When selling livestock makes no business sense

29 Mar, 2015 - 11:03 0 Views

The Sunday News

THIS past week and the coming few weeks will be the most painful times to livestock farmers primarily because buying prices have tumbled and they continue to do so. I have met a number of farmers who were willing to implement advice of extension workers by culling off stock which is likely to be susceptible to the imminent drought. The farmers are trying to sell some of their stock so that they can buy feed and take care of the remaining stock. However due to the sudden influx of animals for sell on the market, the laws of supply and demand set in.

The flooding of the market has pushed the prices to record low levels with the price for a commercial grade carcass selling as low as $2,50/ kilogramme from as high as $3,40/kilogramme in January.

The super grade carcass has gone down to $3,60/kilogramme from as high as $4,20/kilogramme in January.
Not only has the prices gone down, the buyers are no longer buying and I am talking here of big time players such as abattoirs and established butcheries and well as meat wholesalers. Some are accepting animals and telling farmers to come after five days for payment and you can imagine the inconvenience it causes to the farmer. He/she is practically selling at a donating price but still has to wait for five days to receive payment and this means he is unable to meet his immediate costs such as the cost of transporting the animals to the abattoirs as this is usually paid for after selling the animals.

Instinctively one is tempted to blast the abattoirs and other big time buyers for being cold hearted but a close analysis will reveal three factors working together to the detriment of the farmer.

Firstly it is a general and well established fact that livestock prices tumble during this time of the year, hence it is never the right time to sell your animals. This is primarily due to a flood on the market especially of the commercial grades of animals as most veld fed animals improve in body condition due to the improvement of the veld after the rainfall. A close scrutiny will show you that it is actually the commercial/choice grade whose price is brought down significantly as a result of the market glut.

The super grade remains at a relatively better price so you are better off selling young and polished stock which will grade supper than selling commercials. If you notice the price gap between a super and commercial grade carcass is more than a dollar and that’s a lot if you multiply by the number of kilogrammes of the carcass.

The second and perhaps most important factor is the liquidity crunch that is crippling our economy. While the term liquidity crunch is in itself an oxymoron its effect are that there is very little cash circulating and the spending power among consumers is so small. The net result is that the retail end of livestock value chain is not moving meat as fast as animals are coming into the abattoirs therefore retailers are taking longer to go back to the abattoirs for meat supplies.

Essentially because there are very few retailers spending on meat it means the retail end becomes a bottleneck, not moving fast enough. In simpler terms the output is slower than the input and this creates a jam at the input side.

This jam manifests in buyers failing to absorb the animals and the prices avalanching.
The third factor which is linked to the first one is that there is a confirmed drought.

The media has been awash with suggestion of drought mitigation measures for livestock farmers and one major one has been to cull the unproductive and more drought susceptible ones such as the old ones. Farmers have taken that advice and they are selling en masse resulting in the market glut which we have already explained.

Finally having said all this, the only logical thing to advise farmers is for them to hold on to their animals for the next two months during which the livestock prices are expected to begin firming and then they can sell. However you need to be ready with supplementary feeds if your veld is not good enough. Otherwise a sale in the next week or so is a mere tokenised transaction with no real business benefits.

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