Allan Barber details the complex factors that go into processor price offers for livestock. Maximising returns in low periods is enhanced by strong relationships with processors, he says

All the separate parts of the carcase are priced according to what is achievable in the market on the day or alternatively has already been locked in by a contract. Exchange rates, generally the value of the New Zealand dollar against the US Dollar, Euro or Pound sterling, confirm the basket of prices obtained which make up the value attributed to that week’s supply of livestock.

Each processor has a different mix of customers and market destinations, both export and domestic, as well as its own cost structure, but the schedule prices are remarkably similar, although there are regional differences, particularly the variation between North and South Island. The South Island processors tend to offer lower prices, dictated by the sharper seasonal processing peak although this levels out when supply is short. In general schedules do not differ much because of the need to remain competitive for procurement purposes.

Yield of meat to total carcase weight is an important factor with the average having increased as processing technology has improved. Beef yield is consistently over 70% of the carcase weight, the balance consisting of bones, offal and other co-products, while lamb yield is lower with the dressed weight at about 63% and the meat component not much over 50%.

For a long time, farmers have been pushing for yield based payment for their livestock supplies, both beef and lamb, on the basis certain breeds provide larger areas of meat for which a premium can be gained. Apart from a few programmes, such as First Light wagyu, certified angus or Silere merino, meat processors have generally steered clear of offering a premium for specific breeds because of the difficulty of guaranteeing sufficient supply on a continuous basis to meet a particular market niche.

If beef or lamb producers believe their product should command a premium, one way to achieve it is to set up their own fully integrated operation and develop their own customer base, either domestic or export. This is expensive to establish, but certainly ensures the ability to secure whatever premium exists without suffering from the averaging effect, although it imposes the responsibility on the producer to market the whole carcase. An alternative is to form a supplier group with neighbouring producers, thereby providing a critical mass of product of the same breed and specifications which would be attractive to a processor.

There are more than 20 individual cuts from the prime beef carcase making up approximately half the carcase or two thirds of the meat yield, while the remainder of the saleable meat yield is trim of variable fat content to be sold as manufacturing or grinding beef. The actual percentage of the carcase that can be sold at a significant premium above the average is less than 10% of the total meat yield which explains why processors are generally reluctant to reward individual breed programmes to any great extent.

Silver Fern Farms has led the way in offering specific programmes like Reserve, Angus, Net Carbon Zero, and Nature Positive, as well as those designed for lamb and venison. The purpose of these programmes which offer a specified premium over normal operating schedule is to reflect market signals and the company’s ability to extract a premium in the market, stating “Our strategy is to turn these signals into value layered above the weekly operating price by rewarding farmers who are aligned with them. Our programmes and contracts also support us to meet customer commitments by creating more certainty around supply.” 

SFF paid out $11 million in special beef programme premiums in 2023, a 14% increase on the previous year, while lamb programmes benefited from a 5% lift in premiums last year. This suggests there can be real value in the market available from product which offers specific benefits to the consumer and end user, like 100% grass-fed, antibiotic-free, no added hormones, GMO-free and doesn't use feedlots.

One New Zealand exporter says the US market is the main market where premiums are obtainable which can range from $2 per kilo for organic 90CL for use in organic retail ground beef to 45 cents per kilo for 100% grassfed or pure Angus trim. There is no premium available for prime beef secondary cuts and offal or any bull and cow cuts, although SFF offers a 100% standard bull programme.

Beef Central, the Australian online publication, recently published an article assessing the opportunities for exporters to gain a premium for trimmings which were estimated to make up as much of 30% of the meat yield, exponentially more than any other cut. Whereas grinding beef is traditionally priced on the chemical lean meat to fat ratio, there now appears to be a long list of attributes that can have an impact on the price obtained, such as breed type, certified organic, HGP free, certified grassfed, frozen vs. chilled, Halal and methane claims. Any premiums on trim cannot be expected all year round as there is a strong seasonal effect which depends on volumes being shipped. At other times of the year trim with special claims may simply be sold with generic product, while when the market falls trim tends to be commoditised and sold at the generic price.

Lamb is more complicated with different markets being prepared to pay for different products. The British market has traditionally been prepared to pay well for legs, the USA for frenched racks and the EU for loins, while China has taken forequarters and flaps. After a sustained period of depressed demand and prices, the three of these main regions have started to buy again, albeit at a time of year when supply is short, and China purchases have fallen to the lowest share of New Zealand exports for several years.

During an extended period of low market prices, there is increasingly a benefit for farmers to have a strong relationship with their processor and to respond to the market signals which provide the opportunity to maximise earnings.

Current schedule and saleyard prices are available in the right-hand menu of the Rural section of this website.