In a series written especially for AgriOrbit, Dr Frikkie Maré of the Department of Agricultural Economics at the University of the Free State, and editor of Veeplaas, investigates the current market sheep and cattle situation. He looks at production, demand, consumption, and price trends in the South African red meat market. Below is an extract of each part of the series. To read the full article, simply click on the title.

The South African cattle and sheep market – Part 1: Supply

Due to South Africa’s diverse natural habitat, large parts of the country are suited to livestock production. While this initially led to rapid growth in the livestock industry, this trend ceased in 1996, with a decline in the national sheep flock. The national cattle herd remained relatively constant until 2015 when it too began to decline.

In terms of supply, cattle and sheep numbers decreased over the years. In plain economics it should cause the price of the product (red meat) to increase. However this will only happen if everything else remains constant. However, the market environment changes constantly, and the effects of demand and other factors such as consumers’ disposable income should also be considered.

The South African cattle and sheep market – Part 2: Demand

This article focuses on the demand for sheep meat (mutton and lamb) and beef. In terms of domestic demand represented by the annual per capita meat consumption in South Africa, the demand for sheepmeat decreased. The annual per capita consumption of sheep meat in 1980/81 was 6,3kg; it dropped to 3,2kg in 2018/19, a reduction of almost 50%.

The per capita consumption of beef and sheep meat might have decreased over time because of the struggling economy and associated lower disposable income levels. Another reason could be a lower demand for more expensive red meat products such as beef and sheep meat. This is also evident in the increased demand for cheaper protein, such as poultry.

In this article we will investigate the trade indicators and price trends of mutton and lamb. South Africa does not operate in isolation and domestic sheep production forms part of the larger international market. Therefore imports and exports should also be considered. South Africa is a nett importer of sheep meat (mutton and lamb) with very limited exports. However imports also declined drastically during 2019. This might be due to lower domestic prices. Price tendencies show that year-on-year price increases have been very limited since 2017 and were even negative in some years.

The interactive forces of supply and demand determine a product’s market price. The nominal price is the shelf price, which usually increases year on year. The real price (inflation-adjusted price), however, is more important. It indicates whether the market price, irrespective of inflation, increased over time.

In terms of the nominal price, it is expected that it should increase year on year as it is driven by inflation. Yet the price sometimes decreases from one year to the next. However, when we adjust the price for inflation and work with the real price, it is evident that it is much more volatile than the nominal price and goes through deeper cycles.

A particularly important part of the South African red meat market is weaned calves and lambs. Approximately 70% of all weaned calves in the formal sector are sold to and finished by commercial feedlots. The percentage of weaned lambs sold to commercial feedlots is lower, as more sheep producers finish their own lambs for slaughter compared to cattle production. In this article, Dr Maré investigates the price trends related to weaned calves and lambs.

The past few years were characterised by dire prices for weaned calves and lambs. However, it seems as though prices started to recover in 2020. At this stage, the 2020/21 summer production regions will likely receive normal to above-normal rainfall. The favourable weather conditions may assist producers who are still faced with drought conditions to rebuild herds, while the summer feed crop should also exceed demand.

The SA cattle and sheep market – Part 6: Producer analysis

This article looks at producers and the economic environment in which the South African cattle and sheep markets operate. The economic situation of agricultural producers, and especially livestock producers, deteriorated over the past few years. External factors such as the drought and a weak economy had a drastic influence on demand and supply.

Decreasing terms of trade, increasing debt, and deteriorating cash flow make it very difficult for agricultural producers to meet their short- and medium-term obligations. There is evidence that costs are cut to the bone and crucial risk mitigation measures, such as short-term insurance, are cancelled. Many producers are currently balancing on a knifepoint, and a slight push from any unforeseen factor such as a veld fire, low conception rate, and a sharp drop in market prices can tip them over.

The SA cattle and sheep market – Part 7: Benchmarks

Since our country partakes in imports and exports of red meat, South African livestock producers must be benchmarked with producers in other countries to determine how competitive they are. The price of commodities is significant in terms of trade as it determines whether there is scope for both imports and exports. When comparing the price of weaned lambs to other countries’ benchmarks, it becomes clear that the South African weaned lamb price is low.

The countries of which the weaned lamb price is more or less on par and lower than that of South Africa, are Australia and Namibia. This means countries such as Australia and Namibia can competitively export their products to South Africa, while South African producers must endeavour to export their products to countries with higher prices to be competitive. – Ursula Human, AgriOrbit