Beefing up consumption

A glut of red meat on the market has grown since December, brought about by high feed prices and drought in some producing areas.

In addition, says Lardus van Zyl, chairman of the Red Meat Producers Organisation, red meat prices that rose too sharply last year put some customers off buying it.

"There was also a decline in red meat consumption after Christmas, which is normal, but it added to the supply situation," says Van Zyl.

High feed prices for livestock - caused by the expense of maize and other grain - encourage farmers to slaughter their animals to avoid the feeding costs.

Drought has a similar effect, as farmers cash in on their livestock when adequate grazing for herds becomes difficult to provide.

Van Zyl says that since December producer prices for red meat have fallen by 20%-25%, depending on the grades of beef.

In a statement on his organisation's website recently, Van Zyl pointedly thanked retailers for feeding through price reductions to consumers and requested "those who have not yet done so to please do it".

He also encouraged consumers to compare prices and to consider buying beef and mutton in bulk to receive better value.

This week Van Zyl said lower red meat prices have been evident at retailers over "the past two weeks".

The industry is hopeful that red meat consumption will rise if consumers feel the benefit of lower prices.

Arnold Pretorius, CEO of SA's largest beef producer, Karan Beef, agrees that "retail prices have lately fallen into line with a 25% decrease in the price of beef since January.

"The passing on of the lower prices by retailers to consumers took a while," he says.

Pretorius says all the feedlots have been "taking a bath" since January.

"We are losing about R1300/head on our livestock. Work out what that is when you have 30000 head.

"With the cost of feed we have to sell beef at R34/kg, which is not sustainable. Consumers cannot pay that. At R15/kg for calves our break-even producer price is R27,50/kg. The bottom line is that feedlots are losing a fortune.

"We have to accept the feed costs. There is no way around that. The only leeway we have is for farmers to take R14/kg for the calves, but some are already unhappy with R15/kg, though if they accept the lower price we can all make money."

He says the glut of beef on the market is "working itself out of the system" and that farmers who have just entered the industry are suffering.

Absa agribusiness head Ernst Janovsky says farmers who continue to feed livestock will need to find ways to produce their own feed or buy at cheaper prices.

He predicts that maize prices are set to rise sharply because China's grain surplus is shrinking steadily.

Pick n Pay deputy CEO Richard van Rensburg denies that retailers - "we monitor all of them" - kept red meat prices high artificially.

"It wouldn't pay us. Over the past few months our margins on meat have actually dropped."

He acknowledges the oversupply of beef and says the company has held discussions with the biggest feedlot companies on strategies to clear the oversupply and offered to help get rid of it.

"We're now selling red meat at no margin to help clear the oversupply. The feedlots are taking a knock, but so are we."

Van Rensburg says when Pick n Pay hypermarkets dropped prices two weeks ago, the turnover in red meat shot up by more than 40%.

However, he says the prices are "temporary" and will start to rise again in three to four months.

"Feed prices are not coming down and that will keep meat prices high."

Source: Financial Mail