Over the last three years, feeder lamb and mutton prices were on a general upward trend which can be ascribed to, amongst other, the lower availability of animals due to lower herd numbers. The drought over the last decade had a severe effect on the ability of producers to maintain their herd numbers. This coupled with high feed costs forced many producers to reduce herd numbers which resulted in lower availability and higher feeder lamb and carcass prices. On top of this, we were faced with the Covid-19 pandemic the last two years which didn’t had a significant effect on production, but there was a significant change in consumer behaviour over this period. During the lockdown, more people were housebound which forced them to eat more at home, consume less take-aways and had fewer other expenses on fuel, vacations, luxuries, etc. The result was that more money became available for food and food products and supported demand over this period. Lower supplies coupled with higher demand resulted in lamb and mutton as well as feeder lamb prices that reached record levels at certain times.
With the markets returning more to normal and the lockdown regulations being eased, there is a slight reversal seen in consumer behaviour. People are spending more on non-food products and demand decreased the last few months, resulting in some resistance towards high prices from consumers, with especially the slaughter prices (A2/3 and C2/3) that came under severe pressure. The expectation based on seasonality is that the A2/3 carcass price can stabilized and gain some momentum over the next two months due to better expected demand. Feeder lamb prices are likely to decrease slightly due to lower demand. The feeder lamb price is 2.80% higher compared to the previous month, 9.97% lower than 2 months ago and 5.93% higher than last year the same time. The A2/3 carcass price is 4.80% lower compared to the previous month, 15.34% lower than 2 months ago and 3.20% lower than last year the same time.
The increase in the feeder lamb price during October combined with a decrease in the A2/A3 carcass price resulted in a lamb:carcass price ratio of 0.54; which is higher than the long term average ratio of 0.48. It is expected that this ration can decrease over the next three months. The higher yellow maize price in combination with a decrease in the A2/A3 carcass price resulted in a maize to carcass price ratio to decrease to 24.80.
The feeder lamb price is expressed in carcass (A2/A3) equivalent given a 48% dressing percentage. Feeder lamb prices increased while carcass prices decreased during the past month. An expected increase in the A2/3 carcass prices combined with possible decrease in the feeder lamb price during the short term will result in the margin between the respective prices to decrease. Feeder lamb prices (relative to carcass prices) are trading higher than the A2/3 carcass price, this gap is expected to close over the short term.
Aggregate commercial slaughter numbers decreased by 0.02 index points from September to October. Slaughter numbers are expected to increase towards the end of December as demand is likely to increase. Seasonal indexes indicate that the slaughter numbers can decrease in January and February again next year due to lower demand.
Skin prices showed a constant increase over the past year with especially Merino skins (with wool) increasing the past few months. The latest dorper and merino skin prices traded on R38.33/skin and R64.25/skin respectively.
Looking the seasonal sheep price trends since 2015, a clear trend can be seen. From January to April each year, prices are generally on a lower level and trending downward as more animals are marketed over this period. From May onwards we usually see an improvement until August when all three price varieties usually peak. A downward trend until November is then seen with higher demand in December that supports the slaughter prices. Producers have adapted to these trends over the past years which resulted in less seasonal variability the last few years.
Looking into the price predictions over the next two years, we are expecting feeder lamb prices to stay on a lower level over the first part of 2022 but get some momentum towards the end of the year. A general upward movement of the price is expected. It is however not expected that this increase will keep up with rising input costs and producers must do careful planning in terms of their profitability that will come under pressure. A similar trend is expected for the A2/3 and C2/3 carcass prices with the first few months of 2022 that will likely see lower prices but prices that can recover towards the end of the year.
The wool market was severely affected by the covid pandemic as well as disease outbreaks. Export logistics remains a big issue for the local wool industry with local ports and shipping still constraining the constant export of this product. Over the last year however, the wool price increased again on the back of demand internationally that recovered well. China is still regarded as the largest importer of wool and a constant improvement in demand the last year played a major role in the upward price trend of wool. Recently the European demand also recovered which gave added support to this industry.