Global markets trends and their effect on Meatco

29 Jul 2016

The prevailing subdued global economic climate and the unstable markets for trading worldwide in 2015/16, contributed to the difficulties felt by Meatco. Despite these challenges, Meatco prides itself in maintaining stable and sustainable producer prices.

According to Chief Financial Officer Ingo Schnieder, Meatco producers have been witness to an uncommon trend in producer prices that peaked at N$37.45 early in 2016, followed by a gradual decline to date. The first quarter saw some of the highest prices paid in recent times, with a decreasing trend over the 2nd quarter. This was due to an increase in available slaughter cattle as result of the current drought, coupled with the strengthening N$ vs. export currencies, in effect decreasing Meatco sales prices while overall input costs have been rising.

While the increase in Meatco slaughter volumes allowed the Windhoek abattoir to be used at optimum capacity, the volume increase was not sufficient to justify the opening the Okahandja abattoir – an option that is now even less possible due to the severe water shortage in the central area.

“It is important to note that prices are not only driven by market trends in Southern Africa even though Meatco prices are above the South African parity price. This statement is supported by the fact that Meatco paid over and above the South African price, amounting to N$61.03 million in the 2015/16 financial year,” Schneider says.

In terms of a forward view, the impact of the drought will likely continue to put pressure on agricultural output in terms of quality and quantity. Despite this scenario Meatco will try its best to keep the prices as stable as possible. While Namibia’s livestock sector on which around 70% of our population depends, has been exporting an average of 160 000 weaners to neighbouring South Africa each year, the recent change in that country’s veterinary import regulations has now effectively stopped exports. However, it is too early to predict an outcome, as there are a number of requests to review these regulations.

If the restrictions remain in effect, Meatco predicts a higher number of cattle will be available for slaughter in Namibia, which in turn will positively affect producer prices due to increased efficiencies of available slaughter facilities. However, a key prerequisite is the move to an ox production system vs. a weaner production system.

In terms of the exchange rate, Meatco is expecting further strengthening of the N$ in relation to other major currencies, primarily driven by the search for yields as the American Fed is expected to keep interest rates low to simulate growth following Britain’s exit from the European Union. A key uncertainty remaining is the SA credit rating as well as the potential impact of a downgrade, Schneider concludes.

Prime beef

Meatco remains committed to act in the best interests of a sustainable cattle industry, so that producers receive the highest possible return for their cattle.