South African feedlots are currently operating at a loss, say red meat industry insiders. The rising prices of maize have seen significant losses incurred in feedlots throughout the country.
According to a recent feedlot report by a North West University senior lecturer and agricultural economist, Dr David Spies, weaner calf prices have traded sideways last week at just below R50/kg.
Chief executive of the SA Feedlot Association, Dewald Olivier, confirms the recent developments to Food For Mzansi saying, “Feedlots are operating at a loss. We are currently losing money on a daily basis.”
Spies compiled the report recently published on the AMTrends website, attributing upturns in maize prices to the rise in the weaner calf slaughter prices. Fluctuations in the industry are, however, a common occurrence, Spies elaborates.
“Due to a high cost of feed there has been high slaughter cost,” he says. “The red meat industry deals with seasonality and changing weather patterns which means that animal numbers may also vary. During certain periods of the year feedlots will experience losses that is part of the cycle, it is not a prolonged science it happens every one or two years.”
Weaner prices are currently relatively high, Spies says. “This happens when margins with carcass output and weaner input are 80/80. The carcass price has not been increasing at the same pace of weaners so that margin has begun to implode.”
Carcass prices have not been increasing as far as the weaner price. “Interest cost are rising faster than the output price causing the negative feed margins this season.”
‘Worldwide game of dominoes’
The protracted covid-19 pandemic has been a thorn in the side of global meat producers, Olivier adds.
“It is a culmination of things. The biggest influencer at the moment has been the high cost of feed because it is coupled with the price of maize. Maize prices are high and as a result we are paying exorbitant prices for feed which makes it not feasible to feed animals. Covid-19 has shaken the Rand/dollar exchange rate to its core which has impacted maize prices.”
When you extract the covid-19 factor, says Olivier, November would be the start of a busy season as consumers gear up for the festive season.
“By now we see a rise in the sale of carcasses. This time of the year people have disposable incomes. What has now transpired is that people will not be receiving their 13th cheques this year due to the global health crisis.”
The absence of a thirteenth cheque for many consumers could be indicative of a slight slump in red meat demands. However, Olivier stresses that he does not necessarily see meat prices increasing during the festive season.
“Firstly, there will be enough meat to meet demands, we won’t have a shortage produced that would shoot the price up. In my opinion, the demand for red meat will be less than previous years for the simple reason of no disposable income.”
Spies echoes the sentiments of Olivier. “Historically prices increase towards the end of the year. It is nothing new. Consumers are under pressure due to covid-19. Disposable incomes have shrunken so that will mean that they would rather substitute red meat for pork or poultry which is cheaper.”
Olivier, once more, assures South Africans that “meat prices will be very much constant until the end of December. It might be in January where we start to see a slight increase or even a decrease.”