Mutton and wool production is expected to continue to increase with the
help of higher mutton and wool prices.
Import parity prices for lamb and mutton improved substantially on the
back of a weaker exchange rate as well as slightly higher international
prices due to the easing of the drought in Australia, bringing some relief
with regards to forced herd liquidation.
Imported lamb prices are currently trading above local lamb prices and
imports are limited to live imports from our neighbouring states, with the
potential to create some opportunity for prices to increase. High volumes
of beef, pork and poultry however continue to place mutton prices under
pressure. Mutton to maize price ratios however remains very favourable
hence the good demand for feeder lambs for the feedlots.
Mutton outlook
Mutton prices are expected to slide lower as seasonal production volumes
increase with prices even trading below R40/kg with some relief towards
December. As mutton is positioned as an elite product and consumers
are still in trouble, it is expected that prices will continue to remain under
pressure with only inflationary price increases over the next few years.
Wool production is expected to continue to grow in spite of a decline
in the wool bearing sheep herd, this is mainly the result of higher wool
prices as well as improvements in technology and genetics.
Pork
World pork production continues to increase in spite of relatively high
international grain prices. World pork consumption still tops that of
poultry, but poultry is gaining and should exceed pork production in the
next few years.
Domestic pig herds continue to decline with a further acceleration over
the last year as unfavourable production conditions continue to squeeze
marginal producers out of the industry. In spite of a decline in pig
herd numbers, slaughtering continue to grow – this is mainly due
to the implementation of new technology in terms of all-in-all-out
housing and climate control, as well as genetics. As a matter of fact,
pork has become so lean that there is a shortage of fat in the world
for the production of soap and other by-products.
Over the past year, negative pork to maize price ratios placed
production margins under pressure with a resulting exodus of the
bulk of the backyard and swill pork producers.
This has led to a shortage of pork in the market over the last weeks
and a resulting increase in price. The stronger price was further
underpinned by an increase in poultry import parity prices. Thanks
to lower international grain prices, domestic feed prices softened in
spite of a weaker exchange rate, this combined with new production
technology as well as improvements in technology led to an increase
in production margins. It is therefore expected that production will
continue to increase and that further expansions in the industry by
some of the more efficient producers, can be expected.
The weaker rand has also pushed import and export parity prices
higher and it is currently quite feasible to export pork at good
margins.
Pork outlook
Pork prices are expected to remain fairly stable during 2014,
this combined with lower feed prices due to lower international
commodity prices, will lead to production expansion under the more
efficient pork producers.
Poultry
Poultry production shows the first signs of retraction; this is mainly
due to an increase in production cost with a resulting squeeze on
production margins. This combined with very low import parity
prices and an increase in imports, continued to place pressure on the
industry as producers are unable to pass on higher production costs to
consumers due to imports.
Production margins have improved slightly over the past six months
due to lower international grain prices; however this is not enough to
compensate for the price increase which is needed to sustain profit
margins.
With the announcement of an increase in import tariffs, there is some
relief for producers. This will however only impact imports of ± 40%
– with 60% of the imports still being imported into South Africa from
Europe under a free trade agreement. It is therefore expected that
production margins will remain under pressure with a further potential
downscaling on production.
This is especially true should the exchange rate continue to strengthen.
Poultry prices are therefore expected to continue to move sideways with
very little upward potential. The industry has however cleaned up its act
and lowered the amount of water that is injected into the frozen product,
hence the increase in price of whole frozen birds. However to be able to
compete against the very cheap individually quick frozen product (IQF),
they still need to lower brine injection percentages.
Poultry outlook
It is expected that domestic poultry production will continue to decline as
production margins remain under pressure. Prices will also tend to move
sideways due to competition from imports which are further impacted
by a stronger rand.
The net impact for the livestock industry on grain is fairly neutral with
poultry consumption expected to decline and beef, mutton and pork
production pricing up some of the slack.
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