the cash to reinvest in their business and or make additional investments off farm such as pension contributions. This may help mitigate the higher tax liabilities, with some forms of expenditure being more effective than others.
- The beef price will reach a ceiling since further price rises are likely to encourage consumers to switch to other meats. Relatively low grain prices will keep pork and poultry very competitive.
- Higher finished prices are now reflected in higher store cattle prices making finishers vulnerable to any unexpected reversal in the finished cattle price. Our advice to finishers would be to do your costings very carefully. What would happen to your margin if say the finished price dropped by 5-10% from current levels? Make sure you leave yourself a margin of safety.
- The capital tied up in a beef finishing enterprise has also increased dramatically. A producer with 500 head of finishing cattle could easily have over £1m tied up in working capital. Those reliant on borrowed funds would be well advised to review their overdraft facility to ensure that their existing facility is still appropriate. An extension may well be required if you are looking to stock up on store cattle this spring.
- The current high prices for breeding stock could provide a window of opportunity for those who were already planning to either retire or exit the sector.
With strong demand and rising prices, the beef sector is showing greater signs of optimism than it has for some time. The attractive fundamentals should provide well structured, technically efficient producers operating at scale the opportunity to make some serious money.
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