Farmers must brace themselves for surging feed prices

Another year of pressure awaits farmers as Mzansi's agri leaders are not hopeful that current high animal feed prices will drop anytime soon. Photo: Pixabay.

Another year of pressure may await meat producers high animal feed prices not expected to drop soon. Photo: Pixabay

Producers anticipate that consumers will have to pay more for red meat sometime this year based on rising animal feed prices, which are already hurting feedlot owners.

The cost of feed – the single biggest cost component for broiler chicken farmers – is also hurting South Africa’s efforts to grow the local chicken industry enough to beat the impact of cheap imports.

As it stands, most soybeans and soybean oil cake used at local feedlots and for broiler chicken production are imported. This makes the agricultural sector highly vulnerable to international supply and demand factors.

Feedlots feeling the pinch

Industry role-players argue that unless high maize and soybeans prices drastically drop, the feedlot industry is most likely to see higher feed prices until mid-year.

Towards the end of 2020, higher maize and soybean prices led to increasing costs for the poultry and livestock industries. Maize and soybeans are the primary inputs for animal feeds.

Dewald Olivier, chief executive of the South African Feedlot Association. Photo: Supplied

Dewald Olivier, the chief executive of the SA Feedlot Association, says although most parts of the country had good rains in the past few weeks, the impact on the maize price is still unclear.

This is mainly due to the fluctuating Rand to US dollar exchange rate. He expects this to settle down once political uncertainties in the US stabilise.

“The current maize price will hold its high at least until there is clarity on what the US maize crop size is. That would mean the feedlot industry will most probably still see higher feed prices until mid-year,” Olivier says.

If his prediction proves correct, this would create pressure on the average feedlot’s profitability, and their ability to feed calves. Bigger feedlots would have no other alternative but to buy additional weaner calves in order to keep up their supply.

However, Olivier adds, “I tend to think that smaller feedlots could feed fewer calves until the profitability increases. We could also see a lot of the smaller feedlots keeping their calves on grass for much longer due to the good rain we had.”

“Higher feed costs could slow South Africa’s efforts on poultry import substitution.”

Slaughter prices remained very low during the festive season, mainly due to the consumers’ weak buying power in the wake of the Covid-19 pandemic.

However, if the current trend with higher weaner calf prices and feed cost does not soon give way, Olivier believes that slaughter prices will definitely increase, and the consumer could see the price of red meat increase steeply.

Sizeable maize harvest could soften blow

Meanwhile, chief economist of Agbiz, Wandile Sihlobo, is hopeful that the high feed prices carried over from the year before will only be temporary, resulting in reduced costs for the poultry and livestock industries.

Wandile Sihlobo, chief economist at Agbiz. Photo: Supplied

In South Africa it is estimated that between 50% and 70% of broiler production costs are attributed to feed, of which up to 80% comes from maize and soybean costs. This is according to a study compiled by the Industrial Development Think Tank.

Sihlobo says, “From February 2021, South Africa’s maize and soybeans prices could soften substantially on the back of the expected sizeable domestic harvest in 2020/21 season”.

Such a decline “would be positive for the poultry and livestock industries. But I am now beginning to doubt, especially about soybean prices, whose trend is primarily influenced by global events.”

Sihlobo, however, maintains that maize prices could still decrease in the coming weeks.

Global trends and feed prices

Meanwhile, as Mzansi continues to imports considerable volumes of soybean oil cake and oil, increasing global maize and soybean prices could also spell trouble for local producers, especially those in the poultry industry.

“Higher feed costs could subsequently slow South Africa’s efforts on poultry import substitution,” Sihlobo explains. “We need affordable feed to boost the local poultry industry, and South Africa is still heavily dependent on soybean oil cake and meal imports to support the local industry.”

South Africa reportedly currently imports nearly half a million tonnes of soybean meal per year, primarily from Argentina.

De Wet Boshoff, executive director of the Animal Feed Manufacturers Association. Photo: Supplied

Although efforts to grow the domestic soybean industry have paid off, Sihlobo says much remains to be done before the country reaches self-sufficient status for soybean production.

Animal Feed Manufacturers Association (AFMA) executive director De Wet Boshoff says in the South African context maize supply is in a very mature situation.

He does, however, share Sihlobo’s sentiments that the supply of soybeans is still in a developmental phase and growing towards full volume potential.

“This value chain is therefore working towards an inclusive soya value chain strategy, which will benefit all value chain partners, creating a win-win situation for all those involved.”

As for the poultry industry, Boshoff believes the feed industry must be able to continuously service the poultry industry and cater for any changes the poultry master plan may bring. Strategic planning is currently taking place between the South African Poultry Association and AFMA.

What happens when feed prices go up, or down?

Stellenbosch agricultural economist Lunathi Hlakanyane explains that feed price increases hold a significant impact, specifically for farmers as the primary link of the value chain, as well as the end-consumer.

“In a hypothetical economic scenario, an increase in input costs per unit is automatically transferred to the end-consumer.

“Alas, things are not so cut-and-dry in livestock production. As price takers in a competitive market, livestock producers do not have the luxury of transferring additional input costs onto consumers. So much of the increase in feed prices is absorbed by farmers, which severely impacts their margins and stunts their growth,” Hlakanyane explains.

Lunathi Hlakanyane, an agricultural economist with Stellenbosch University. Picture: Supplied

Should a decline in feed prices emerge, farmers’ overall production costs could significantly decrease. However, only if all things (like the cost of labour, fuel, electricity, etc.) were to hold constant.

Hlakanyane further says a drop in feed prices would help to achieve two ideal scenarios.

“One, increased capital investment in livestock and poultry production, thereby lessening the country’s reliance on cheap imports.

“And two, maintain the price of unprocessed and processed meat products on a steady trajectory, which would go a long way in a country reeling from food price inflation and excessively high unemployment.”

Possible solution

Meanwhile, Sihlobo believes the solution to the feed industry’s woes may lie in the Eastern Cape, KwaZulu-Natal and Mpumalanga.

His long-term view is that by increasing maize production in the under-utilised lands of the Eastern Cape and KwaZulu-Natal, and substituting yellow maize plantings in Mpumalanga with soybeans, South Africa’s could improve its animal feed costs and supplies.

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