The increasing operational costs for the livestock and poultry industry are slowly becoming unbearable with animal diseases and rising input costs making it extremely difficult for farmers and agribusiness to operate.
In his weekly agricultural viewpoint newsletter, chief economist for Agbiz Wandile Sihlobo said while the spread of diseases may be slowing, and organised agriculture and government continue to collaborate in addressing biosecurity risks, concerns about renewed increases in animal feed prices persist.
A lot to consider
Sihlobo said the livestock and poultry industries hardly enjoyed the gains of a sizeable domestic harvest of the past two seasons because this did not bring any meaningful reduction in feed prices.
He said the El Niño period, which might result in a lower harvest compared to recent seasons of bumper crops, is another concerning factor.
“The major reason for this were higher global maize and soybean prices on the back of drought in South America, rising demand in China, Covid-19-related supply chain disruptions and the Russia-Ukraine war. As a small open economy, South Africa is interlinked with the global grains and oil-seeds market, and domestic prices tend to follow the global price movements, which is what we observe,” he said.
Sihlobo explained that with global maize and soybean prices declining notably since the start of the year, South Africa’s maize and soybean prices have followed a similar trend and are roughly 15% lower than the levels we observed in 2022.
“This benefits the livestock and poultry industry, which is currently struggling with more domestic-related costs such as load shedding and failing municipalities where various businesses have had to use their resource to maintain basic services.
“This has added to their cost of doing business. In addition to mainly following global price trends, large grains and oil seed supplies are in the market, which adds downward pressure on animal feed prices,” he added.
The El Niño effect
He believes that there are fears that harvests could decline notably as Southern Africa transitions into an El Niño weather phenomenon, which may result in below-average rainfall. Such a scenario would increase maize and soybean prices and further strain the livestock and poultry sector.
“The 2015/16 season, where grains and oil seed harvest fell below long-term averages, necessitating imports. In that year, livestock suffered, and they have reported cases of livestock death across the country, particularly in new-entrant farming regions.
“There is good soil moisture from the past few seasons’ higher rainfall, which should support natural grazing veld and crops during planting season, which starts in October,” he said.
Positive outlook for the future
According to Sihlobo, the recent crop estimates from the International Grains Council (IGC) also painted a good picture of global grains and oil seed supplies in the upcoming 2023/24 season, which points to moderate price movements.
“Regarding soybeans, the IGC forecasts 2023/24 global production at 402 million tonnes, up 9% from the previous season. This is mainly supported by the expected recovery in South America’s production after a prolonged drought that devastated crops. Under such a harvest, the stocks would amount to 65 million tonnes, up by 24% year-on-year.
“All else being equal, the 2023/24 summer season may not be as harsh to the livestock industry. The global grains and oil seed prices would likely be under pressure. If El Niño does not badly hit the domestic harvest as expected, the benefits of the potentially lower global prices will filter into our domestic environment,” he said.
Sihlobo added that the additional risk is the severity of El Niño. “We assume a moderate impact, but if severe, crop yields would take a substantial loss, and such a scenario would have price implications.
“There will be clarity on both these risks towards the end of the year when the 2023/24 season starts. For now, we maintain a generally positive view of the outlook for the livestock and poultry industries from a feed price perspective,” he said.
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