The recent recovery in weaner calf prices fuelled by tax purposes was short lived and did not carry though the past week. The dry conditions and lack of sufficient follow up rainfall in the grain production regions lead to price increases for yellow maize and soybeans.
This may lead to future increases in animal feed costs for feedlots. Additionally, the number of weaner cattle offered for purchase to feedlots increased by more than 30 %. The increased supply in weaner calves added to the price pressure in the weaner calf market. However, the price for feeder lamb continues to increase. South Africa did not yet regain its FMD-free status to fully allow the continuation of beef exports. The outcome of the tariff application by the SA Poultry Association is not yet known. US leg quarters declined over the past year by about 33%. The Rand is 20% weaker than a year ago and provides partial relief against cheap poultry imports.
Beef: The average price across all grades decreased week on week by 0.2%. In line with seasonality Class A beef prices are expected to enjoy underlying support and increase by 2,3% until May. The beef prices for Class C should continue to trade 1,4% higher in June. If local feedlot margins improve weaner calf prices may recover in April.
The current cold and wet winter weather in the USA limits weight gain for live cattle and keep beef production low. Production is currently 2,2% below a year ago. During spring the production of beef will increase significantly and traders in the US expect hefty numbers if weather conditions improve. Easter is approaching and it is expected that beef prices will enjoy underlying support during April.
Local beef prices to be support by Easter until May
The average price across all grades decreased week on week by 0.2%. In line with seasonality Class A beef prices are expected to enjoy underlying support and increase by 2,3% until May. The beef prices for Class C should continue to trade 1,4% higher in June. The weakening Rand will provide underlying support when US beef supply increase during the US spring. Given stable maize prices and a recovery in beef carcass prices feedlot margins may improve supporting the recovery of weaner calf prices by 2% to R29.70/kg in April.
Mutton: In line with seasonal trends it can be expected that Class A and Class C prices will reach a seasonal low during March after which it will start to increase during Easter. The weakening Rand will provide underlying support. Mutton prices are overall 10.8% lower than a year ago. In line with seasonal trends it can be expected that Class A and Class C prices will reach a seasonal low during March after which it will start to increase during Easter. The weakening Rand will provide underlying support for imported shoulder and rib prices.
Pork: Despite a 4,4 % increase in the number of hogs slaughtered the average contract price traded only 0,2% lower. Prices are still 12.3% lower than a year ago. Seasonal trends indicate that prices start to bottom by April to increase from June. The national pig price in China increased 5.1% week on week. Chinese pig prices already increased by 14.6% for 2019. The USA exported 526 million pounds of pork during December which is an increase of 2,3 % compared to a year ago. Prices increased despite the import tariff issues between the USA, Mexico and China. If China need to replace 15% of their production losses due to African Swine Fever during the second half of 2019 by imports the US price of pork may increase by an additional 12.9% in the long term. The USA share in total Chinese imports from the world is 25%. China needs to import 385 million pounds of pork per month. Despite a 4,4 % increase in the number of hogs slaughtered the average contract price traded only 0,2% lower. Prices are stil 12.3% lower than a year ago. Seasonal trends indicate that prices start to bottom by April to increase from June onwards. Local prices will be underpinned by significantly higher global prices in the second half of 2019.
Poultry: The continuation of cheap and competitive imports of poultry will limit the expected seasonal price increases on whole frozen chicken while whole fresh chicken will enjoy increased demand and a premium during April. Chicken imports totalled a record 538 434 tons, equal to 55 containers / day. By replacing these imports worth R6 billion, 30 000 jobs can be created. A recent BFAP report indicate that South Africa were the fifth most competitive producer of poultry worldwide. The higher ranked countries subsidise the production of maize and soybeans which represent 70% of the cost to produce broilers. South Africa cannot compete with the imports of brown meat portions (leg quarters) from subsidised countries.
Wessel Lemmer
Senior Agricultural Economist, Absa group
