analysis of cattle prices and...
TRANSCRIPT
Analysis of Cattle
Prices and
Specifications
Final Report
Debbie Butcher and Stephen Howarth
AHDB Market Intelligence
2
Contents Introduction ............................................................................................................................................ 3
Background ............................................................................................................................................. 4
Stage 1: Distribution of animals by conformation, fat class and weight band ....................................... 5
Conformation ...................................................................................................................................... 5
Fat Class .............................................................................................................................................. 6
Carcase weight .................................................................................................................................... 7
Carcase weights by conformation and fat class .................................................................................. 9
Stage 2: Factors affecting the value of the GB prime cattle market ..................................................... 12
Total value of prime cattle sold by month ........................................................................................ 12
Influence of factors on value change ................................................................................................ 12
Base Price ...................................................................................................................................... 12
Number of cattle ........................................................................................................................... 13
Carcase weights ............................................................................................................................ 14
Carcase specifications ................................................................................................................... 14
Relative prices ............................................................................................................................... 14
Summary ....................................................................................................................................... 14
Cumulative impact of factors ............................................................................................................ 15
Different time periods ...................................................................................................................... 16
Stage 3: Comparing prices with primal cut yields & related factors ..................................................... 18
Primal Cut Yield ................................................................................................................................. 18
Yields by cut ...................................................................................................................................... 19
Other carcase factors influencing price ............................................................................................ 19
Prices per unit of trimmed primal cuts ............................................................................................. 20
Conclusions ....................................................................................................................................... 22
Next steps ............................................................................................................................................. 23
Appendix 1: Distribution of animals in AHDB Deadweight Cattle sample by conformation and fat class
.............................................................................................................................................................. 24
Appendix 2: Average yield of trimmed primal cuts by conformation and fat class, 2015 .................... 28
Appendix 3: Average price per kg of trimmed primal cuts by conformation and fat class .................. 29
3
Introduction AHDB collects a wide range of data as part of its deadweight cattle price reporting system. This data
is used to report average prices to the industry (and government/EU commission) on a weekly basis.
Historically, little further analysis of the data collected has been undertaken.
Earlier this year, reports of changes to pricing specifications by processors led to an increased
interest in providing more transparency about the deadweight cattle market. In response to this, the
AHDB Market Intelligence department undertook a programme of analysis of data from the price
reporting system. This report contains the results of this analysis, which was originally carried out
and reported in three stages. This analysis has now been updated to incorporate data from August
2016 and the results are included within this report.
The first stage of the analysis aimed to understand and publish the percentage of animals which hit
different classification levels (taking account of both conformation and fat class). It also provided
information about the proportion of animals with heavy and light carcase weights, as reports
suggest that there have been changes to processors’ preferred weight bands.
The second stage aimed to understand what caused the loss of value of prime cattle sold on the UK
market observed over the last year. It isolated the impact of changes to a range of different factors
on the overall decline in market value. The factors considered were:
The base price paid for cattle meeting processor specifications
The total number of cattle slaughtered
The average weight of carcases
The proportion of cattle meeting different specifications
Differences in price changes for cattle of different specifications
The final stage of the programme analysed how prices paid for cattle of different classifications
compare with yields of meat from the carcases. It also considered some of the other factors which
might need to be taken into account in determining whether the prices paid for prime cattle are
appropriate or not.
4
Background The deadweight price reporting system collects the conformation, fat class and carcase weight for
each animal. These measures are important because together they generally determine how much
producers get paid for each carcase. Conformation is based on an eight-point scale. This is based on
the lean meat yield from the carcase. Grades are (in descending order of lean meat yield) E, U+, -U,
R, O+, -O, P+ and -P. Some processors use a more detailed 15-point classification (splitting each of
the five main grades – E, U, R, O & P - into three rather than one or two categories). Where this is
the case, animals have been allocated to an appropriate conformation category.
Fat class is reported on a seven-point scale. In increasing order of fat cover, the classes are 1, 2, 3,
4L, 4H, 5L and 5H. Again, where processors use a more detailed 15-point classification, animals are
allocated to an appropriate class in the price reporting system.
The analysis in the remainder of this report is based on all animals slaughtered during the following
four periods, each covering the four-week periods closest to a calendar month:
February 2015 (covering 1-28 February)
August 2015 (covering 2-29 August)
February 2016 (covering 31 January – 27 February)
August 2016 (Covering 31 July – 27 August)
The analysis is based on price reporting data supplied to AHDB, which does not cover all animals
slaughtered during the periods covered but amounts to over 84,000 animals in each month. Price
reporting is supplied by all slaughterhouses killing over 20,000 animals per year but most smaller
abattoirs are not covered. In order to maintain a consistent sample across all four months, we have
only included centres which have reported consistently in each of the three months covered. As a
result, three centres which provided data through only part of the period have been removed from
the analysis.
A full breakdown of the proportion of animals in each square of the conformation-fat class grid can
be found in Appendix 1.
5
Stage 1: Distribution of animals by conformation, fat class and weight
band
Conformation The distribution of animals by conformation is shown in the charts below, for steers, heifers and
young bulls separately.
0%
10%
20%
30%
40%
50%
E U+ -U R O+ -O P+ -P
Distribution of steer slaughterings by conformation
Feb-15 Aug-15 Feb-16 Aug-16
0%
10%
20%
30%
40%
50%
60%
E U+ -U R O+ -O P+ -P
Distibution of heifer slaughterings by conformation
Feb-15 Aug-15 Feb-16 Aug-16
0%
5%
10%
15%
20%
25%
30%
35%
40%
E U+ -U R O+ -O P+ -P
Distribution of young bulls by conformation
Feb-15 Aug-15 Feb-16 Aug-16
6
The charts show that for both steers and heifers, close to half of all animals slaughtered in each
month were classified grade R. Slightly more grade below R on lean meat yield (mainly O+ or –O)
than above. This pattern was reasonably consistent over the periods analysed. However, there was
some movement over time, with a shift towards R grade, initially from O but latterly from U. The
more recent trend is likely to be associated with producers sending cattle to slaughter at lighter
weights (see below).
