Market Conditions

Information supplied by Nico Scheltema, Marion Delport and Tatenda Mutungira of the Bureau of Food and Agricultural Policy (BFAP)

After steadily increasing by 13.1% over five consecutive months (from July to November 2017) the moving average of the national number of pigs slaughtered decreased by 4.5% from November to December 2017. During the same period the average pork price increased by 2.1%. In the most recent week of reporting the average pork price was 7.66% higher than during the same time last year at R28.51/kg.

The profitability indicators for porkers and baconers decreased slightly over the past month: by 0.58% and 1.20% respectively. But profitability indicators remain significantly higher (77% and 70% respectively) compared to the same time last year. The wholesale margin indices increased by 6.8% and 5.3% for porkers and baconers over the last quarter and increased 21% and 19% with respect to the same time last year.

Following the outcome of the ANC elective conference in December, the Rand has appreciated significantly against key currencies such as the Euro and the US dollar, which will affect prices going forward.

Abattoir level analysis

Figure 1 and Figure 2 contain the latest levy administrator’s statistics. In December 2017 a total of 193 982 pigs were slaughtered in South Africa, a significant decline from the 249 606 pigs slaughtered in November 2017. The three-month moving average (MA) of slaughter numbers is shown in Figure 1 since actual month-on-month changes are very volatile. After steadily increasing by 13.1% over five consecutive months (from July to November 2017), the MA of the national number of pigs slaughtered decreased by 4.5% from November to December 2017. This is a typical pattern related to the festive season’s increased demand relative to the beginning of a new year.

During the months running up to the festive season (September to November 2017) a larger portion of the national slaughters (more than 70%) originated from the top three pork producing provinces: Gauteng, KwaZulu-Natal and the Western Cape. The number of pigs slaughtered in this three provinces are shown explicitly in Figure 2.

From Figure 2, the 48% decline in pig slaughters in Gauteng in December 2017 is striking. Note that the latest figures are usually preliminary releases from the levy administration and are subject to change for a couple of months and again, the festive season demand swings are key drivers in the slaughter numbers this time of year. On the other hand, the number of pigs slaughtered in the Western Cape remained relatively high (above 50 000 pigs) and decreased by only 1.7% from November 2017 to 51 022 pigs in December 2017. The number of pigs slaughtered in KwaZulu-Natal remained stable throughout 2017 at an overall average of 27 920 pigs and also decreased marginally in December 2017 to 27 403 pigs (9.7% decline from November 2017).

The total number of pigs slaughtered in South Africa in December 2017, declined by 20.1% with respect to December 2016. Gauteng was the biggest contributor to this decline with a year on year decline of 43.8%. KwaZulu-Natal slaughtered 8.8% fewer pigs in December 2017 than in December 2016. The Western Cape slaughtered 1.5% more pigs in December 2017 compared to last year.

A moving average of 227 835 cattle were slaughtered in December 2017, representing a less than 2% increase from November and a 16% decline from December 2016. The MA number of sheep slaughtered in South Africa increased by almost 9% from almost 388 000 sheep in November 2017 to 424 000 sheep in December 2017.

Pork price analysis

This section presents price information collected by the Red Meat Abattoir Association (RMAA) per carcass classification from participating abattoirs all over South Africa; which is regarded as a representative sample. During the last two months of 2017 the average pork price (averaged over all carcass classifications) increased in line with the seasonal pattern (Figure 3). However, the increase in prices related to the seasonal demand was less severe than in previous years. The average pork price increased by 2.1% over November and December 2017 as opposed to a 3.7% and 4.5% increase over the same period in 2016 and 2015 respectively.

In the most recent week of reporting, the average pork price was R28,51/kg; a 1.52% increase from the previous month, a level 7.66% higher than what was recorded at the same time last year.

The price of BP-class pork carcasses continued to increase over the past month by 0.6% to R28,39/kg. On the other hand, the prices of BO-, BR- and PP-class pork carcasses started to decline by 0.55%, 1.73% and 4.1% over the past month to R28,15/kg, R27,05/kg and R30,44/kg respectively.

If the seasonal pattern of pork prices holds, decreases in pork prices are expected in the near term. This trend could be accentuated by the appreciation in the exchange rate, which reduces the price of imported pork.

Feed and profitability indicators

Figure 4 illustrates maize and porker purchase prices since January 2017. According to the International Grains Council (2017), the latest global maize production forecast is 1.05 billion tons for the 2017/2018 season, a 3.1% decrease from the previous season. The global carryover stocks have been revised upwards to 322 million tonnes but remain 4% lower from the previous year. This upward change is largely due to the altering of China’s historical maize figures. These stocks however are unlikely to be available for the export market.

