Study Confirms Beef Farmers Not Receiving Fair Share of Consumer Dollar By Jeanine Moyer
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here’s no question, the past few years have dealt Ontario beef farmers some serious blows. From declining margins and constant supply chain disruptions to dealing with a global pandemic, it’s only fair that beef farmers question why they aren’t getting their fair share as the price of beef soars at the grocery store. “These challenges didn’t start with the COVID-19 pandemic,” explains Richard Horne, BFO Executive Director. “Our industry has been dealing with stagnant returns and rising production costs for some time now. That’s why BFO commissioned an assessment of implications and reasons behind beef sector pricing, beginning in 2016 through to 2021.” The report, Ontario Beef and Cattle Pricing 2016-2021, An Examination of Price and Margin Trends in the Ontario Cattle and Beef Industry, was finalized in early 2022. “Understanding the relationship between farm, packer and retail pricing will assist BFO in supporting the needs of our members through policy and program development,” says Horne. The report is already being used to support the need for increased risk management coverage from federal and provincial governments and for on-farm risk mitigation strategies to ensure beef farms can remain financially viable. Horne explains the results also provide updated information on the current dynamics of the beef market, “which is particularly helpful for BFO when responding to media and government requests and inquiries about the relationship between the price and margins of beef along the food value chain.”
Here’s a look at the North American cattle market from 20162022 and the outcomes of the report: Ontario Beef and Cattle Pricing 2016-2021, An Examination of Price and Margin Trends in the Ontario Cattle and Beef Industry. The report is an in-depth study of the Ontario market, but also accounts for activities and trends across North America. The study followed three objectives to complete the evaluation: 1. Construct monthly price series data sets for retail, packing, feeding and cow-calf sectors of the industry in Ontario from 2016 to 2021. 2. Assemble an Ontario beef-cattle price spread model like the USDA Meat Price Spread data set. 3. Examine margins through the chain in Ontario.
In recent years, extraordinary events caused lower cattle prices and fantastic margins for packers
A Series of Extraordinary Events As beef prices soared over the past two years, consumers and media have been questioning why beef is so expensive. The answer is hard to explain and requires an in-depth look at industry dynamics and the pricing spread across the beef supply chain – starting at the farm gate, through to the processor and retailer. Kevin Grier Market Analysis and Consulting Inc. was commissioned to help BFO examine the price and margin trends from 2016-2021 to evaluate why producers appear to have deteriorating market power at a time when demand for beef was at an all-time high, retail prices climbed and packing plants were profiting.
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~ Kevin Grier, Kevin Grier Market Analysis and Consulting Inc. “Historically there’s been a strong correlation between cattle and retail beef prices and the related profit margins along the supply chain, but in recent years, extraordinary events caused lower cattle prices and fantastic margins for packers,” says Kevin Grier, market analyst. “The result is a poor correlation, and to explain why, we need to look at the market context.” According to Grier, the supply of beef cattle in North America was abundant throughout the timeframe of the study. For example, the market entered 2019 with a large supply of steers and heifers, but the problem was that processing capacity wasn’t keeping up. This was due to capacity cut backs the industry saw across North America from about 2010-2016, when many plants closed or large processors reduced capacity. “So, when we look at the early years of the study, the market was in a period of high supply with constrained capacity that meant producers didn’t have much leverage when it came to the final sale price of their beef,” he explains.
