AMT BEEF & MUTTON MONTHLY REPORT JULY Compiled by Pieter Cornelius E mail: NEXT PUBLICATION 7 AUGUST 2017

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1 Enquiries: Dr Johann van der Merwe Cell: Web: E mail: johnny@amtrends.co.za Compiled by Pieter Cornelius E mail: pieter@amtrends.co.za NEXT PUBLICATION 7 AUGUST AMT BEEF & MUTTON MONTHLY REPORT JULY ALL RIGHTS RESERVED Clients only not for distribution No part of this publication may be reproduced or transmitted in any form or by any means including recording or by any information storage and retrieval system, without permission in writing from AMT. Although everything has been done to ensure the accuracy of this information, AMT does not take responsibility for the accuracy or the opinions contained in this publication. Results of actions based on this information, will not be the responsibility of AMT.

2 AMT MONTHLY BEEF AND MUTTON REPORT JULY BOTTOM LINE Beef In June year on year, the average producer prices of Class A2/A3, Class B2/B3 and Class C2/C3 beef increased in total by respectively 20,5%, 29,4% and 36,0%. For July, an increase is predicted in the average price of Class A2/A3, and based on the price information of the past 19 years, the probability is 63,2% that the average price of the A2/A3 s is going to be higher compared to the previous month. For July, an increase is predicted in the average price of weaners, and based on the price information of the past 20 years, the probability is 90,0% that the average price of weaners is going to be higher in July compared to the previous month. The average yellow maize price (all contracts on JSE SAFEX) was 49,5% lower in June year onyear. Over the same period the average price of medium light weaners increased in total by 60,9% in June. In June year on year, the import parity price of Australian cow meat was 12,5% higher compared to an increase of 36,0% in the average price of Class C2/C3 beef. In June, the number of beef cattle slaughtered was in total 2,5% less compared to the previous month, 6,3% less than in June 2016 and 5,0% below the long term average over the period June 2014 to June. In March, South Africa imported tons of beef from Namibia (including live animals), which was 642,5% less than in the same month in In April, South Africa imported 306 tons of beef from Botswana, which was 418,6% more than the same month a year ago. In April, a total of 139 ton of beef (excluding offal) was imported from overseas, which was 31,2% less than the same month in Mutton In June the number of mutton and lamb slaughtered was 3,4% more compared to the previous month, 8,8% less compared to June 2016, and 14,8% down compared to the long term average over the period June 2014 to June. The average producer prices of Class A2/A3, B2/B3 and C2/C3 increased in total by 21,5%, 20,3% and 29,1% in June year on year, the and the average price of all classes was 19,5% higher than the average over the period June 2014 to June. For July, an increase is predicted in the average price of Class A2/A3, and based on the price information of the past 20 years and the probability is 85,0% that the average price of the A2/A3 s is going to be higher in July compared to the previous month. In June year on year, the import parity price of Australian lamb was unchanged in total and the average price of AU mutton increased by 33,2%. In March, South Africa imported tons of mutton and lamb from Namibia (including live sheep), which was 32,9% more than in the same month in In April, a total of 333 tons of mutton was imported from overseas, which was 39,5% less than the same month in

3 PRODUCTION INFORMATION FOR THE MONTH OF JUNE Item Jun Previous Jun 2016 Forecast month Jul Aug BEEF Abattoir selling prices (c/kg) A2/A3 s AB2/AB3 s B2/B3 s C2/C3 s Net weaner price (c/kg) Slaughtering index (Ave.=100) 96,9 99,4 101,1 Import parity AU cows (c/kg) MUTTON Abattoir selling prices (c/kg) A2/A3 s AB2/AB3 s B2/B3 s C2/C3 s Slaughtering (Ave.=100) 85,2 82,4 93,4 Import parity AU mutton (c/kg) Import parity AU lamb (c/kg) BEEF INDUSTRY Slaughtering of beef cattle INDEX OF MONTHLY SLAUGHTERED OF CATTLE Index Base year Average Jun 2014 Jun = Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Jun-17 Cattle slaughtered 2 Aggregate commercial slaughter Information received from of Red Meat levy Admin only available till March. The months of April to June is estimates, calculated by means of the smoothing multiplicative technique of Holt & Winters, which gives an indication of what can be expected in the months April to June. The horizontal 100 line on the graph represents the long term average monthly slaughter of beef cattle from June 2014 to June. In June, the slaughter of beef cattle seems to decline in total by 2,5% compared to the previous month, 6,3% less than the same month a year ago, and 5,0% below the long term average based on the period June 2014 to June. The slaughter curve shows a downward trend from June 2016 to June.

