This year certainly did not start on a high note in terms of price and, in some areas, climatic conditions, for South African red meat producers. A backwards glance shows us that 2018 did not end well either; in fact, prices and the weather have been far from ideal for the last four years.
The instability, uncertainty and high risk associated with agricultural production hardly needs further proof: Drought, flooding, no real price increases followed by enormous ones, an economy that cannot keep to its predicted growth, and continuous policy and political uncertainty. Amid this turbulent landscape, we must now figure out what to expect from the red meat industry this year. In my opinion, the best roadmap for the future as far as red meat prices are concerned, is the past.
History of red meat markets
A glance at the recent history of red meat markets, represented in the figures provided, is a bit like staring down an information juggernaut. Although each figure and curve tells a story, one needs the combined effect to get the bigger picture.
Figure 1 shows the number of animals slaughtered in South Africa from 2013 to 2018. During this period, in 2013 and 2014, the numbers for sheep and cattle grew. This was, in my opinion, the last period of natural growth.
The increase in slaughter numbers from 2014 to 2016 for cattle, and 2014 to 2015 for sheep, can largely be attributed to emergency slaughtering due to the drought. This is also evident in the small price increases for weaned animals and carcasses during these years (Figure 2 to Figure 5).
In 2017 the slaughter numbers of cattle and sheep decreased, resulting in short supply with associated average year-on-year price increases of 59% for weaned calves and 20% for A2 beef carcasses, and 25% for weaned lambs and 23% for A2 lamb carcasses.
Although the slaughter numbers decreased even further in 2018, we did not see the same price spike as in 2017. While there were many contributing factors to the 2018 price scenario, the following should be highlighted:
- Consumers, amid a weak economy, could not afford another sharp price increase and therefore a temporary price ceiling was created.
- The sharp increase in the slaughter number of pigs due to listeriosis and the associated low prices that forced producers out of the market, created a sharp decline in the price of pork and thus a very cheap red meat alternative for consumers.
Factors to consider in 2019
In order to get from the past to the present, and even a little into the future, we need to consider the factors that will influence the demand and supply – and thus the price – of red meat this year.
A few curveballs have been thrown at the red meat market since the end of 2018. The first was the sideways movement of beef and lamb carcass prices during December, without the anticipated price hike. The maize price also began to increase significantly at the end of 2018, with price increases continuing in the new year. This was the first factor to push down the price of weaned animals.
Another unexpected curveball was the outbreak of foot and mouth disease (FMD), which closed our borders for red meat exports. The influence of FMD was seen almost immediately, with a sharp drop in the prices of weaned calves and A2 beef and lamb carcasses. South Africa exports approximately 3% of its red meat production; this will now have to be absorbed by the domestic market.
Apart from these curveballs, there are other elements that usually influence the red meat market. Although they are always present, their shape and size – and therefore their influence on the market – changes from time to time.
The first aspect is the weather. Meteorologists describe 2018/2019 as the most difficult year yet in terms of weather predictions due to contrasting indicators. In January, halfway through the summer, we were still not sure what the weather held in store for this year.
The second element is consumer demand, which is based on disposable income (think economy) and the price of substitute products (think poultry and pork). In terms of the economy we are struggling to sustain economic growth while keeping inflation and the exchange rate under control. The Monetary Policy Committee is on course to increase interest rates to protect the poor from inflation. Higher interest will, however, place limits on the disposable income of consumers.
Although the pork price has largely recovered, poultry is very cheap due to imports; the stronger rand is expected to drive the price of imported poultry down even further.
Price trends in 2019
There are many other factors that should be considered in price trend predictions for this year, but not enough space on these pages to explain each one in detail. The best I can do is to try and make a prediction based on a combination of all these elements and, of course, my gut feeling.
I do need to mention that, historically, the average annual prices of red meat have never declined from one year to the next. Even the 2018 prices were 7 and 14% higher for weaned calves and lambs respectively, and 2 and 1% higher for A2 beef and lamb carcasses respectively. This year, however, I am not certain that we will see an average price increase.
In a nutshell, supply will be higher this year as slaughter numbers should increase as herd numbers recover, while previously exported meat will now also part of domestic market supply. I predict that demand will, however, remain at last year’s levels. Although the price of pork has recovered there is still a squeeze on the economy, and possible interest rate hikes will diminish disposable income. The price of feed, as a price determinant for weaned animals, is also higher and will put pressure on the prices.
Considering the above, I think that the average annual prices for weaned animals will be approximately 5 to 7% lower than they were in 2018, and therefore only slightly higher than in 2017. I expect carcass prices to follow a similar trend, with possibly a slightly higher price level than in 2017, which will mean an average annual price that is on par with 2018.
Food for thought
Realistically, this year does not look good for red meat producers. But bear in mind that we have survived turbulent times in the past, including FMD, drought and high feed prices. My advice to producers is to work out a few possible scenarios for weather, input costs and product prices, and set up a business case for each. If you do this, you will be ready to react quickly and change direction, should the need arise.
For more information contact Dr Frikkie Maré at MareFA@ufs.ac.za