The chart for young bulls shows a more even spread between categories and more variation
between periods. This is partly due to the much smaller number of animals involved. However, there
is also a clear seasonal pattern, with far more animals classifying at U grade in August and at O in
February. This is probably due to the fact that many young bulls come from spring calving systems.
Therefore, animals slaughtered in August will typically be significantly older than those in February.
Apart from the seasonality, the most obvious trend is a steady increase in R grade carcases. Less
than one in four young bull carcases were grade R in February 2015, a share which had increased to
one in three by August 2016. As with steers and heifers, this was initially due to a reduction in O
grades but more recently there have been fewer U grade carcases.
Fat Class The distribution of animals by fat class is shown in the charts below, for steers, heifers and young
bulls separately.
0%
10%
20%
30%
40%
50%
1 2 3 4L 4H 5L 5H
Distibution of steers by fat class
Feb-15 Aug-15 Feb-16 Aug-16
0%
10%
20%
30%
40%
50%
60%
1 2 3 4L 4H 5L 5H
Distribution of heifers by fat class
Feb-15 Aug-15 Feb-16 Aug-16
7
The charts show that over 80% of steers classify as fat class 3 or 4L, while over 80% of young bulls
are in class 2 or 3, with none in 5L or 5H. There is slightly more variation for heifers, with about 70%
in class 3 or 4L but a significant minority (around 20%) in class 4H.
The distributions show some seasonal variation, perhaps partly due to more animals slaughtered in
August being finished off grass, but relatively little change over time. At most, there is a slight
tendency towards leaner carcases, most notably for young bulls.
Carcase weight So far, the analysis has focused on the main conformation/fat class grid. However, most processors
also take carcase weight into account in their payment schedule. Typically, this takes the form of
penalties for carcases which fall below or above a target range. Reports suggest that, until recently,
this range has typically been from around 260kg to 420kg. However, some processors are now
thought to be reducing (or planning to reduce) the top end of the range to 400kg or even 380kg. This
is said to be in response to changes in consumer demand towards smaller cut sizes, which can be
difficult to achieve from heavier carcases.
Given this, it is useful to look at the proportion of carcases which fall within different weight bands.
The overall distribution is shown below for steers, heifers and young bulls separately.
0%
10%
20%
30%
40%
50%
60%
1 2 3 4L 4H 5L 5H
Distribution of young bulls by fat class
Feb-15 Aug-15 Feb-16 Aug-16
0%
20%
40%
60%
80%
100%
Under260kg
260-380kg 380-400kg 400-420kg Over 420kg
Distribution of steer carcases by weight
Feb-15 Aug-15 Feb-16 Aug-16
8
The analysis shows that around 85% of heifers fall in the 260-380kg weight band, which would keep
them within specification for most processors even after the upper weight limit is reduced. Less than
2% are over 420kg. The proportion falling between 380kg and 420kg did increase slightly in the year
to February 2016, from 7% in February 2015 to 9% a year later. However, in August 2016, the
proportion (8%) was lower than a year before (9%). There were also some underweight carcases
(below 260kg), although the proportion was lower in 2016 than 2015 in both February and August.
More male cattle will be affected by any changes to upper weight limits but the number of heavier
cattle has started to reduce in response. For most of the period analysed, only around 60% of steer
carcases were between 260 and 380kg but this proportion jumped to 66% in August 2016. This
increase was largely matched by a fall in the number of cattle in the heaviest weight range – those
over 420kg, which fell from 13% in August 2015 to just 8% in August 2016. The proportion of cattle
between 380kg and 420kg was similar in both years.
For young bulls, weights show a similar seasonal pattern to that seen for conformation. There are
significantly more heavy carcases in August that in February. However, they too saw a move towards
lighter weights in August 2016, compared with August 2015, albeit to a lesser extent than for steers.
In August 2015, less than 60% of young bull carcases were in the prime 260-380kg range; by August
2016 this had increased to 63%. As with steers, the number of young bulls in the heaviest weight
0%
20%
40%
60%
80%
100%
Under260kg
260-380kg 380-400kg 400-420kg Over 420kg
Distibution of heifer carcases by weight
Feb-15 Aug-15 Feb-16 Aug-16
0%
20%
40%
60%
80%
100%
Under260kg
260-380kg 380-400kg 400-420kg Over 420kg
Distribution of young bull carcases by weight
Feb-15 Aug-15 Feb-16 Aug-16
9
range decreased, from 13% to 11%, over the same period. This movement was not apparent in
February (for any of the categories of cattle), suggesting that producers have begun to respond to
the changes in processor specifications during the course of this year.
Carcase weights by conformation and fat class It is also useful to look at how carcase weights vary between different parts of the conformation/fat
class grid. The charts below illustrate the distribution of weights for each conformation class, for
steers, heifers and young bulls separately. The charts illustrate the distributions for February 2016
but they are similar for other months, although with fewer of the heaviest steer carcases across all
classifications.
It is clear from these charts that the heavier carcases are concentrated in the E, U+ and –U classes,
which often attract price bonuses. For steers, there are also a significant proportion of R grade
carcases weighing over 380kg but the proportions are lower for young bulls and, particularly, heifers.
Underweight carcases predominantly grade at P+ or –P.
0%
20%
40%
60%
80%
100%
E U+ -U R O+ -O P+ -P
Steer carcase weight distribution by conformation
Under 260kg 260-380kg 380-400kg 400-420kg Over 420kg
0%
20%
40%
60%
80%
100%
E U+ -U R O+ -O P+ -P
Heifer carcase weight distribution by conformation
Under 260kg 260-380kg 380-400kg 400-420kg Over 420kg
10
This finding potentially has significant implications for those producers who are currently aiming to
deliver animals with the highest conformation, where bonuses for conformation could, in future be
offset by penalties for heavy weights. Many of these animals are above the existing 420kg carcase
weight cut off. However, even more of them are over 380kg. Indeed, for steers, very few E, U+ or –U
carcases are below this weight level. Any change to weight limits would particularly affect these
producers and might require them to adjust their system towards producing lower conformation,
lower weight animals.
