South Africa’s livestock and poultry industry has had a difficult few years. A variety of external shocks including animal diseases and rising input costs — yellow maize and soya bean prices — made for a challenging operating environment for many farmers and agribusinesses.

While the spread of diseases may be slowing, and organised agriculture and the government have continued to collaborate to address biosecurity risks, concerns about renewed increases in animal feed prices persist. This is particularly the case in the El Niño period, which might result in a lower harvest compared with recent seasons of bumper crops.

The livestock and poultry sector hardly enjoyed the gains of a large domestic harvest of the past two seasons because this did not bring any meaningful reduction in feed prices. Since December 2020, yellow maize prices have broadly traded at more than R3,000 a tonne, while soya beans have generally been more than R5,000 a tonne. In prior seasons, a large harvest would have led to a substantial price decline to much lower levels than we observed in the past two years.

The major reasons for this were higher global maize and soya bean prices on the back of drought in South America, rising demand in China, Covid-related supply chain disruptions and the Russia-Ukraine war. As a small open economy, South Africa is interlinked with the global grains and oilseeds market, and domestic prices tend to follow global price movements — and this is what we observed.

With global maize and soya bean prices declining notably since the start of the year, South Africa’s maize and soya bean prices have followed a similar trend and are roughly 15% lower than the levels we observed in 2022. This benefits the livestock and poultry industry, which is now struggling with more domestic-related costs, such as load-shedding and failing municipalities where various businesses have had to use their own resources to maintain basic services. This has added to their cost of doing business.

In addition to the tendency to follow global price trends, large grain and oilseed supplies are in the market, which adds downward pressure on animal feed prices. For example, the crop estimates committee forecasts 2022/23 maize production at 16.35-million tonnes. This crop is 6% more than the 2021/22 season and the second-largest harvest on record. The 2022/23 soya bean harvest is forecast at a record estimate of 2.76-million tonnes (up 24% year on year).

Still, there are fears that as we transition into an El Niño weather phenomenon, which may result in below-average rainfall in Southern Africa, harvests could decline notably. Such a scenario would lead to an increase in maize and soya bean prices and further strain the livestock and poultry sector.

However, the expected El Niño weather phenomenon might not be as harsh as the 2015/16 season, where grains and oilseed harvests fell below long-term averages, necessitating imports. In that year, livestock suffered and there were cases of livestock deaths across the country, particularly in new-entrant farming regions. There is good soil moisture from the past few seasons’ higher rainfall, which should support natural grazing veld and crops during planting season, which starts in October.

Moreover, the recent crop estimates from the International Grains Council paint a good picture of global grain and oilseed supplies in the upcoming 2023/24 season, which points to moderate price movements. For example, the 2023/24 global maize harvest is forecast at 1.2-billion tonnes, up 5% year on year. Subsequently, the 2023/24 global maize stocks are estimated at 276-million tonnes, up 2% from the previous season. Such stock levels signal an environment of a slight decline in global prices. Regarding soya beans, global production in 2023/24 could reach 402-million tonnes, up 9% year on year.

All else being equal, the 2023/24 summer season may not be as harsh to the South African livestock and poultry industry. The global grains and oilseed prices are likely to be under pressure. If El Niño does not badly hit the domestic harvest as expected, the benefits of the potentially lower global prices will filter into our domestic environment.

Written for and first appeared in the Business Day.

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