4 Price movements of beef Long term trends in beef prices LONG TERM TREND IN THE PRODUCER PRICE OF BEEF c/kg Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Jun-17 Class A2/A3 Class B2/B3 Class C2/C3 In June year on year, the average producer prices of Class A2/A3, Class B2/B3 and Class C2/C3 beef increased in total by 20,5% 29,4% and 36,0%. The average price of the A2/A3 s was 20,2% above the long term average over the period June 2014 to June. Price of Class A2/A3 beef versus slaughter Index Base month Jun 2016 = 100 CLASS A2/A3 BEEF PRICE VERSUS SLAUGHTER Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Class A2/A3 RSA Slaughter From June 2016 to June, the average producer price of Class A2/A3 beef increased in total by 20,5% and over the same period national slaughter declined in total by 4,1%. 3

5 Price prediction for Class A2/A3 beef PREDICTION OF BEEF PRICES (A2/A3) FOR JULY TO DECEMBER c/kg Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Class A2/A3 (2016) 3-year average prices Class A2/A3 () Prediction July to December In June, compared to the previous month the average price of Class A2/A3 beef was estimated to increase in total by 0,2%. For June a decline in the average price for Class A2/A3 beef was predicted in the previous monthly report, which was incorrect, but it was based on a probability of 88,9% for a decline according to the price information over the past 19 years. The actual beef price in June was 4,1% (R1,82/kg carcass weight) higher compared to the price predicted for June in the previous monthly report. For July an increase is predicted in the average price of the A2/A3 s and according to the price information over the past 19 years, the probability is 63,2% for an increase in price from June to July each year. The JSE futures price for June is 4 555c/kg which is 1,0% higher compared to the predicted price for Class A2/A3 beef carcasses for June, but 1,0% lower than the real price for June. Price prediction for Class B2/B3 beef PREDICTION OF BEEF PRICES (B2/B3) FOR JULY TO DECEMBER c/kg Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Class B2/B3 (2016) 3-year average prices Class B2/B3 () Prediction July to December 4

6 In June, compared to the previous month the average price of Class B2/B3 beef increased in total by 5,6%. For June an increase in the average price for Class B2/B3 beef was predicted which was correct and based on the price information over the past 19 years, the probability is 50,0% for an increase. The actual beef price in June was 9,1% (R3,51/kg carcass weight) higher compared to the price predicted for June in the previous monthly report. For July an increase is predicted in the average price of the B2/B3 s, and according to the price information over the past 19 years the probability is 78,9% for an increase in price from June to July each year. Although not being shown in the above graph, the average producer price of Class C2/C3 is expected to increase in July. MONTHLY AVERAGE ABATTOIR SELLING PRICES OF BEEF CARCASSES EXCLUDING V.A.T. Monthly prices (c/kg) Jan Feb Mar Apr May Jun Class A2/A Class AB2/AB Class B2/B Class C2/C Medium Light weaners Weaner ( kg) price movements WEANER CALF PRICE TRENDS c/kg Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec? Weaner price year average Weaner prices () Prediction July to December The net price (farm gate price) of medium light weaners ( kg) is estimated to increase in total by 4,5% in June compared to the previous month and increased in total by 60,9% year on year. The prediction of a decline in the average price of weaners for June was incorrect and was based on a probability of 55,0% over 20 years to be lower in June compared to the previous month. The real price for June was 7,1% higher (R2,00/kg) higher than the predicted price for June in the previous monthly report. For July, an increase is predicted in the average price of weaners, and based on the price information over the past 20 years, the probability is 90,0% for the average weaner price to be higher in July compared to the previous month. 5