The next set of charts below illustrate the weight distribution by fat class (as before the charts are
for February 2016 but the distribution is similar for other months). As might be expected, these
show that heavier carcases are most apparent in the higher fat classes. However, there are
substantial numbers of carcases weighing over 380kg (and indeed over 420kg) in all fat classes. This
shows that, while adding weight can lead to animals becoming fatter, that isn’t necessarily the case.
0%
20%
40%
60%
80%
100%
E U+ -U R O+ -O P+ -P
Young bull carcase weight distribution by conformation
Under 260kg 260-380kg 380-400kg 400-420kg Over 420kg
0%
20%
40%
60%
80%
100%
1 2 3 4L 4H 5L 5H
Steer carcase weight distribution by fat class
Under 260kg 260-380kg 380-400kg 400-420kg Over 420kg
11
0%
20%
40%
60%
80%
100%
1 2 3 4L 4H 5L 5H
Heifer carcase weight distribution by fat class
Under 260kg 260-380kg 380-400kg 400-420kg Over 420kg
0%
20%
40%
60%
80%
100%
1 2 3 4L 4H
Young bull carcase weight distribution by fat class
Under 260kg 260-380kg 380-400kg 400-420kg Over 420kg
12
Stage 2: Factors affecting the value of the GB prime cattle market
Total value of prime cattle sold by month AHDB’s cattle price reporting sample does not cover all animals slaughtered in Great Britain.
Therefore, to estimate the total value of the prime cattle sold in each month, the number of animals
has been adjusted to match the total number slaughtered in GB during the month, based on figures
published by Defra. The total value of prime cattle sold in each month is then calculated by
multiplying the number of animals in each part of the conformation/fat class grid by the average
weight of these animals and the average price.
Based on this calculation, the total value of cattle sold in the three months being analysed was as
follows:
£ million Steers Heifers Young Bulls Total February 2015 87.6 61.5 11.0 160.1 August 2015 75.5 46.1 22.1 143.7 February 2016 80.7 53.8 10.6 145.1 August 2016 74.0 45.1 20.6 139.7
These figures show that the total value of prime cattle sold in Great Britain in February 2016 was £15
million lower than in the same month a year before. The value of cattle sold in August 2015 was
even lower than in February 2016, indicating that much of the loss of value in the market happened
in the first half of 2015. Although this is partly due to seasonality, the value of the market appears
not to have recovered in the second half of last year. There was a further decline by August 2016,
with the market losing around £4 million over the preceding 12 months.
The remainder of this section of the report examines the impact that different market factors had on
the decline in market value. The factors considered are:
The base price paid for cattle meeting processor specifications
The total number of cattle slaughtered
The average weight of carcases
The proportion of cattle meeting different specifications
Differences in price changes for cattle of different specifications
Influence of factors on value change The main focus of the analysis below is on changes between February 2015 and February 2016,
which avoids any complications due to the seasonality of the market. However, the analysis has
been repeated comparing August 2015 and August 2016. The results of the updated analysis are
presented after the February results.
Initially, each of the factors being analysed is considered on its own. This involves looking at how
much difference there would be in the total value of the prime cattle market had only one factor
changed during the course of the year, with all the others remaining the same as in February 2015.
This is followed by a further set of analysis where the cumulative impact of the factors is analysed.
Base Price The first factor considered is the effect of changes in the ‘base price’ for cattle sold in each period. In
reality, each processor will have its own base price and its own specifications for which animals are
13
paid the base price and which are subject to bonuses or penalties. However, it is understood that
animals meeting the standard ‘target specification’ (R4L for steers and heifers and R3 for young
bulls) would normally receive the base price from all processors, unless penalised for other
attributes, such as carcase weight. Therefore, it is reasonable to interpret the change in prices for
animals in this part of the grid as the change in the base price.
The average price for R4L steers declined by around 28.9p/kg. For R4L heifers, the price fall was the
same. Since heifers and steers are typically priced in the same way, this supports the reliability of
this approach to calculating the decline in the base price. For young bulls, the decline in the base
price was a somewhat smaller 22.8p/kg.
If the price paid for cattle in all parts of the grid in February 2016 had decreased by the same
amount as the base price since February 2015, the total value of those cattle would have been
£147.5 million. This is £12.6 million lower than the value of cattle sold in February 2015. This
represents 84% of the total decline in value recorded over the year. In other words, most of the fall
in the value of prime cattle during the year can be attributed to the drop in the base price.
However, this calculated value is £2.4 million higher than the actual value achieved in February
2016, indicating that other factors also contributed to the overall reduction in the market value.
Number of cattle The second factor considered is the total number of cattle slaughtered during the month. The total
number of prime cattle slaughtered in February 2015 was 129,100 head. In February 2016, the total
was 125,700 head, a year-on-year decline of 3,400 head. The overall fall was largely due to a 3,000
head reduction in the number of heifers slaughtered; steer numbers fell only slightly, while
marginally more young bulls were slaughtered this year than last.
To assess the impact on the value of the market of the reduction in the number of cattle slaughtered
alone, we have applied the same percentage change to the number of animals in each part of the
grid. This means that we are taking out the effect of any change in the quality of animals slaughtered
or of other factors such as changes in prices or carcase weights.
On this basis, the change in the number of cattle slaughtered alone would have reduced the value of
the market from £160.1 million to £156.0 million, a drop of just over £4 million. This is equivalent to
just over a quarter of the total fall recorded between February 2015 and February 2016.
300
310
320
330
340
350
360
370
380
Steers (R4L) Heifers (R4L) Young Bulls (R3)
p/k
g
Change in average price for cattleFebruary 2015 - February 2016
Feb-15 Feb-16
-28.9p -28.9p
-22.8p
14
Carcase weights The third factor considered is carcase weights. As discussed in Stage 1 of the analysis, average
carcase weights increased between February 2015 and February 2016. If all other things were equal,
this would mean a rise in the value of the market, as prices are set on a p/kg basis, so more weight
means a higher value.
