aa Enquiries: Dr Johann van der Merwe Cell: 073 140 2698 Web: www.agrimark.co.za E mail: johnny@amtrends.co.za Compiled by Pieter Cornelius E mail: pieter@amtrends.co.za NEXT PUBLICATION JULY/AUGUST 2017 BEEF OUTLOOK/REVIEW FEBRUARY 2017 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. AMT (Pty) Ltd
AMT BEEF OUTLOOK/REVIEW FEBRUARY 2017 BEEF OUTLOOK SOUTH AFRICA Imports of beef Fig. 1 TRENDS IN TOTAL IMPORTS FROM OVERSEAS AND IMPORT PARITY PRICES OF BEEF 800 600 400 200 11000 10000 9000 8000 7000 6000 5000 0 3000 Nov-13 M ar-14 Jul-14 Nov-14 M ar-15 Jul-15 Nov-15 M ar-16 Jul-16 Nov-16 Imports overseas (tons) Import parity cow meat Import parity steers 4000 Import figures from overseas are only available till November 2016. The volume of beef imported is mainly a function of the import parity price, which is being influenced by factors such as the F.O.B. price in the export country, the exchange rate, freight cost, insurance cost and the competitive meat price in the import country. In November 2016, South Africa imported 111 tons of beef (excluding offal) from overseas and the main exporters were Uruguay (58,3%), Australia (27,5%) and New Zealand (14,1%). When liver, harts and tongues were included, total imports amounted to 3 484 tons, and the main export countries were Uruguay (75,7%), Britain (22,5%), Australia (0,9%) and USA (0,9%). The import parity price of Australian cow meat increased in November 2016 year on year by 6,2% and total imports from overseas increased by 105,6% over the same period. In November 2016, the import parity price of cow meat from Australia was in the order of R67,39/kg compared to R33,33/kg for Class C2/C3 beef. Outlook The domestic price of Class C2/C3 was in November 2016 well below the import parity and it is expected to stay below the import parity price over the next six months. It is therefore expected that beef imports may stay on a low level over the next six months, due to the fact that the price differential between South Africa and the main export countries at the moment is still too wide to allow for any significant imports of beef, but the effect of the present drought in South Africa may cause a decline in the supply of beef in 2017, which may push producer prices upward. If this should happen imports from overseas may increase in 2017. The Rand also depreciated in November 2016 year on year in total by 3,9% against the Australian dollar and appreciated by 1,3% against the US dollar. In the first two months of 2017 the Rand hold its position against both the US dollar and the AU dollar and together with increasing beef prices in the South African market due to the after effect of the 2016 drought, the inflow of beef from overseas in to the South African beef market may increase over the next six months. 1
Domestic market Production trends Rainfall pattern Since December 2016 sufficient rain fell over most of the beef producing areas with the prospect of sufficient grazing in the coming winter. The problem however is that the national beef herd took a knock due to forced liquidation and it will take some time to be rebuild. The supply of beef to the market in the first month of 2017 showed a preliminary decline of 5,6% year onyear, which give cause to the higher price levels of beef in the first two months of 2017. Herd numbers Figure 2 shows the national beef cattle numbers. 15 000 000 Fig. 2 NATIONAL BEEF HERD 14 000 000 Number 13 000 000 12 000 000 11 000 000 1997 2000 2003 2006 2009 2012 2015 Source: DAFF From 2012 to 2015, the national herd declined in total by 1,7%. Table 2 Distribution of beef cattle in South Africa Cattle numbers (including the non commercial sector) per province: Province 2015 % of total Western Cape 559 701 4,1 Northern Cape 506 036 3,7 Free State 2 290 193 16,6 Eastern Cape 3 328 377 24,2 KwaZulu Natal 2 707 744 19,7 Mpumalanga 1 417 080 10,3 Limpopo 1 026 321 7,4 Gauteng 251 081 1,8 North West 1 693 526 12.3 TOTAL 13 779 807 100,0 Source DAFF 2
