The first four parts of this series focused on red meat demand and supply, as well as price and international trade trends pertaining to lamb and beef. However, a particularly important part of the South African 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 that are sold to commercial feedlots is lower, as more sheep farmers finish their own lambs for slaughter compared to cattle production. In this article I investigate the price trends related to weaned calves and lambs.
Weaner lamb price tendencies
The picture for weaned lamb prices (Figure 1) looks completely different than the prices of A2 carcasses (see Part 3 of the series). Although the store lamb price is volatile and thus changes rapidly week on week, it is clear that over the past few years it did not show the same trend as carcass prices.
Figure 1: Weekly store lamb price (2017 to 2020). (Source: ABSA, 2017 to 2019 and AMT, 2020)
It is evident from Figure 1 that there was a significant increase in the store lamb price from 2017 to 2018 for the largest part of the year. In fact, the year-on-year average nominal price increased by 14% between 2017 and 2018. This trend, however, did not last and a sharp price reduction occurred in 2019 with prices for the entire year being lower than in 2018. For the second half of the year, prices were even lower than those of 2017.
The average year-on-year nominal decrease in the store lamb price from 2018 to 2019 was 19%. The price for the first half of 2020 was much at the same level as that of 2019. Yet it was still far from the prices achieved in 2017. The second half of 2020 fared better, and the price was almost at the same level, following the same trend as that of 2018.
Although store lamb and lamb carcass prices remain volatile, and even though the annual price cycle does not always follow the same trend each year, some generalisations can be made regarding the annual price cycle (Figure 2).
Figure 2: Indexed annual price cycle for store lambs from 2012 to 2019.
The indexed prices for A2 lamb carcasses and store lambs in Figure 2 represent the annual price cycle over the past eight years. The highest price occurs in December, as the demand for lamb in South Africa is usually high over the Christmas holidays. Similarly, the prices during January and February also tend to be high before the price drops sharply to reach a minimum in April. Due to lower supply during winter the price increases again until supply starts to increase from September to November.
In terms of store lambs, the highest prices are fetched in July and August due to the low supply of lambs during these months. As lambs start coming into the market, the price usually decreases in September and remains on the downward slope towards January. Although the price tends to be somewhat higher in February, March and April, it remains relatively constant until it starts to increase again from May onwards.
Figure 3 represents the weekly price for weaned calves. When the price is compared to the price of A2 carcasses (see Part 3 of the series), we can see that the price of calves is more volatile than that of carcasses. This may be because the feed price is a major determinant of the calf price.
Figure 3: Weekly weaned calf price from 2017 to 2020. (Source: ABSA 2017 to 2019, and AMT, 2020)
The weaned calf price was significantly higher for the first half of 2018 compared to the same period in 2017. However, it dropped below the 2017 price for the second part of the year. The year-on-year average nominal price increased by 7% between 2017 and 2018.
The picture for 2019 is much different, with the price being lower than the 2017 and 2018 prices for almost the entire year. The nominal average annual price decreased by 18% from 2018 to 2019. The price for weaned calves in 2020 performed somewhat better and was at least higher than the 2019 price for most of the year. During the last third of 2020, the price performed better than during 2017 and 2018.
The price for weaned calves usually had a defined annual price cycle. However, Figure 3 shows that it is no longer the case. When we use a longer data range, we can still see an annual price trend (Figure 4).
Figure 4: Indexed annual price cycle for weaned calves from 2012 to 2019.
The indexed prices for weaned calves in Figure 4 represent the annual price cycle over the past eight years. The price usually starts off high in January and February due to the low supply of weaned calves. March to June marks a period with low prices as the supply of calves is high, this being the period during which they are traditionally weaned. Furthermore, the calves purchased between March and June are market ready during winter and early spring when carcass prices are usually lower, and the feedlots cannot afford to pay as much for calves.
As weaner supply decreases, the price starts to increase from July and remains high until October. Calves purchased during this time will be market ready in December, with higher associated carcass prices. Subsequently, the calf price then decreases again in November and December due to feedlots’ higher supply and lower demand.
A closing thought
The last 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.
A lower supply of weaned animals, lower feed costs and hopefully some recovery in the economic situation, all make for a more positive price outlook for weaned animals in 2021. – Dr Frikkie Maré, Department of Agricultural Economics, University of the Free State