As previously, we have looked at the impact that the increase in carcase weights would have had on
the value of the market, had all other factors been unchanged. This shows that the rise in weights
alone would have increased the value of the market from £160.1 million in February 2015 to £162.5
million. This is a rise equivalent to 16% of the reduction in the value of the market over the year.
Carcase specifications As discussed in the report on Stage 1 of the analysis, there were some small changes to the mix of
carcases by classification between February 2015 and February 2016. These affected both
conformation and fat class. Overall, these equated to a modest improvement in classification and,
hence, would be expected to lead to a small increase in the value of the market.
To assess the impact on the value of the market of the change in specifications, we kept the total
number of steers, heifers and young bulls at February 2015 levels but adjusted the shares in each
part of the grid so that they matched the mix in February 2016. On this basis, with nothing else
changed, the differences in carcase classifications would have increased the value of the market only
marginally, from £160.1 million to £160.2 million.
Relative prices The final factor affecting the overall value of the market is changes in prices between different parts
of the conformation/fat class grid. For example, while the average price for R4L steers declined by
28.9p/kg between February 2015 and February 2016, prices for many other classifications fell by
more and some by less. This largely reflects changes to the bonuses and penalties paid by some
processors, either based on carcase classification or on other factors such as carcase weight.
To assess the impact of these changes in prices relative to the base price, we kept the base price (i.e.
the price for R4L steers/heifers and R3 young bulls) at its February 2015 level but changed the prices
elsewhere in the grid so that the difference between them and the base price was the same as in
February 2016.
Based on this approach and assuming no change to the other factors, the changes in relative pricing
across the grid would have meant the overall value of the market fell from £160.1 million to £159.0
million, a drop of £1.1 million or about 7% of the total fall in the value of the market. To put this into
context, it is equivalent to the loss from an average price reduction of around 2.5p/kg.
Summary The table and chart below summarise the impact of changes in each of the individual factors
between February 2015 and February 2016 on the value of the market.
£million Steers Heifers Young Bulls Total February 2015 price (baseline)
87.6 61.5 11.0 160.1
Base price 80.6 (-7.0)
56.6 (-4.9)
10.2 (-0.8)
147.5 (-12.6)
Slaughterings 87.0 (-0.6)
57.9 (-3.6)
11.1 (+0.1)
156.0 (-4.1)
Carcase weights 88.6 (+1.0)
62.6 (+1.1)
11.3 (+0.3)
162.5 (+2.4)
15
£million Steers Heifers Young Bulls Total Specifications 87.8
(+0.2) 61.3 (-0.2)
11.2 (+0.2)
160.2 (+0.1)
Relative prices 86.9 (-0.7)
61.2 (-0.3)
10.8 (-0.2)
159.0 (-1.1)
February 2016 price (actual)
80.7 (-6.9)
53.8 (-7.7)
10.6 (-0.4)
145.1 (-15.0)
Cumulative impact of factors So far the analysis has looked at each of the main factors influencing the value of the prime cattle
market in isolation. However, in reality the actual value of the market will be influenced by a
combination of these factors. To understand how they inter-relate, we can look at the cumulative
impact of varying each factor in turn.
This shows similar results for the scale of the impact of each factor to the analysis for individual
factors. The analysis confirms that, as might be expected, most of the reduction in value can be
attributed to the fall in the base price and the decline in the number of cattle being slaughtered.
-16-14-12-10
-8-6-4-2024
£ m
illio
n
Impact of changing individual factors on value of prime cattle market
-£12.6 million
-£3.8 million-£1.0 million
£2.2 million £0.2 million
£160.1 million
£145.1 million
£140,000,000
£145,000,000
£150,000,000
£155,000,000
£160,000,000
£165,000,000
Feb 2015 gridvalue
Base Price Throughputs Carcaseweight
Specification RelativePricing
Feb 2016 gridvalue
Contributions to change in value of prime cattle sold between February 2015 and February 2016
16
However, once heavier carcase weights and slightly improved classification are taken into account,
there is still around £1 million of value which can be attributed to changes in relative pricing across
the grid. This shows that adjustments to the bonuses and penalties paid by processors did impact on
the value producers received for their cattle in February 2016, compared with a year earlier.
Different time periods So far, we have looked at changes between February 2015 and February 2016. However, we have
also repeated this analysis for other time periods. Comparisons between February and August are
complicated by the seasonality of the market. In particular, the number of prime cattle sold in
August is substantially lower than in February, although the number of young bulls is higher.
Therefore, the change of value over the six month period is largely due to the fall or rise in the
number of cattle slaughtered.
However, comparisons between August 2015 and August 2016 are more meaningful. As detailed
above, the drop in the value of the market during this period was much smaller than between the
two Februarys. It amounted to around £4 million.
By August 2016, cattle prices had recovered from the decline seen during the second half of 2015
and early 2016 and were similar to those in August 2015. Therefore, the analysis shows that base
price movements did not make a significant contribution to the loss of value in the market on this
occasion. In fact, there was a small positive effect due to a higher young bull base price, while steer
and heifer base prices were virtually the same as a year before.
All of the other factors considered in the analysis contributed to the decline in value over the year to
August 2016. The largest contribution, accounting for a little over half of the drop in value, was a
reduction in the number of cattle slaughtered. Around 2,000 fewer animals were processed in
August 2016 than in August 2015, mostly due to lower heifer and young bull numbers.
As reported previously, carcase weights in August 2016 were lower than in August 2015. In
particular, there was a reduction in the number of carcases weighing over 420kg. This factor
accounted for about 18% of the drop in the value of cattle sold, amounting to just over £700,000.
