I think its great that prospects out of China are improving, especially for Australian grown meat products. Whether its Live Ex or packaged and extra player in the market is a great thing. For one the more players buying the greater the chance of everyone being kept honest, or rather things will be a little fairer I think/hope/trust.
In the past I have seen saleyard prices fall even when there's 2 players buying. It was on one occasion a bold example of unspoken collusion with 2 buyers taking turns pen for pen getting young sheep at a very low price. "Price has fallen out of the market" was touted, however in reality, it hadn't. Buyers had ascended in their price making position. Supermarkets & butcher shops were using a different line. "Meat market has taken a big hit and product is harder to get hence the price rise" yet in the saleyard, numbers were up, way up, really way up on historical lows partly because the market had fallen and there were farmers getting out of sheep & to a lesser extent cattle to concentrate on cropping. Market glut + few players in the actual market place buying (+ take into consideration the consumers haven't slashed their uptake of product, purchasers at the retail end was still ticking along well) = Great margins for processors and/or supermarkets.
At the end of the day, farming meat is no different a business model than most other businesses.
There's a number of equations to look at, but one is telling and often overlooked.
Its made up of just a few properties.
Profit Margin & Turnover.
If you were to focus solely on one of these aspects to the detriment of the other you will eventually go out of business. I recall many years ago seeing a truck loaded with lambs that were heading to a farmer's property to be feedlotted for several months to fill contracts. Admittedly the contracts may have had a premium over average lamb prices at the time, but looking at the top dollar paid in the saleyards and the staggering estimated price the saleyard chatter said the feedlotters were getting they needed only lose 3 animals on the trip to actually begin to slip to "just break even". Yes they were paying very top dollar in the yards, it was great for producers, but there were transport costs and a number of other costs that would quickly eat into their bottomline. In conversation once with the farming feedlotter he said things were tight but it was like cropping "we make a lot of money annually due to the huge turnover, we can afford to suffer a smaller margin"
And indeed he's quite right, with huge turnovers you can suffer smaller margins but at the end of the day it falls apart. To use the 'like cropping' angle, you should crop to a profit not a yield. 5 tonne/hectare crops are useless if they cost 4.85 tonnes to produce...even if you have 100,000 hectares.
And of course the reverse is every bit diabolical, having huge returns on your investment are useless if you're growing a 5 tonne crop on a 1/2 tonne input cost and you can only grow half a hectare.
Balance is the key and whilst its ok to venture waywardly at times into margin or turnover a blanace is required at some point. With the rising cost of inputs and the relatively less than equal rise in returns each year, most turn to expanding the properties.
Now China is still surging ahead compared to many countries but it is fair to say things may not be on the boil like they were and we've in Australia have been living in a economic bubble due to the Chinese demand. Now we're starting to see ground falling away and mining is approaching a down turn but the Dining Boom.
Yes I know, as a society gets more "middle class" they will eat far more meat. Proven factoid beyond dispute and China has not only a growing middle class its a bulging one, creaking and groaning with is growth. I get that.
However I think it will not result in lamb going to $10/kilo in the next 2 years and soar upwards ever more. I think yes another decent size player in the market will drive prices up a little, but it won't be a 30% spike let alone a doubling. I think the spring will be taken out of the surge by players who see expansion is required. At present there's an awful lot of W.A. wheatbelt country that hasn't seen a sheep's hoof in decades, some since the late 70s. I don't see them all running back to sheep & cattle but if there is a cycle here on the ground in W.A. it maybe the return to sheep being a valuable part of the (cropping) rotation.
China, come on down, we're selling meat and we're open for business, but producers ought to not lead themselves into later despair by thinking prices will soar. Any gain is a great thing, any extra market is a great thing. Any extra chance of great turnovers with same or ever so slightly greater margins is best we can hope for and more than enough to budget for. Anything extra our way should then be viewed as unplanned premium.
Remember though, China is a huge opportunity, but it has limitations and it'll more likely be Live Export. I know the ARA brigade will pant, scream and pop a forehead vein but facts are facts. We're dealing with people who use the same universal business model. Turnover and margin. With a workforce that costs a small fraction of what slaughter & processing would cost here, its a huge cost saving shipping living and using their own people on a much smaller wage to do the work.
That is not the choice of Australian producers. We respond to the market that wants animals.
We're not butchers, slaughtermen, processors or exporters of any kind. You'll be doing well to find any farmer who exports his/her own meat/animals. Lobby China, they are the buyers and the buyer gets what the buyer wants. Farmers produce for the market, the market that supplies what the Market (aka China) has formally asked for.
As a producer you should be looking for opportunities for sure and certain, but maintaining a healthy balanced perspective is pretty much essential. Again there's that funny word...balance
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