Cattle and other livestock farmers in the country have bumper year ahead of them
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Cattle and other livestock farmers have had a bumper year raking in huge profits, partly due to high weaner prices, according to Beefmaster Group supply chain executive Roelie van Reenen, but warned higher costs were on the horizon.
The specialist supplier of beef products to South Africa and global markets said after more than seven years of suffering due to a debilitating drought, farmers’ hard work was finally being recognised in the form of financial windfalls.
“This positive occurrence will benefit the entire industry and economy, should it persist. We congratulate farmers for achieving great results this year,” Van Reenen said.
“There have also been fewer weaners available, which has helped farmers fetch higher prices for their stock, resulting in overall improved financial picture for farmers.”
The group said the sector had grown by 13.4 percent year on year last year and was expected to grow further by 7.6 percent year on year in this year.
Van Reenen, however, warned that input costs like animal feed prices were expected to rise radically in the next year, hitting profits.
“All players in this sector would be wise to proceed with cautious optimism given the uncertain climate, and ensure that they make adequate provisions for the future,” Van Reenen said.
Also knocking the sector was fuel prices, which were expected to rise dramatically before the end of this year and well into next year.
“We must be mindful that the upward trajectory of the cost of raw materials means that equipment, animal feed, fuel and everyday goods are going to become more expensive,” Van Reenen said.
To gear up for next year, Van Reenen said red meat industry players should understand how much it costs to produce an animal and then focus on scaling up production. He said that by doing this, the farmer would benefit from a reduced fixed cost per unit as a result of a better economies of scale.
“Due to the higher supply expected, we are likely to see a decline in the value of the weaner. If the overhead structure is fixed, you need more revenue to cover that. The only way to mitigate this is to produce more.”
He added that it also was a good idea to re-invest windfall profits back into biological assets.
“Things can change for the worst. We must be conservative and plan for tougher times. The best thing this industry can do, including beef producers, its supply chain, and farmers is to be like the ant in the classic children’s fable, rather than the grasshopper, who didn’t understand the need for preparing for the future,” he said.
BUSINESS REPORT ONLINE