7 The maize/weaner break even price Yellow maize R/ton BREAK-EVEN PRICES OF WEANERS AND YELLOW MAIZE PRICE TRENDS Prediction Jun-15Aug-15Oct-15Dec-15Feb-16Apr-16Jun-16Aug-16Oct-16Dec-16Feb-17Apr-17Jun-17Aug-17Oct-17Dec-17 Weaner price & break-even c/kg Weaner break-even price Yellow maize Light weaners The average yellow maize price in June was in total 2,8% lower compared to the previous month, and 49,5% lower compared to the same month a year ago. The expected break even price of weaners for July is based on the predicted future price of Class A2/A3 beef in October and the SAFEX price for yellow maize in July (based on all July contracts Randfontein). With a predicted meat price (Class A2/A3) of R47,35 per kilogram in October and an average maize price (JSE SAFEX) of R1 878 per ton in July, for a feedlot to break even in July as far as the price beef and the price of maize are concerned, the weaner price should not higher than R36,47 per kg live weight in July, which is 13,7% higher than the average predicted weaner price of R32,07/kg for July. Or based on the expected average weaner price of R32,07 per kg live weight for weaners in July and a maize price of R1 878 per ton in July, by selling these animals in October, the price for Class A2/A3 beef should not be less than R43,64 per kilogram, which is 7,8% lower than the predicted price R47,35/kg for Class A2/A3 in October. Weaner price versus maize price INDICE OF WEANER PRICES VERSUS MAIZE PRICE Indice Base period: Average fromjune 2014 to June Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Weaner/maize price ratio Weaner price Maize price 6

8 The above graph shows clearly the effect of a lower maize price on the weaner/maize price ratio. In June, the weaner/maize price ratio improved in total by 7,5% against the previous month and year on year the weaner/maize price ratio improved in total by 218,5% due to a decline of 49,5% in the maize price and an increase of 60,9% in the average price of weaners. Imports of beef IMPORTS OF BEEF Overseas imports (Ton) Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Namibia & Botswana imports (Ton) Overseas imports Namibia Botswana Import information from Namibia is only available till March,and Botswana and overseas are only available till April. In March South Africa imported tons of beef from Namibia, which was 10,3% more than in the previous month and 642,5% more than in the same month a year ago. These imports include live animals and canned meat. In March year on year, total beef imports from Namibia constitutes for approximate 3,1% of the total South African commercial slaughter. In April, South Africa imported 306 tons of beef from Botswana, which was 6,7% less compared to the previous month and 418,6% more compared to the same month a year ago. In April year on year, total beef imports from Botswana constitutes for approximate 1,1% of the total South African commercial slaughter. In April, South Africa imported 139 ton of beef from overseas, which was 54,6% less than in the previous month and 31,2% less than in the same month a year ago. The beef import data from overseas exclude tongues, hearts and livers. In April year on year, total beef imports from overseas constitutes for approximate 0,3% of the total South African commercial slaughter. In April, the main export country from overseas of beef meat to South Africa was Australia (35,9%), Denmark (35,3%), Uruguay (18,7%) and New Zealand (10,1%). When liver, hearts, offal and tongue were included, the total imports amounted to tons and the main export countries were U.S.A (25,0%), Australia (24,1%), New Zealand (22,1%), Ireland (8,3%), Britain (7,1%), France (4,8%), Denmark (3,9%) and Uruguay (3,5%). 7