There were also some changes in specification, again outlined in stage 1 of the analysis. In particular,
there was a reduction in the number of U grade carcases, which tend to attract a higher price. As a
-£2.2 million
-£0.7 million
-£0.8 million
-£0.6 million
£0.2 million£143.7 million
£139.7 million
£139,000,000
£140,000,000
£141,000,000
£142,000,000
£143,000,000
£144,000,000
£145,000,000
Aug 2015grid value
Base Price Throughputs Carcaseweight
Specification RelativePricing
Aug 2016grid value
Contributions to change in value of prime cattle sold between August 2015 and August 2016
17
result, these changes to specification contributed to the loss of market value, to the tune of just over
£750,000, around 19% of the total fall.
As was the case in February, after all of the other factors had been taken into account, there was still
some of the decline in value which hadn’t been explained. This was due to changes in price levels in
different parts of the conformation-fat class grid. However, the scale of this decline was noticeably
smaller than in February, amounting to around £550,000.
There has been little indication that processor specifications have been relaxed between February
and August. Indeed, if anything, it is thought that they may have been tightened further. Therefore,
this result suggests that the cattle delivered for slaughter have been closer to meeting the
requirements of processors and, hence, have been penalised less. One sign of this is the lower
number of heavy cattle mentioned previously.
Between February 2015 and February 2016, around 65% of the loss in value due to changes in prices
in different parts of the grid was for animals within or close to the target range (O+ or better
conformation, fat class 2 or 4H). Much of this might have been due to cattle penalised due to heavier
carcase weights. Only a minority of the loss was for cattle outside this range, which have reportedly
been more heavily penalised by processors.
When comparing August 2015 and August 2016, the proportion of losses due to relative prices which
were within or close to the target range was much lower, around 45% (and largely restricted to
young bulls). This is likely to reflect the much lower proportion of heavy carcases, particularly for
steers, in August 2016. Now, most of the losses were from carcases outside the target range,
particularly from those over –O or P conformation.
18
Stage 3: Comparing prices with primal cut yields & related factors
Primal Cut Yield As shown in stage 1 of the analysis, carcase weights for prime cattle vary during the course of the
year, particularly for young bulls. As pricing specifications are likely to remain largely unchanged
throughout the year, it makes sense to compare price levels with the average carcase weights (and
hence yields) over the year, rather than those for an individual month.
The yield figures used within this section are based on the yield calculator available through the
AHDB Beef & Lamb website. This is based on analysis of a large number of carcases and so is thought
to provide a reliable assessment of yields. While developments in genetics, nutrition and other
factors may have improved carcase yields since the analysis was undertaken, the trends reported
below are unlikely to be significantly different now.
Based on average carcase weights for each part of the fat class/conformation grid, yields of trimmed
primal cuts from steer carcases varied from 78% for E1 carcases to below 60% for –O5H carcases.
The yield for a typical R4L carcase was 69%. The pattern of yields was similar for heifers and young
bulls. Full details can be found in Appendix 2. Where no figure is shown, it is because no carcases
during were classified at that point on the grid during the year.
If prices (on a p/kg basis) were based solely on yield of trimmed primal cuts, they should follow the
same pattern. The highest prices would be for E1 animals and with quotes gradually declining as fat
class rises and/or conformation falls. As we’ll see later, that isn’t the case. There are a number of
reasons for that, some of which are discussed later in the paper.
It is worth remembering that the average carcase weight for fat class 1 animals are lighter than for
those with higher levels of fat. Therefore, even though the percentage yield is greater for these
carcases, the actual weight of primal cuts yielded is lower. In fact, the total yield peaks in fat classes
2 or 3, depending on conformation.
12
3
4L
4H5L
5H50%
55%
60%
65%
70%
75%
80%
E U+ -U R O+ -O P+ -P
Average yield of trimmed primal cuts by classification (steers)
19
Yields by cut One of the reasons cattle prices do not simply follow trimmed primal cut yields is that they are not
the only factor which influences the value of a carcase to processors. This is partly because different
cuts and by-products from the carcase have different values. Therefore, it is instructive to look at
how the make-up of the carcase varies between grades and weights.
To illustrate the point, there are certain cuts which have a much higher value to the consumer.
Based on AHDB’s retail price survey, the average prices for selected cuts in 2015 were:
Fillet steak - £34.69/kg
Sirloin steak - £21.23/kg
Rump steak - £15.45/kg
Topside - £10.68/kg
Stewing/braising steak - £9.31-9.51/kg
Premium mince - £7.66/kg
Standard mince - £6.04/kg
From this it is clear that carcases with higher yields of steak cuts will have a greater overall value.
The yield of these cuts is greatest from the highest conformation carcases and also rises slowly as fat
class increases. For high conformation, fatter carcases, fillet and sirloin can make up almost 11% of
the total primal cut yield. For low conformation, lean carcases, the share can be less than 8%. The
pattern is similar if rump is included.
Broadening out the range of cuts considered, forequarter cuts, which are mainly minced and, hence,
have lower value than most hindquarter cuts, make up a higher proportion of the total yield for poor
conformation, high fat carcases. The reverse is true of hindquarter cuts. Lean trim (i.e. those parts of
the carcase not included in one of the primal cuts) varies less but its share of total yield is highest for
poor confirmation, lean carcases. This will also mainly be minced.
Finally, primal cuts and trim are not the only carcase components with a value. The remainder of the
carcase is made up of trimmed fat, which has some value, and bones and other waste products,
which have little or no market value. The latter are likely to represent a cost to processors, as they
will have to pay for it to be disposed of. As might be expected, fat yields are much greater from
carcases in high fat classes, which adds slightly to their value when compared with lean carcases.
Adjusting for the different values of the various parts of the carcase, the gaps in the yields between
different carcase classifications is smaller than for the total yield of trimmed primal cuts.
Nevertheless, the broad pattern is the same, with high conformation, low fat carcases having the
highest yield and poor conformation, high fat ones having the lowest.
Other carcase factors influencing price The yield of primal cuts in total, or of particular cuts, will not be the only aspect of the carcase which
influences the price paid for it. Important considerations which can’t be derived from the yield
figures are the consistency of cuts and their appearance, both of which will affect how consumers
respond to them and the price they are willing to pay.
