A number of factors played together to create the perfect storm leading to the sharp decline in livestock prices during the past week. Consumers are under pressure due to our weak economic growth and relatively high energy prices and cannot pay more for protein.
The imports of poultry products from Brazil prevent the expected increase in prices during the three weeks before Christmas day. During this time period rains stayed away. Maize producers failed to plant according to their intentions and as a result the maize price start to increase to import parity. It became evident that we will need to import yellow maize to meet the demand of the animal feeds market. The increase in maize prices threatens the future profitability of feedlots and as a result the price of weaner calves start to decline. During January, South Africa’s exports of meat are suspended due to the prevalence of foot and mouth disease in FMD-free areas. The approximate 3 % of beef exports as % of total beef production were immediately halted and redirected into the local meat market. The combined simultaneous impact of these events lead to a unexpected sharp decline in the price of carcass prices and this fuel further declines in the prices for weaner calves and feeder lambs. Government and the private sector is underway to regain South Africa’s FMD-free status. In the short term, consumers expect to benefit from lower meat prices. This will lead to increased consumption in beef and mutton for years to come. An increased demand will support prices to recover sooner than later as the demand for protein is strong.
Beef prices traded lower this week and indications are that the trend may continue in the short term until the price of yellow maize are fully factored into higher animal feed prices. Both beef carcass and weaner prices will continue to trade lower. To regain our foot and mouth disease free status may take up to a year.
Internationally, the strong global demand for sheep meat and limited supply availability are expected to support strong prices through 2019. Locally, sheep meat prices may follow the lower beef prices into next week.
Internationally, the impact of African Swine Fever in China will curb production in the second half of 2019. It is expected that China will source pork globally underpinning global pork prices. Locally, pork prices may follow the price declines in poultry, beef and mutton in order to stay competitive.
Internationally, US poultry meat prices traded lower and Brazil may face increased trade remedies by South Africa and the ban on poultry imports in the EU. Locally, the decline in alternative meat products compete with poultry products while the sharp increase in poultry feed prices threaten the sustainability of poultry operations.
Wessel Lemmer
Senior Agricultural Economists, Absa group
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