9 International markets and price movements of beef The import parity price situation c/kg IMPORT PARITY PRICE OF AUSTRALIAN COW MEAT VERSUS SA CLASS C2/C Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Import parity AU cow meat Class C2/C3 Class A2/A3 In June, the average price of South African beef (A2/A3 and C2/C3) was 4 602c/kg and 3 991c/kg compared to the derived import parity price of Australian cow meat of 6 333c/kg. The import parity price is thereby 37,6% and 58,7% higher compared to the average price of Class A2/A3 and C2/C3 beef. In June year on year, the import parity price of Australian cow meat was 12,5% lower compared to an increase 20,5% and 36,0% in the average producer price of Class A2/A3 and C2/C3 beef. Beef trade overseas Australia Beef exports feel supply pinch 06 July Two years of drought driven herd liquidation, which saw the Australian cattle herd hit a two decade low, resulted in a considerable reduction in beef available to export over the past 12 months. For the fiscal year, Australian beef exports slipped below the one million tonne mark for the first time since Volumes reached almost 963,000 tonnes shipped weight (swt) in , a decline of 17% year on year (DAWR). Compared to the five year ( to ) average, shipments were back 19%. Beef breakdown Grass fed beef exports for the fiscal year were 22% lower, at 705,000 tonnes swt. Improved seasonal conditions across cattle producing regions incentivised producers to retain stock and start to rebuild their herds, underpinning the limited availability of product for export. 8 Grain fed beef exports totalled 258,000 tonnes swt, down 4% from levels. A combination of high domestic cattle prices and lower grain prices saw numbers of cattle on feed across the country surpass one million head for the first time in the March quarter.

10 The proportion of grain fed exports to total Australian beef exports in reached 27% the equal highest proportion with that of Key Markets At 279,000 tonnes swt, Japan was the only major export destination of Australian beef to record an increase in the year to June, up 4% year on year. Beef import growth in Japan has been partly driven by a continued contraction in domestic supply but due to high domestic Wagyu prices. More recently, Australian exports have benefited from a tariff reduction under Japan Australia Economic Partnership Agreement (JAEPA). Shipments to the US in 16/17 totalled 209,000 tonnes swt, a decline of 37% year on year (125,000 tonnes swt). Rising US beef production, as well as Australian beef supply constraints, were the predominant factors limiting export volumes to the US market throughout the financial year. Exports to Korea declined 6% year on year, to 162,000 tonnes swt. The upturn in US production, and consequently a stronger export focus, created robust competition from US exporters supplying this market. Furthermore, along with lower Australian production, a number of short term factors contributed to reduced Australian beef exports to Korea. These include anti corruption legislation, economic/political uncertainty and import financing concerns albeit the long term prospects for this market remain strong. Fiscal year beef exports to China fell 24% year on year, to 97,000 tonnes swt. The presence of lower value product from Brazil in this market continues to challenge Australian exports. However, grain fed exports to China increased 11% year on year, at 26,000 tonnes swt. In other markets, fiscal year beef exports into the EU declined 28% year on year, to 17,000 tonnes swt. Beef exports to Indonesia totalled 51,000 tonnes swt, down 7% largely due to high Australian cattle prices but also the ongoing presence of Indian Buffalo meat. Source: MLA Market News, 6 July THE MUTTON INDUSTRY The National Sheep Herd NATIONAL SHEEP HERD ('000) Commercial (1) Preliminary Source: NDA 9

11 Based on the latest information from the National Department of Agriculture, total sheep numbers, which include sheep from the non commercial sector, are in the order of 23,4 million for Over the last ten years the national sheep herd of South Africa declined in total by 5,2% and over the past year the decline was 2,8% in total due to the drought Slaughter trends Long term trends in sheep slaughter TREND IN THE MONTHLY NUMBER OF SHEEP SLAUGHTERED 160 Base year : average Jun.2014 to Jun = Indice Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Jun-17 Sheep slaughtered Poly. (Sheep slaughtered) Aggregate slaughter Information received from of Red Meat levy Admin only available till March. The months of April to June is estimates, calculated by means of the smoothing multiplicative technique of Holt & Winters, which gives an indication of what can be expected in the months May and June. In June, the preliminary indication is that the number of sheep and lamb slaughtered seems to be 3,4% more compared to the previous month, 8,8% less year on year and 14,8% down on the average over the period June 2014 to June. Producer prices of mutton Long term trends in mutton and lamb prices MUTTON AND LAMB PRICE TRENDS 10 c/kg Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Jun-17 Class A2/A3 Class B2/B3 Class C2/C3 The prices in the above graph are the selling prices of the abattoirs to the meat trade.