The latest crop estimates from DAFF’s Crop Estimate Committee (CEC) indicate that the preliminary maize area for 2018 amounts to 2 309 200ha. This is 12% lower than the 2017 maize crop, when a planted of 2 628 600ha, delivered an all-time record harvest.

The average SAFEX yellow maize price for January is R1 976/ton representing a 1% increase from the previous month. For the same period, soybean prices have decreased by 4% to
R4 583/ton. When comparing the current period’s prices to their 2017 levels, maize and soybean prices are 38% and 29% lower respectively. Despite the expectation of a smaller crop in 2018, price movements will likely be limited by the large carry-over stock from the 2017 harvest.

Figure 5 shows the pork to maize price ratio for PP and BP quality pork meat, and serves as an illustration of the relative profitability of producers given the cost of yellow maize as a key ingredient in animal feed. A high ratio therefore denotes a better profit margin. In the opening month of 2018, the profitability indicators have decreased slightly from previous month’s levels by 0.58% for PP quality meat and 1.20% for BP. However, when comparing the current January price levels to that of last year, the same profitability indicators for PP and BP are significantly higher at 77% and 70% respectively.

Wholesale and retail price analysis

The porker and baconer retail price indices are compiled based on a sample of porker and baconer products in order to give an indication of the change in price spread between wholesale and retail pork products. The porker products retail price index increased by 8.8% from September to December 2017. The baconer products retail price index increased by 7.3% during the same period. The retail price indices for porkers and baconers increased over the last quarter of 2017 notwithstanding Statistics SA’s announcement of a decrease in headline inflation during December 2017. The wholesale price indices for porkers and baconers respectively increased by 12% and 13.7%.

The margin index is calculated as the difference between the retail and wholesale price indices. In December 2017 the margin indices for porkers and baconers were at 173 and 225 index values (2008=100) respectively, representing a 6.8% and 5.3% increase respectively, from September to December 2017 (Figure 6). Both the porker and baconer margin indices increased by 21% and 19% respectively since November 2016.

International news

European Union:

On 8 December 2017, the European Union (EU) and Japan concluded the negotiations on the EU-Japan Economic Partnership Agreement (EPA). The two regions represent approximately 40% of the world’s gross domestic product (GDP). While the details of the concessions have not yet been released, EU exports of wine, beef and pork are expected to benefit from this agreement.

Given the quantitative restrictions on meat products, European exporters will likely only see modest gains in export volumes. The greater benefit is that the reduction in Japanese import duties will allow European exporters to save when paying these duties and thereby increasing their margins.

The Commission intends to pursue ratification by the European parliament in mid-2018 and have the agreement enter into effect in 2019.

According to the latest medium-term outlook by the European Commission EU pig meat production is expected to increase slightly in the next few years, but decline back to 2017 levels by 2030. EU meat consumption per capita however, is expected to stabilise before declining slightly, following a recovery since the economic crisis.

The marginal projected increase in pig meat production will therefore be solely driven by export demand.

The commission estimates that global import demand for pork will grow, but it will be more slowly than in the previous decade. It will grow by an estimated 560 000 tonnes to reach 8.4 million tonnes by 2030, mostly from countries in Asia and Sub-Saharan Africa. However, the commission stated that the level of Chinese demand after the restructuring of its domestic pork sector is a factor of uncertainty that can heavily impact the future of the global pork market.

China:

The environmental protection law, implemented in early 2015, greatly increased the punishment for pollution-emitting small and medium-sized pig-breeding farms. Farms that did not comply with the new standards were either closed or demolished forcibly within a specified time, resulting in large changes in China’s pork farming structure.

As disclosed by China’s ministry of environmental protection, 213 000 livestock farms were closed or relocated by mid-2017. Although the law resulted in domestic sow- and live pig inventories falling to a record low during late 2017, large-scale pig-breeding companies are taking this opportunity to expand their production capacity.

While the average pigs per sow per year (PSY) level for small and medium-sized farms range from 16 to 18 pigs, large-scale farms often reach between 20 and 24 pigs. With the average PSY of China increasing from 13 in 2013 to 19 in 2017, the increased productivity could ensure a more rapidly-recovered production capacity despite the current low inventories of sow and live pigs in China.

Sources: AHDB, IQC Insights, European Commission