One aspect of this is the size of cuts. Reports suggest that budget-conscious consumers have become
increasingly resistant to buying larger cuts. This, combined with the increased use of skin packs,
means most retail packs will be limited to cuts of a specific weight or within a fairly small size range.
For larger carcases, this can mean, for example, that steaks from large carcases have to be cut
20
thinner, which in turn can make them less attractive to consumers. Alternatively, they may need to
be trimmed significantly, reducing the value of the whole cut. This is one factor behind reports of
increasing penalties for heavier carcases. Appearance, and hence saleability, may also be affected by
carcases which are too lean or too small.
The desire of retail (and foodservice) customers for consistent products means that processors have
a requirement for consistent carcases. This will also help to minimise their processing costs.
Although it is hard to quantify the impact of this, it would be expected to mean that carcases which
are further away from the target specification would attract lower prices than might be anticipated
based solely on primal cut yields (whether adjusted or not).
Prices per unit of trimmed primal cuts Above, we have seen how prime cattle prices would vary across the grid if they were based solely on
primal cut yield (with or without adjustment). However, the chart below illustrates that they are not
distributed in this way. In fact, the highest prices are in fat classes 3 and 4L, dropping away either
side of this, particularly for the more extreme carcases in fat classes 1, 5L or 5H. Carcases with the
best conformation do generally attract the highest prices but there is less difference between grades
than yields would imply.
To look at things another way, we can calculate the price paid per kg of trimmed primal cuts. To
illustrate this, average prices on this basis for February 2015 and February 2016 can be found in
Appendix 3. If the yield of these cuts was the only factor influencing price, we would expect this to
show a flat profile, with prices similar in all parts of the grid. In reality, prices are highest in the
central part of the grid, around the target specification (e.g. R4L for steers, illustrated in the chart
below).
12
3
4L4H
5L5H
0
100
200
300
400
E U+ -U R O+ -O P+ -P
p/k
g
Average carcase price by classification (steers)February 2016
21
The table below presents the same data in a different way. During February 2016, the average price
per kg of trimmed primal cuts was 474.7p/kg for steers. The table shows how the average price
differed from this level in each part of the grid. The deviations are much larger in the extremities of
the grid but the number of animals involved is much smaller.
Deviation from overall average price per kg (p/kg) of trimmed primal cuts by specification
Steers – February 2016
1 2 3 4L 4H 5L 5H
E -101 -27 -9 +18 -7
U+ -78 -24 -3 +12 +16 -31 +9
-U -105 -22 -1 +14 +23 -2 -15
R -114 -30 -1 +19 +29 +2 +39
O+ -167 -50 -13 +13 +19 -20 +9
-O -221 -77 -39 -18 -23 -84 -120
P+ -290 -124 -77 -61 -76
-P -306 -147 -116 -95
The pattern of pricing based on primal cut yield is similar whether the yield is adjusted to take
account of value or not, although the differences are slightly smaller if the adjusted yield is used.
This analysis suggests that in parts of the grid close to the target specification, average prices reflect
the yield fairly accurately. However, for carcases falling outside this area, prices are lower than
would be expected on the basis of primal cut yield. The differences become larger the further away
they get from the core range. At the extreme end of the scale, the small number of P1 carcases
attract less than half as much per kg of trimmed primal cuts as those in the core range.
In the second stage of this report, we saw that prices had fallen more sharply outside the core part
of the grid in the year to February 2016. So did prices in early 2015 match yields of primal cuts more
closely? The answer is that they did. The pattern was similar, with fairly flat prices in the core part of
the grid, falling away outside that range. However, differences were smaller than in February 2016,
particularly for carcases furthest away from the target specification.
12
3
4L4H
5L5H
0
100
200
300
400
500
600
E U+ U- R O+ O- P+ P-
p/k
g le
an m
eat
Average carcase price per kg of trimmed primal cutsby classification (steers), February 2016
22
Deviation from overall average price per kg (p/kg) of trimmed primal cuts by specification
Steers – February 2015
1 2 3 4L 4H 5L 5H
E -59 -26 -3 +5 +11
U+ -49 -23 -3 +11 +12 +23
-U -65 -25 -3 +13 +22 -5
R -108 -26 -4 +17 +32 +23 +36
O+ -129 -41 -11 +15 +28 +19 -26
-O -173 -61 -37 -14 -11 -46 -49
P+ -229 -86 -63 -37 -53 -90
-P -195 -143 -105 +12
Conclusions It is clear from the analysis presented above that prime cattle prices don’t necessarily reflect the
yield of trimmed primal cuts from carcases. In particular, carcases which are well away from the
target specification attract much lower prices than might be expected. Furthermore, the differences
increased significantly over the year to February 2016.
So does this mean that prices are unfair (and becoming increasingly unfair)? Not necessarily. As
discussed above there is a growing desire for consistency of cut sizes and appearance from retail
customers and consumers. Achieving this consistency requires carcases to be consistent too. The
pricing changes over the last year send a clear message to producers about the importance of
delivering cattle which consistently meet the target specification.
Ultimately, decisions about pricing are a matter for commercial negotiation between producers and
processors. The latter are free to decide the prices they pay, to ensure that they get the kind of
cattle which they, and their customers, require. The former are free to accept these terms of try to
sell their cattle elsewhere. However, ultimately producers need to ensure that their cattle meet the
requirements of the market if they are to ensure that they receive the best prices.
12
3
4L4H
5L5H
0
100
200
300
400
500
600
E U+ U- R O+ O- P+ P-
p/k
g le
an m
eat
Average carcase price per unit of trimmed primal cutsby classification (steers), February 2015
23
Next steps Now that the initial analysis of historic price data has been completed, we will consider how the
findings can be replicated within our standard price reporting (either on a weekly or monthly basis).
This is likely to be delivered through the Tableau software reports, which are currently under
development. These reports will allow users to interrogate the price reporting data in more detail,
with controls to prevent access to confidential data. Reports will be available for demonstration and
testing purposes by the end of the year.
