Analyst Intel


3 July 2020

PULSE | Low bobby calf returns have wide implications

The main bobby calf season is almost here but export markets are still affected by covid-19, leading to some concern about prices.

There is usually about a month’s difference in the start of calving between the North Island and South Island dairy herds. Bobby calves usually start heading to North Island processors in early July and peak at 138,000 calves/week at the start of August. The South Island season peaks in late August at 106,000 calves a week though the numbers have been trending downwards as the national dairy herd contracts.

Bobby calves usually serve two purposes. First, they provide products such as skins, serum and rennet for use in other industries as well as restaurant cuts and manufacturing beef for use in softer meat items such as baby and pet foods. Second, the bobby calf kill season is used to keep sheep processing plants busy during the lamb off-season to spread plant operating costs and retain a skilled labour force.

While processors are accustomed to not making much of a margin on bobby calf veal, co-products such as hides, bones and serum are also devaluing below last year’s levels. Hide returns have dropped to such a low that processing the skins would lose money – that is also having flow-on effects for rendering of other stock such as dead cow pick up services.

With bobby calf returns down in the dumps processors are signalling this season’s price will be lower than last year. Last season’s price was already at the tipping point so taking it any lower would mean dairy farmers being incentivised to euthanise on-farm rather than rearing the calves to four days, particularly for farms facing a staff shortage or with longer trucking distances to processors. On-farm slaughter is unpalatable for many farms even if it means producing four-day calves for a financial loss.

While processors and dairy farmers ponder their options it is worth considering what this will mean for the feeder calf market and for the sheep processing plants. Feeder calf prices are likely to ease too, particularly for four-day Friesian bull calves that are most closely aligned with the bobby price. Lower feeder calf prices will be a welcome relief for calf rearers who have been squeezed by poor margins. Though a good uptake of 100kg calf contracts is what is really needed to turn the calf-rearing situation around. Calf contracts will need to be forthcoming to ensure a good supply of finishing stock for the coming season, particularly if there has been a significant cut taken out of the beef breeding herd by this season’s drought.

A significantly lower bobby calf kill, if that happens, would also leave a lot of empty hooks in the sheep processing plants. That could push up the winter lamb price, which is already shifting upward because of increasing procurement competition. Or it could mean slaughter capacity is further reduced in lamb plants over winter, which could mean a slow start to the season in spring as that capacity rebuilds.