- Following an extended period of elevated interest rates, a pedestrian economic growth, and constrained consumer budgets, the situation has since turned positive given recent economic indicator updates.
- First, South Africa’s consumer price inflation showed a further slowdown to 4.4% y/y in August 2024, which is a 40-month low and now back below the SARB’s target midpoint of 4.5%. Monthly pressures from food and electricity saw headline inflation edging up marginally by 0.1% m/m but still below the July gain of 0.4% m/m.
- Secondly, the South African Reserve Bank (SARB) announced the much-awaited rate cut of 25-basis points which broad the benchmark repo rate to 8% with prime falling to 11.5% effective from the 20th of September 2024. The SARB’s growth outlook was nudged upwards on the back of rising confidence as electricity supply stabilised coupled with extra spending due to withdrawals from the new Two-Pot retirement system.
- Although food inflation ended its 8-month deceleration, ticking up 4.1% y/y in August 2024 and back at the June level, it remains at its lowest level in fifty months outside the July 2024 reading of 3.9%. Most food subcategories posted slight increases including bread and cereals; meat; fish; milk, cheese, and eggs; oils and fats; and vegetables. The magnitude of “bread and cereals” inflation increase was surprisingly timid given the runaway grain prices due to the drought-induced harvest contraction in 2024.
- Meat inflation has remained downbeat so far in 2024 with the only high of 2% recorded in January 2024. This reflects the constrained consumer finances and the increased availability of meat due to elevated livestock slaughter so far in 2024. Meat inflation jumped by 0.4ppts from July to 1.4% y/y in August 2024. Monthly meat inflation declined by 0.4% m/m for the second consecutive month in August 2024.
- Falling inflation and reduced interest rates coupled with declining fuel costs and stability in electricity supply have boosted prospects of a rebound in meat demand as consumer financials improve heading into the December festive season.
- At manufacturing level, the last headline producer prices inflation (PPI) update showed a slowdown to 4.2% y/y in July 2024 and was -0.3% m/m. Meat and meat products PPI decelerated to 4.1% y/y and fell for the second consecutive month by0.3% m/m.
- For agriculture at producer level, the annual live animals and animal products PPI decelerated faster from 12.6% y/y in June to 6.1% y/y in July 2024 and monthly fell by 4.8% m/m. The live animals PPI decelerated sharply from a16-month high of 13.4% in June to 4.9% y/y in July 2024. This indicates easing cost pressures which should help open profit margins again for livestock producers.
Average livestock prices remain weak due to the subdued demand
- Our analysis of trends on the domestic market shows weakness across most categories in the first half of September relative to last year on the back of subdued demand.
- In the live market, the weaner market saw further losses on weak demand and the general weakness in carcass prices and elevated feed costs. We however observe resilience in the weaner lamb market due to the limited availability on markets.
- Although advancing slightly m/m, pork and baconer prices continued to trend way below the 2023 levels due to supply pressure (figure 2).
- We saw a similar trend on the chicken side with monthly gains but annually coming in on the downside particularly the individually quick frozen (IQF) category which posted the biggest drop of 8.9% (-R2.99/kg) y/y at R30.67/kg.
Strong maize prices put pressure on feeding costs, but the long-term outlook remains positive for livestock feeders
- Although near term YMAZ futures remain elevated above R4,000/t in recent trades, the price outlook for the year ahead shows a decline with the Jul-25 YMAZ falling to R3,919/ ton (table 1, figure 5a). This indicates a potential decline in feed prices should YMAZ sustain this trend.
- Similarly, soybeans have shown a downward trend into 2025 (figure 5b).
- The return of the La Nina weather pattern will encourage farmers to increase production thus replenishing domestic maize supplies in 2025. This poses downside risk for prices.
OUTLOOK
- Benign inflation outlook with prospects of another rate cut before the end of year and a further reduction in fuel costs should provide a breather for the cash strapped consumers.
- This combined with the seasonal uptick in outdoor activities will boost demand for meat in the medium term.
- For producers, elevated feed costs remain a concern in the near term. Nonetheless, the longer-term outlook is positive for livestock feeders as feed prices are expected to decline.
