Grain price hikes squeeze red meat producers' margins

Absa AgriBusiness explores the current price dynamics in the red meat industry, why both producers and consumers are under pressure, and the part that historical third-quarter price trends play.

- Absa AgriBusiness

Beef carcass prices followed a downward trend in August, with Class A and Class C prices decreasing by 1,5% and 4,1% respectively (see Graph 1) month-on-month (m/m). Year-on-year (y/y), however, the Class A beef price was 16% higher, and the Class C price 1,4% higher.

Despite strong annual price growth, profitability as indicated by the beef-to-maize price ratio shows that industry margins are under severe pressure. This is largely the result of high grain and oilseed prices.

In July, there were signs that global agricultural commodity prices were easing. This trend was, however, reversed during August on the back of hot and dry conditions in key production regions in the Northern Hemisphere, which fuelled production concerns. Some of the grain price declines during July and early August were also offset by a weaker rand, and the effect of the decreases was not fully apparent in the local context.

In the last week of August, the prices of Class A and Class C beef stood at about R59,20/kg and R46,25 respectively. The price of weaner calves was just below R36/kg before the implementation of the ban on the movement of live cattle to combat foot-and-mouth disease (FMD) in mid-August.