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Within the beef and pork industries on the other hand, the share of
imports in domestic consumption has remained relatively constant,
whereas the share of imports in domestic lamb consumption has de-
clined. Over the course of the next decade, continuous depreciation
in the exchange rate will support the competitiveness of these net
importing industries and the share of imports in domestic consump-
tion is projected to decline for all industries except chicken (Graph 1).
The intensive use of feed grains renders chicken production particu-
larly sensitive to high and volatile feed grain prices and hence profit-
ability has been under severe pressure over the past three years.
Maize represents the single largest ingredient in a typical feed ration
and hence the chicken to maize price ratio presented in
Graph 2
is
often used as an indicator of profitability within the industry.
The cost of soya oilcake is however also important to consider, as
it represents the main source of protein in chicken feed rations. De-
spite rapidly increasing soya oilcake production, a significant share
of the domestic soya oilcake requirement in South Africa is still be-
ing imported. Therefore the cost of feed tends to be higher than in
countries such as Brazil and the USA, which are net exporters of both
maize and soybean meal.
Nonetheless, the expansion of domestic chicken production that
accompanied favourable chicken to meat price ratios from 2002 to
2006 is clearly evident from Graph 2, whereas production has re-
mained fairly stagnant since 2011 when chicken to meat price ratios
dropped to record lows on the back of the drought induced spike in
global maize prices.
Graph 2: Outlook for the South African chicken industry.
A significant recovery in profitability has
been evident globally following the decline
in global maize prices, yet South African
producers will again face higher feed prices
than their international counterparts in 2015
due to the current drought conditions. None-
theless, persistently high international meat
prices, combined with depreciation in the
exchange rate, have supported meat prices,
and profitability ratios remain above the lev-
els observed over the past three years.
Over the course of the next decade, meat
to maize price ratios will stabilise at a
favourable level relative to the recent past
which, combined with the rapid expansion
of domestically produced soybean meal, re-
sults in a projected growth of just over 30%
in domestic chicken production. Despite this
growth, imports continue to expand, as op-
timal carcass valuation and limited demand
for bone-in portions in developed regions
such as the USA and the EU allows such
portions to be imported at very competitive
prices. Furthermore, the recent agreement
with the USA, which will allow 65 000 tons
of bone-in portions into South Africa – free
of the current anti-dumping duty of R9,40/kg – will impact on price
levels and could therefore result in a marginally slower production
growth outlook.
In contrast to chicken, beef production exhibits greater flexibility in
the feeding system, yet production remains vulnerable to changes
in weather conditions and with prices determined largely as a func-
tion of domestic supply and demand conditions, the market is often
very volatile. Drought conditions in South Africa and neighbouring
countries resulted in a sharp increase in production in 2013 and while
a return to more favourable beef to maize price ratios in 2014 point
to improved profitability, no decline was evident in slaughter
numbers, indicating that producers have yet to enter a phase of
herd rebuilding.
Supported by increasing exports of high value beef cuts following
South Africa’s recognition as free of foot and mouth disease, prices
have remained firm however, despite high slaughter volumes. None-
theless, persistent drought conditions have increased the cost of in-
tensive beef production in 2015 and while beef prices have reached
record levels, producer margins remain tight.
Graph 3
illustrates that historically, South African producers com-
pete well in the global context and under the assumption of normal
weather conditions and beef to maize price ratios are projected
to remain favourable over the coming decade. Exports more than
doubled in 2014 and while the growth is from a small base, contin-
ued depreciation of the exchange rate will likely allow South Africa
to remain competitive in these export markets, supporting domes-
tic price levels if the present foot and mouth disease free status
is maintained.
Within the context of higher prices however, the potential premi-
um that can be obtained for extensive beef production (grass fed,
hormone free) is reduced and in a cycle of lower feed grain pric-
es, the prevalence of intensive production systems (feedlots) that
convert feed to meat more efficiently is expected to increase. This
trend is already evident in a recent survey conducted by the South
African Feedlot Association, which showed an increasing number
of smaller, privately operated feedlots entering the market, a sce-
nario which will increase the demand for products consumed in the
animal feed market.
In conclusion, the 2015 edition of the BFAP Baseline presents a posi-
tive outlook for livestock production in South Africa over the next
decade, which will in turn stimulate the demand for feed products.
October 2015
25