For further information about the analysis contained within this report or AHDB’s wider market
intelligence about the beef market, please contact the authors:
Debbie Butcher, Senior Analyst [email protected] 024 7647 8851
Stephen Howarth, Market Specialist Manager [email protected] 024 7647 8856
24
Appendix 1: Distribution of animals in AHDB Deadweight Cattle
sample by conformation and fat class
Steers
February 2015
1 2 3 4L 4H 5L 5H
Total
E 0% 0% 0% 0% 0% 0% 0% 1%
U+ 0% 1% 3% 2% 0% 0% 0% 5%
-U 0% 1% 6% 8% 2% 0% 0% 17%
R 0% 2% 12% 20% 6% 0% 0% 41%
O+ 0% 1% 6% 10% 2% 0% 0% 20%
-O 0% 2% 7% 5% 0% 0% 0% 14%
P+ 0% 1% 1% 0% 0% 0% 0% 2%
-P 0% 0% 0% 0% 0% 0% 0% 0%
Total 0% 7% 36% 46% 10% 0% 0%
August 2015
1 2 3 4L 4H 5L 5H
Total
E 0% 0% 0% 0% 0% 0% 0% 1%
U+ 0% 1% 2% 1% 0% 0% 0% 5%
-U 0% 1% 6% 7% 2% 0% 0% 16%
R 0% 2% 14% 19% 5% 0% 0% 41%
O+ 0% 2% 8% 10% 2% 0% 0% 21%
-O 0% 2% 7% 5% 0% 0% 0% 14%
P+ 0% 1% 1% 0% 0% 0% 0% 2%
-P 0% 0% 0% 0% 0% 0% 0% 0%
Total 1% 10% 39% 42% 9% 0% 0%
February 2016
1 2 3 4L 4H 5L 5H
Total
E 0% 0% 0% 0% 0% 0% 0% 1%
U+ 0% 1% 2% 1% 0% 0% 0% 5%
-U 0% 1% 6% 8% 2% 0% 0% 17%
R 0% 2% 14% 21% 6% 0% 0% 44%
O+ 0% 1% 7% 9% 2% 0% 0% 19%
-O 0% 1% 7% 5% 0% 0% 0% 13%
P+ 0% 0% 1% 0% 0% 0% 0% 2%
-P 0% 0% 0% 0% 0% 0% 0% 0%
Total 0% 6% 38% 45% 11% 0% 0%
25
August 2016
1 2 3 4L 4H 5L 5H
Total
E 0% 0% 0% 0% 0% 0% 0% 0%
U+ 0% 1% 2% 1% 0% 0% 0% 4%
-U 0% 1% 6% 6% 1% 0% 0% 14%
R 0% 3% 17% 20% 4% 0% 0% 44%
O+ 0% 1% 9% 10% 2% 0% 0% 22%
-O 0% 1% 7% 4% 0% 0% 0% 13%
P+ 0% 1% 1% 0% 0% 0% 0% 2%
-P 0% 0% 0% 0% 0% 0% 0% 0%
Total 1% 8% 42% 41% 8% 0% 0%
Heifers
February 2015
1 2 3 4L 4H 5L 5H
Total
E 0% 0% 0% 0% 0% 0% 0% 1%
U+ 0% 0% 2% 2% 0% 0% 0% 4%
-U 0% 1% 4% 9% 3% 0% 0% 18%
R 0% 1% 10% 26% 12% 1% 0% 49%
O+ 0% 1% 4% 11% 6% 1% 0% 23%
-O 0% 0% 1% 2% 1% 0% 0% 4%
P+ 0% 0% 0% 0% 0% 0% 0% 1%
-P 0% 0% 0% 0% 0% 0% 0% 0%
Total 0% 3% 22% 50% 22% 2% 0%
August 2015
1 2 3 4L 4H 5L 5H
Total
E 0% 0% 0% 0% 0% 0% 0% 1%
U+ 0% 0% 2% 1% 0% 0% 0% 4%
-U 0% 1% 5% 6% 2% 0% 0% 14%
R 0% 2% 12% 24% 10% 1% 0% 48%
O+ 0% 1% 6% 12% 6% 1% 0% 26%
-O 0% 0% 2% 3% 1% 0% 0% 6%
P+ 0% 0% 1% 0% 0% 0% 0% 2%
-P 0% 0% 0% 0% 0% 0% 0% 1%
Total 1% 5% 27% 46% 18% 2% 0%
26
February 2016
1 2 3 4L 4H 5L 5H
Total
E 0% 0% 0% 0% 0% 0% 0% 0%
U+ 0% 0% 1% 2% 0% 0% 0% 4%
-U 0% 0% 4% 8% 3% 0% 0% 16%
R 0% 1% 11% 26% 13% 1% 0% 52%
O+ 0% 0% 4% 9% 6% 1% 0% 21%
-O 0% 0% 1% 2% 1% 0% 0% 5%
P+ 0% 0% 1% 0% 0% 0% 0% 1%
-P 0% 0% 0% 0% 0% 0% 0% 0%
Total 0% 3% 23% 48% 23% 3% 0%
August 2016
1 2 3 4L 4H 5L 5H
Total
E 0% 0% 0% 0% 0% 0% 0% 0%
U+ 0% 0% 1% 1% 0% 0% 0% 3%
-U 0% 1% 4% 6% 2% 0% 0% 13%
R 0% 2% 14% 24% 10% 1% 0% 50%
O+ 0% 1% 6% 12% 6% 1% 0% 25%
-O 0% 0% 2% 3% 1% 0% 0% 6%
P+ 0% 0% 1% 0% 0% 0% 0% 1%
-P 0% 0% 0% 0% 0% 0% 0% 1%
Total 1% 5% 28% 47% 18% 1% 0%
Young Bulls
February 2015
1 2 3 4L 4H 5L 5H
Total
E 0% 1% 1% 0% 0% 0% 0% 2%
U+ 0% 2% 3% 1% 0% 0% 0% 6%
-U 0% 4% 7% 3% 0% 0% 0% 15%
R 0% 7% 10% 4% 0% 0% 0% 22%
O+ 0% 6% 11% 2% 0% 0% 0% 19%
-O 1% 14% 13% 2% 0% 0% 0% 29%
P+ 1% 4% 1% 0% 0% 0% 0% 6%
-P 0% 0% 0% 0% 0% 0% 0% 0%
Total 3% 38% 45% 12% 1% 0% 0%
27
August 2015
1 2 3 4L 4H 5L 5H
Total
E 0% 3% 2% 0% 0% 0% 0% 5%
U+ 0% 6% 8% 1% 0% 0% 0% 16%