Outlook The northern beef producing areas in South Africa received well normal rainfall and at some places even above since December 2016 after an already terrible dry period during the rest of 2016, which may lead to a rebuilding of their cattle herds during 2017. This may cause the national cattle herd to expand in 2017 compared to the previous year. Beef production trends Trends in slaughtering Figure 3 MONTHLY SLAUGHTER OF BEEF CATTLE Indice 150 140 130 120 110 100 90 80 70 60 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 Slaughter numbers Poly. (Slaughter numbers) The slaughtering index (Figure 3), declined by 5,6% in January 2017 year on year and was is 14,4% less than the average slaughter for the period January 2014 to January 2017. Seasonal trend in cattle slaughtered 150 140 130 Figure 4 SEASONAL TREND OF MONTHLY BEEF CATTLE SLAUGHTER BASED ON 3-YEAR AVERAGES COMPARED TO 2016 SLAUGHTER INDEX 120 110 100 90 80 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Slaughter 5-year average Slaughter 2016 The indices is based on the average slaughter from January to December = 100. Figure 4 represents the seasonal trend of slaughter based on a three year average monthly slaughter and the 2016 slaughter. A sharp increase occurred In December in both the 3 yar average and 2016 slaughter. This was mainly caused by the increased demand for beef over the festive season in December. The two main factors that contribute to the lower slaughter figure of approximately 10% from December to January in both 3
the 3 year average and 2016 are transferable stocks from December and a temporary decline in demand due to lower disposable income of consumers after the festive season. Beef price trends Figure 5 shows the average weighted producer carcass prices of class A2/A3, B2/B3 and C2/C3 beef from January 2014 to January 2017. Producer Fig. 5 BEEF PRICE TRENDS (C/KG) 4000 3700 3400 3100 2800 2500 2200 1900 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 AMT Class A2/A3 Class B2/3 Class C2/C3 In January 2017 year to year, the average producer prices of Class A2/A3, B2/B3 and C2/C3 beef increased in total by respectively 11,7%, 21,4% and 23,8%. In January 2017, the monthly price of the A2/A3 s was 12,2% higher compared to the long term average over the period January 2014 to January 2017. The following graph (Fig.6), shows the predicted monthly trend of Class A2/A3 beef over the next six months from February to July 2017 in comparison with the three year average price trend of Class A2/A3. Fig 6 AVERAGE CLASS A2/A3 BEEF PRICES PREDICTED FROM FEBRUARY TO JULY 2017 AND 3 YEAR AVERAGE PRICES 4400 4200 4000 2017 3800 c/kg 3600 3400 3200 3000 2800 Jan Feb Mar Apr May Jun Jul Aug Sep Oct nov Dec Predicted Class A2/A3 from February to July 2017 4 Class A2/A3 (3-year average) A2/A3 (2017) Class A2/A3 (2016)
The average price of the Class A2/A3 was in total 1,9% higher in January 2017 compared to the previous month, 11,7% higher compared to the average price in January 2016 and 19,3% higher compared to the average 3 year price for January. Outlook Due to the post effect of the drought on the supply of beef in the market, the above prediction is going to be overruled, which may result in an increase in price from January to February 2017. Long term trend in beef prices in relation to the other meats Figure 7 shows the average annual producer prices of beef in relation to the prices of mutton and pork deflated with the consumer price index (all items), to remove the effect of inflation in the prices. Basis year = average of 1997 to 2016. 140 130 120 Fig.7 AVERAGE PRODUCER PRICE OF RED MEAT SPECIES DEFLATED WITH THE CPI (ALL ITEMS) Base period: Average 1997 - IndIces 110 100 90 80 70 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 AMT Beef Mutton/Lamb Pork In 2016 year on year, annual price of beef was in real terms were 2,9% higher, lamb 1,3% higher and pork 0,9% higher. When compared to the long term average over the period 1997 to 2016, the annual prices of beef, mutton and pork in real terms were respectively 22,5%, 25,5% and 13,2% higher. The average prices of beef, mutton and pork are well above the 100=line which implies that the average prices of beef, lamb and pork increased at a faster rate over the past ten years as was the case with the inflation rate. 5
Feedlots/weaner industry Figure 8 shows the relation between the maize price, meat price and weaner price. YM2 - R/ton AMT 5 000 4 500 4 000 3 500 3 000 2 500 2 000 1 500 1 000 500 Fig. 8 RELATIONSHIP BETWEEN YELLOW MAIZE PRICE AND BEEF AND WEANER PRICES Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 YM2 (SAFEX) Class A2/A3 Weaners 4 400 3 800 3 200 2 600 2 000 1 400 800 A2/3 & weaner c/kg In January 2017 year to year, the average price of yellow maize declined in total by 15,9%. Over the same period the average price of medium light weaners increased by 33,4% and Class A2/A3 beef increased by 11,7%. Price ratio Figure 9 shows the price ratios of meat/maize and meat/weaner. Meat/weaner & collective weaner & maize ratio's 38 33 28 23 18 13 Fig 9 THE EFFECT OF ENERGY INPUT COSTS ON THE PROFITABILITY OF FEEDLOTS 8 5 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Meat/maize price ratio Advanced meat price/weaner ratio Prediction 25 20 15 10 Meat/maize price ratio Collective maize & weaner ratio Average collective line 6