12 In June year on year, the average producer prices of Class A2/A3, the B2/B3 s and Class C2/C3 increased in total by respectively 21,5%, 20,3% and 29,1%. In June, the average producer price (all classes) was 19,5% above the average over the period June 2014 to June. Price of lamb versus slaughter INDEX OF LAMB PRICE VERSUS SLAUGHTER Index Jun-16 Base month: May '16 = 100 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Class A2/A3 RSA Slaughter In June year on year, the average producer price of Class A2/A3 lamb increased in total by 18,0 % and over the same period national slaughter declined in total by 8,8%. Price prediction for Class A2/A3 lamb PREDICTION OF LAMB MEAT PRICES FOR JULY TO DECEMBER c/kg Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 3-year average prices Class A2/A3 price (2016) Class A2/A3 () Prediction July to December In June, the average producer price of Class A2/A3 lamb was estimated to be 4,2% up compared to the previous month, and an increase was correctly predicted for June in the previous monthly report, which was based on a probability of 70,0% according to the price information over the past 20 years. The actual price in June was 2,5% (R1,68/kg) higher than the price predicted in the previous monthly report. For July, an increase is predicted in the average price of lamb (the A2/A3 s), and according to the price information over the past 20 years, the probability is 85,0% for a higher price from June to July each year. Although not being shown in the above graph, the average producer prices of the B2/B3 s and the C2/C3 s are expected to increase in July. 11

13 MONTHLY CARCASS SELLING PRICES OF MUTTON AND LAMB EXCLUDING V.A.T. Monthly prices (c/kg) Jan Feb March April May June Class A2/A Class AB2/AB Class B2/B Class C2/C Imports of mutton IMPORT OF MUTTON Namibia (ton) Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 0 Apr-17 Overseas Namibia Overseas Import figures from Namibia is only available up to March and overseas up to April. In March 2016, South Africa imported tons of mutton from Namibia, which was 51,1% more than in the previous month and 32,9% more than the same month in In total from April 2016 to March, mutton imports from Namibia constitutes for approximate 9,1% of the total South African commercial slaughter. In April, South Africa imported 333 tons of mutton (excluding offal) from overseas, which was 6,7% more than in the previous month and 39,5% less compared to the same month in In total from April 2016 to April, mutton imports from overseas constitutes for approximate 3,5% of the total South African commercial slaughter. In April, the main export countries of mutton (offal excluded) to South Africa from overseas were Australia (49,5%), and New Zealand (50,5%). When offal is included tot al imports was tons and the main export countries of mutton to South Africa were Australia (28,0%), New Zealand (69,9%) and Belgium (2,1%). 12

14 International mutton prices INTERNATIONAL PRICES FOR MUTTON AND LAMB BASED ON IMPORT PARITY AU mutton (clkg) AU lamb (c/kg) Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 AU mutton 21kg AU lamb 15Kg In June on year to year, the import parity price of Australian lamb increased in total by unchanged and Australian mutton increased by 33,2%. In June the import parity price for Australian lamb and mutton were respectively R90,79 and R67,58 per kilogram based on the Rand/A$ exchange rate. World mutton and lamb meat market review Australia Mutton prices surge in 04 July Strong producer intent to retain ewes in an already tight supply market, as well as high lamb and wool prices, saw national mutton prices boom over the last 12 months. For the fiscal year, the national mutton indicator averaged 419 /kg cwt 128 higher than the five year average. Across the country: The Victorian mutton indicator recorded the highest average for across the states, on 444, 106 /kg cwt higher year on year NSW followed, with the average for the fiscal year at 423, up 83 /kg cwt year on year The mutton indicator in SA increased 101, to 405 /kg cwt In the west, WA mutton prices reached levels unseen since fiscal year, with the state s indicator averaging 350 /kg cwt in The overall shortage of slaughter available stock and the marked rise in mutton prices proved a challenge for processing facilities. Average weekly mutton slaughter across the eastern states for was 17% lower than the previous 12 months, on 90,681 head. Furthermore, national average sale yard throughput for the fiscal year eased 8%, to average 65,003 head per week for the year ending June. SOURCE: Reproduced courtesy of Meat & Livestock Australia Limited 4 July. 13