05 Jul Premiums for EU certified, are they worth the effort?
- The EU certified spread premium has averaged 34¢/kg cwt over the last two decades, ranging from 15¢-53¢ for 70% of the time.
- Rising cattle prices in recent years have seen the EU spread premium erode in percentage terms.
- Since the middle of 2015, the EU certified percentage price spread premium has been unable to sustain levels above the long-term average, drifting along the lower end of the normal range.
A subscriber to Mecardo recently asked us to investigate the EU certified premiums available to producers that maintain their stock under the European Union Cattle Accreditation Scheme (EUCAS). Our subscriber was querying if there is a benefit to being EU accredited and if the premiums being achieved are worth the additional effort.
Certainly, the price behaviour of MLA reported over-the-hooks (OTH) EU steers to similar type OTH Heavy Steers in Queensland since 2015 shows that the EU steers usually obtain a premium, as outlined in Figure 1. Clearly an EU premium exists, but has it been expanding or narrowing over time?
In ¢/kg cwt terms the premium spread has averaged 34¢ over the last two decades, spending 70% of the time fluctuating between a premium of 15¢ and 53¢, as outlined by the grey shaded area on Figure 2. However, assessing the price spread in ¢/kg terms doesn’t consider higher underlying cattle prices that have occurred in recent years. To account for higher cattle prices, we should assess the historic spread pattern in percentage terms.
Analysis of the percentage price spread of EU certified Queensland OTH steers to Queensland OTH Heavy Steers for the last two decades shows that EU accredited stock have achieved a long-term average spread premium of 10%, with variations in the spread fluctuating between a 4%-16% premium for 70% of the time (Figure 3).
Furthermore, there have been times since 2000 that the spread premium has exceeded 20%, but these peaks have been far less frequent in recent years. Indeed, since the middle of 2015 the EU premium has spent most of the time at the lower end of the normal range, between a 4% to 8% premium. Currently, the EU premium for OTH EU steers versus OTH Heavy Steers in Queensland sits below the long-term average level at 8.3%.
Note: During the 2014/15 drought in Queensland OTH prices for EU certified steers ceased being reported so the spread was unable to be calculated during this timeframe.
What does it mean?
There are nearly 3,500 EU accredited farms and just over 50 EU accredited feedlots across Australia according the Department of Agriculture and Water Resources (DAWR) statistics. The DAWR website lists a range of requirements needed to be satisfied for producers to obtain and maintain EUCAS certified status.
It is claimed that cattle with EU certification attract a substantial price premium over non-EU accredited cattle of a similar type and this appears true when assessing the spread in ¢/kg cwt terms. However, spread premiums in ¢/kg terms have not kept pace with the underlying price of the cattle, so the spread in percentage terms has been eroded in recent times.