The meat/maize price ratio is the kg of maize that can be bought with the value of one kg of meat. The advanced meat price/weaner price ratio is the ratio between the present weaner price and the selling price of the meat three months into the future. (This ratio is also multiplied by 10 to fit on the graph). The collective ratio (which includes the maize and weaner prices) is the ratio between the price of beef and the collective effect of the maize price and weaner prices. The average collective line is the average of the collective ratios over the period January 2014 to January 2017. When January 2017 is compared to January 2016, the weaner/maize price ratio improved in total by 58,7%, but the weaner price/beef price ratio weakened in total by 20,8%, based on a predicted price of R40,54/kg Class A2/A3 beef in April 2017 and an average price of R23,40/kg for weaners in January 2017 and the beef/maize price ratio improved in total by 32,8%. The advantage of the 58,7% improvement in the weaner/maize price ratio caused the collective ratio of both maize price, beef price and weaner price to improve by 5,3% from January 2016 to January 2017. The assumption can therefore be made that feedlots are economically 5,3% better off in January 2017 compared to January 2016, but 16,4% worst off when compared to the average collective ratio over the period from January 2014 to January 2017 as far as energy supplementation is concerned. Outlook If the price of yellow maize should decline by 20,1% from January to July 2017, based on the contracts for yellow maize on the JSE Securities Exchange (SAFEX in January 2017) and the price of A2/A3 beef declined by 3,5% over the same period as predicted and the weaner price decline by 2,8% as predicted, the collective ratio of both maize price beef price and weaner price should improve by 20,6% in July 2017 compared to January 2017. WORLD BEEF TRADE OVERVIEW Australia Cattle projections The Australian beef industry will more than likely continue the first half of 2017 in much the same fashion as last year tight supplies, robust restocker demand and the subsequent likelihood of a strong young cattle market. As the year progresses though, beef production is expected to slowly start increasing again and, as this eventuates, some downward pressure is likely to be placed on the market. Expectations are for a further 3% decline in Australian cattle slaughter in 2017, to 7.1 million head. Despite forecasts for slightly heavier cattle, Australian beef production is forecast to follow suit and decrease 3%, to 2.1 million tonnes cwt. Australian beef and veal exports are likely to correlate with the lower beef production and are estimated to decline a further 5% in 2017. While this is expected to be the third consecutive fall, it will still be the fifth highest export volume on record. The number of cattle on feed is forecast to remain constrained by the still very high feeder cattle prices, which closed 2016 up 80% from the pre surge average levels. Live exports will also continue to be challenged by the smaller pool of cattle (especially in the north), resistance from some markets at current price levels and continued uncertainty around import policies. The domestic market is showing some stronger signs and per capita beef consumption in Australia is forecast to rise slightly in 2017, edging close to 26kg per person. Moving onto prices, the Australian market is following a similar pattern to what occurred in America, although just 1 2 years behind. Once the US market broke through its long term average trading range, it took just over two years to hit a high, before taking 15 months to lose much of the gains. 7
Encouragingly though, the US has stabilised 38% above the previous level, which potentially indicates a new floor. Source: MLA Market Information, January 2017. SOURCES: Red Meat Abattoir Association. National Department of Agriculture Meat and Livestock Weekly AMT information collaborators USDA Outlook Reports Meat and Livestock Australia. 8