Chicken, Beef or lamb?

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The outlook for 2012 for mutton, lamb and beef prices remains positive, while chances are that poultry prices will remain at current levels.

The total number of cattle slaughtered reached a low in the 2011 winter. Since then, this has picked up slightly, but is still below the long-term (five years or more) average. The price of A-grade beef has firmed since mid-2011 and current price levels will probably continue for this year at least.

Weaner prices are currently 28% higher than a year ago. Along with the high grain price, this has resulted in a decrease in the break-even weaner price, currently estimated at R17,88/kg, compared to the R20+ prices obtained in the marketplace. Weaner prices will thus probably soften in the first quarter of 2012.

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The local price of C-grade beef is influenced by the import parity price of Australian beef. In October 2011 this was R37,53/kg compared to a local price of R27,14/kg. The difference between local and import prices will put further pressure on C-grade beef prices. Retail prices have increased steadily since 2008. To date there are no signs of any reduction. And further price increases are quite possible.

Mutton and Lamb
Reliable information on sheep and lamb slaughtering isn’t available. The long-term trend is downwards, with monthly slaughtering typically 14% or more lower than the same period in the previous year. The main reason for this is the sharp decrease in the sheep population from 28 million in 1997 to below 25 million in 2010. This was caused by severe stock theft and predator problems and aggravated by the outbreak of Rift Valley fever in 2011.

Mutton and lamb prices show a long-term upwards trend. High import prices for both lamb and mutton will maintain an upward pressure on producer prices. Mutton and lamb retail prices no longer follow food prices in general, but are more variable. Current prices will probably continue and may result in consumers increasing their beef and chicken consumption.

The poultry industry supplies more than half of our total meat demand. Higher beef, mutton and lamb prices, as well as consumer trends, such as an increase in eating away from home, are major drivers of poultry consumption. Poultry prices have moved sideways, but are lower than in 2008 and the general price trend is downwards. Lower import parity prices will tend to limit the increase in poultry prices during 2012.

The FMD problem
Higher international beef and mutton/lamb prices have reduced the negative effects of imported products. Theoretically, this also resulted in export opportunities. However, our foot-and-mouth disease (FMD) status doesn’t allow for the export of unprocessed meat and animals on the hoof. It’s a pity that the meat industry will probably fail to regain its FMD-free status soon, judging by the casual way in which government has tackled this problem.

Beef: chicken: lamb price relationship
The sharp increase in beef and lamb prices and stagnant chicken prices have resulted in a decrease in the relative profitability of chicken production compared to that of lamb and beef. As broiler production is only profitable for larger operators, the lower profitability will probably not result in a lower supply of poultry meat, but will definitely discourage new entrants.

In addition to stagnant prices, the sharp increase in the grain price has had a greater effect on poultry producers than on beef, mutton and lamb farmers, who use rations consisting of grain and roughage. They therefore have more scope to limit the increase in production costs than poultry producers.

On the retail side, the difference between lamb, beef and poultry prices already resulted in a decrease in lamb prices at the end of 2011. Lamb prices above R40/ kg will likely be the norm for this year.

Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed are his own and don’t reflect MPO policy. Contact Dr Coetzee at [email protected]. Please state “Global Farming” in the subject line of your email. FW