Don’t neglect your livestock

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Farmers in the winter grain-producing areas of the southern Cape were blessed with good grain crops in 2011 and 2012 – and conditions for grain production here remain positive. The higher profitability of grain production during the past two years has made some farmers consider decreasing or eliminating their livestock enterprises. This is despite the fact that, in the past, farmers in grain-producing areas have run into huge financial problems when the unthinkable happened, such as two or three failed crops in a row, and there was no livestock to provide cash flow.

It’s all too easy to liquidate a livestock enterprise – just call the local auctioneer. But re-entering livestock production is a great deal more difficult. There are many reasons why crop-livestock combinations are normally more sustainable than mono-culture crop production. Agricultural prices run in cycles. Lower production as the result of lower prices (frequently aggravated by adverse climatic conditions) results in higher prices. These then encourage higher production, which completes the cycle with lower prices.

These cycles have become less predictable and more erratic in recent times. A livestock-crop combination helps to stabilise farm income, improve cash flow and lower credit requirements. In addition, manure from the livestock can be combined with crop residues and used as compost, thereby increasing crop production. Farmers who use their own grain for livestock production save a great deal as they don’t have to sell at ‘Randfontein prices’ and then pay to get the grain transported to their farms.

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Grain outlook
The profitability of grain production in the 2013/2014 season will depend on local climatic conditions, which are largely unpredictable, and on global supply and demand. The latter is less unpredictable, but it is still impossible to forecast production and prices with accuracy.

International maize trade is dominated by the USA. Currently, this country expects a record maize crop, and prices on the Chicago Board of Trade have decreased by more than 12%. The US Department of Agriculture estimates the global 2013/2014 maize crop at 966 million tons, up 13% on 2012/2013. Total consumption is estimated at 937 million tons. Total stocks will increase from 125 million tons at the beginning of the season to 155 million tons at the end of the season.

Higher global production and expected production have already resulted in lower futures prices. In June 2013, maize forward prices for July 2014 were at US$221/t (R2 250/t), down from US$293/t (R2 980/t). Clearly, there’s a downward trend evident in international maize prices. South Africa’s Crop Estimate Committee predicts a crop of 11,44 million tons, 6% less than last year’s final estimate of 12,1 million tons.

Nearest-month Safex prices trade at about R2 300 to R2 500, equivalent to export parity. Huge exports during 2013 may see local prices shifting nearer to import parity. Prices will probably weaken later, as shown by forward prices. International wheat production for 2012/2013 is expected to be 199,5 million tons, unchanged from 2011/2012. Lower consumption is expected to result in an increase in total stocks by end of the 2013/2014 season.

Forward prices also show a decrease to 2014, with some upward movement from January 2014. On Safex, wheat prices for delivery in December 2013 and later are lower than current prices. Wheat prices for the 2013 harvest will probably decrease and lower prices are possible for the 2014 crop.

Livestock outlook

Internationally, meat prices are more stable than grain prices. Meat prices did not increase as sharply as grain and oilseed in 2008. Equally, meat prices didn’t decrease as much during the recession. Locally, there is a lot of marketing pressure, especially on the beef side. The drought in the northern regions resulted in farmers selling off all extra animals and reducing the size of cow herds.

This will affect production in the next season. Possible lower grain prices may also result in higher weaner prices. Retail sales growth remained slow during the first half of 2013, and slightly better growth may occur during the second half.

Think long-term
There are clear trends of better conditions for livestock producers in 2014. While crop farmers should enjoy the higher yields they are able to sell at relatively high prices, this is not a reason to neglect their livestock enterprises. It’s very dangerous to base a long-term strategic decision on short-term information. In the past, those who did so suffered considerable financial loss.

Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed are his own and do not reflect MPO policy. Email Dr Coetzee at [email protected]. Please state ‘Global farming’ in the subject line.