-U 0% 8% 15% 6% 0% 0% 0% 30%
R 0% 7% 12% 6% 1% 0% 0% 26%
O+ 0% 3% 5% 1% 0% 0% 0% 9%
-O 0% 5% 5% 0% 0% 0% 0% 11%
P+ 0% 1% 0% 0% 0% 0% 0% 2%
-P 0% 0% 0% 0% 0% 0% 0% 0%
Total 3% 34% 47% 16% 1% 0% 0%
February 2016
1 2 3 4L 4H 5L 5H
Total
E 0% 1% 1% 0% 0% 0% 0% 2%
U+ 0% 2% 3% 0% 0% 0% 0% 6%
-U 0% 5% 9% 2% 0% 0% 0% 16%
R 1% 9% 15% 4% 0% 0% 0% 28%
O+ 0% 6% 9% 2% 0% 0% 0% 18%
-O 1% 12% 10% 1% 0% 0% 0% 24%
P+ 1% 4% 1% 0% 0% 0% 0% 6%
-P 0% 0% 0% 0% 0% 0% 0% 1%
Total 4% 38% 48% 9% 1% 0% 0%
August 2016
1 2 3 4L 4H 5L 5H
Total
E 1% 3% 1% 0% 0% 0% 0% 5%
U+ 1% 6% 5% 1% 0% 0% 0% 12%
-U 1% 8% 13% 4% 0% 0% 0% 26%
R 1% 11% 17% 5% 0% 0% 0% 33%
O+ 0% 4% 5% 1% 0% 0% 0% 11%
-O 1% 5% 4% 0% 0% 0% 0% 11%
P+ 1% 2% 0% 0% 0% 0% 0% 2%
-P 0% 0% 0% 0% 0% 0% 0% 0%
Total 4% 38% 46% 11% 1% 0% 0%
28
Appendix 2: Average yield of trimmed primal cuts by conformation
and fat class, 2015
Steers
1 2 3 4L 4H 5L 5H
E 78% 77% 74% 72% 71%
U+ 77% 77% 74% 72% 70% 68% 66%
-U 76% 75% 73% 70% 69% 67% 64%
R 74% 74% 71% 69% 68% 66% 63%
O+ 73% 73% 70% 68% 66% 64% 61%
-O 72% 72% 69% 66% 65% 63% 59%
P+ 71% 71% 68% 65% 64% 62%
-P 71% 70% 67% 65% 63%
Heifers
1 2 3 4L 4H 5L 5H
E 78% 78% 75% 73% 71% 69%
U+ 77% 77% 74% 72% 71% 69% 66%
-U 76% 76% 73% 71% 70% 67% 65%
R 75% 75% 72% 70% 68% 66% 63%
O+ 74% 73% 70% 68% 67% 65% 62%
-O 72% 72% 69% 67% 65% 63% 60%
P+ 72% 71% 68% 66% 64% 62% 59%
-P 71% 71% 68% 65% 64%
Young Bulls
1 2 3 4L 4H 5L 5H
E 78% 77% 74% 72% 71%
U+ 77% 77% 74% 72% 70% 69%
-U 76% 76% 73% 71% 69% 67% 65%
R 75% 74% 71% 69% 68% 66%
O+ 73% 73% 70% 68% 67% 64%
-O 72% 72% 69% 67% 65% 63%
P 71% 71% 68% 66%
-P 71% 71% 68%
29
Appendix 3: Average price per kg of trimmed primal cuts by
conformation and fat class
February 2016
Steers
p/kg 1 2 3 4L 4H 5L 5H
E 374 448 465 492 468
U+ 396 450 472 486 490 444 484
-U 370 452 473 489 498 473 460
R 361 445 473 494 503 477 514
O+ 308 425 462 488 494 454 484
-O 254 398 435 457 452 391 355
P+ 185 351 397 414 399
-P 169 328 359 380
Heifers
1 2 3 4L 4H 5L 5H
E 347 446 477 489 477
U+ 332 452 476 492 491 459
-U 391 454 475 491 493 461 410
R 353 439 471 489 492 468 469
O+ 281 411 455 481 485 455 444
-O 235 367 408 439 442 414
P+ 187 256 320 382 368 367
-P 171 241 317 373 300
Young Bulls
1 2 3 4L 4H 5L 5H
E 381 434 451 482
U+ 381 431 459 480 472
-U 391 439 461 473 485
R 362 431 455 467 475
O+ 291 398 432 446 457
-O 302 375 409 417 403
P+ 229 327 376
-P 209 345 331
30
February 2015
Steers
1 2 3 4L 4H 5L 5H
E 460 493 516 524 530
U+ 470 496 516 530 531 542
-U 454 494 516 532 541 514
R 411 493 515 536 551 542 555
O+ 390 478 508 534 547 538 493
-O 346 458 482 505 508 473 470
P+ 290 433 456 482 466 429
-P 324 376 414 531
Heifers
1 2 3 4L 4H 5L 5H
E 488 496 514 534 541
U+ 466 497 519 535 537 519
-U 434 493 516 532 538 520 530
R 412 485 511 530 538 526 523
O+ 346 468 501 526 534 509 528
-O 329 409 451 484 500 511 579
P+ 247 341 368 419 456
-P 237 270 264 430 452
Young Bulls
1 2 3 4L 4H 5L 5H
E 433 487 490 505
U+ 449 480 489 510 491
-U 444 478 493 513 514 520
R 402 471 487 503 497 456
O+ 381 446 467 490 476 462
-O 354 424 446 466 463
P+ 290 373 410 443
-P 276 259 393
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