Cape Town - As meat producers start re-building their herds, there will be a shortage of supply in the medium to longer term, leading to an increase in prices, cautioned Paul Makube, senior agricultural economist for FNB Business, on Monday.
Meat prices could also be influenced by demand from consumers who are currently struggling to cope due to increasing interest rates, household expenses and electricity costs.
"The economic outlook has deteriorated and unemployment has reached a record high. This means that a further rise in meat prices will be constraint by affordability, as consumers will simply switch to more affordable protein sources such as chicken if red meat becomes too expensive," said Makube.
Lower herd numbers will lead to farmers having less income since they depend on sales to maintain their cash flow, in his view. As a result, cattle farmers should consider a number of factors when rebuilding their herds to avoid financial setbacks.
The biggest challenge for meat producers right now is overcoming financial and cash flow hurdles as they aim to re-build their herds to normal levels, with little or no income coming in, according to Makube.
Despite the mass-culling of animals due to severe drought conditions over the past few months, meat producers have, however, been resilient with prices trending firmer.
Makube said, because of the recent rains in large parts of the country, production and grazing conditions are likely to improve, but more rain is needed to ensure that cattle producers have enough feed for the winter period.
In addition, feeding margins are expected to come under pressure this year, due to limited feed-supply and the surge in maize and other input prices.
Cattle farmers will now avoid selling heifers and maintain farms in their current conditions, with the aim of producing more animals to be sold in the long term.
“Livestock farmers that are not well diversified and have used up their capital reserves should approach their lender immediately to possibly restructure or finance the purchase of heifers, feed and repayment of current debt. Banks will always assess the situation on an individual basis since farmers implement different herd-building strategies depending on their exposure,” said Makube.
"Fortunately, not all livestock farmers have been severely affected by the drought. These farmers may adopt a more aggressive strategy of buying more heifers and acquiring more land in order to benefit when the price of meat goes up and production conditions improve."