The 2019 drought severely affected the quality of cattle marketed to Meatco.
Instead of the A, AB and B-grades making up 75% of the cattle mix budgeted for, the quality realised was much poorer. The actual cattle mix saw 55% of Meatco’s slaughter capacity comprise low C-grades with 0s and 1s.
Despite this, the 2020 slaughter budget forecasts a return to the normal 75% A, AB and B- grades and 25% C-grade animals for the export markets.
Europe has many low-quality cattle priced approximately 35% below the best quality animals, therefore, price realisation would inevitably suffer when overall quality falls significantly.
The new markets offer greater access opportunities for Meatco’s products in 2020, which a promise significantly higher returns from the Chinese and the American markets. China contributes via the bone-in products they are trading.
These markets, which were not entirely open for most of 2019, are now fully open and operational for 2020. Both the Chinese and American markets currently return higher prices than the traditional South African (SA), European Union (EU) and United Kingdom (UK) markets.
According to Meatco forecasts, the Chinese and American markets would account for a significant amount in all international export volumes this year. With forequarters accounting for 45% of the side and the added weight of bone-in cuts, the value derived from this half of the carcass would be significantly greater year on year.
There are other factors outside Meatco’s control that can influence returns for 2020. The Covid-19 pandemic has largely closed all export markets, including the hospitality (HoReCa) industries, except for the Chinese market. Streak prices have suffered like other traditional restaurant products.
Although there are strategies in place to offset risks, market options are restricted. The global market is constantly changing and people must be fed, therefore, consumption will continue although using different channels. With the current global trends, the economy is likely to go into a recession and job losses will grow across markets, with oil prices having a major impact on the Norwegian prices. The global stock market volatility will cause nervousness.
The global landscape is currently unpredictable. However, these main dynamics remain: the world needs to be fed and meat is a necessity, African swine fever eradicated 25% of the world pig herd in 2019, the US has lost 35% of its production capacity. The only certainty is that the current global uncertainty will continue for some time and food will remain essential and in demand.