Meat processor JBS Australia’s attempt to rein in losses via a reviewed price grid last spring has come back to bite it.
The company’s attempts to cut losses through tighter grid specifications was seen as a risky option by producers, who feared their lambs might exceed the weights, forcing a return to the previous grid.
An 18 to 26 kilogram (carcase weight) price grid was released for contracts for nearly two months last spring, replacing the company’s 18kg to 32kg grid, in an effort to lessen the blow of profit loss generated from an increasing number of overweight lambs.
JBS supply chain manager, Mark Inglis, explained the company’s dilemma to the 400-strong crowd at last week’s Best Wool Best Lamb conference, held at Bendigo, Victoria.
He said lambs heavier than 28kg were costing JBS $30 a head in lost profit, hence last year’s tighter grid, which attempted to encourage more trade-weight lambs to be contracted.
“We, as a company (in spring 2016), put an 18kg to 26kg grid out there across all our categories,” Mr Inglis said.
“What happened to the lambs? They disappeared. (This is) what you have seen in (Cobram) Victoria with JBS closing its doors for the moment, and also in Longford (Tasmania), purely based on supply and price of lamb.”
He said the broader grid, from 18kg to 32kg, to which JBS has returned, encouraged producers to grow heavier lambs, “because dollars per head is where you get the best money”.
“(However), lamb sale managers are all telling us our lambs are too heavy and too fat,” Mr Inglis said.
Yet, the processor’s hand was forced as producers took their lambs instead to the saleyards, or they “march(ed) up the road to someone with a 16kg to 36kg grid”.
While these heavier lambs fetched a better price per head, Mr Inglis said it was out of tune with customer requirements.
“There is a price drop off after 26kg, but is it enough? Probably not, based on the (impact to) profitability.”
The domestic market, which absorbs 45 per cent of Australian lamb production, required an 18kg to 22kg carcase with a fat score of 2 to 3.
The export market was split, with the Middle East wanting a lean 16kg to 18kg carcase, while the American market demanded 18kg to 26kg.
While the perception of the American market was for heavy “30kg” lamb, he said Costco’s specifications - the largest customer of Australian lamb – sought carcases of 18kg to 26kg.
“So where the hell did this 30-plus kilogram lamb come from?” he said.
“As supply shortens up, we have to fill our books with lambs we wouldn’t normally take, not just us, but other processors as well.”
Annabelle Cleeland
Annabelle Cleeland is Fairfax Media’s national sheep and wool writer. Annabelle joined the Fairfax team in 2012 to nurture her love of Australian agriculture. She began as the Victorian western district reporter at Stock & Land before taking on a senior position as a journalist reporting on all industries statewide. Annabelle’s appetite to report on issues which affect the sheep and wool industry has seen her travel to many parts of Australia and abroad. She is excited to spin industry yarns during a period of substantial demand for the sheepmeat and wool industries. Annabelle enjoys horse riding and climbing mountains, and is a lazy supporter of the Geelong Football Club.
Annabelle Cleeland is Fairfax Media’s national sheep and wool writer. Annabelle joined the Fairfax team in 2012 to nurture her love of Australian agriculture. She began as the Victorian western district reporter at Stock & Land before taking on a senior position as a journalist reporting on all industries statewide. Annabelle’s appetite to report on issues which affect the sheep and wool industry has seen her travel to many parts of Australia and abroad. She is excited to spin industry yarns during a period of substantial demand for the sheepmeat and wool industries. Annabelle enjoys horse riding and climbing mountains, and is a lazy supporter of the Geelong Football Club.
