Cattle Price Boom

Cattle price boom

In collaboration with Nedbank: Nedbank Namibia CIB Newsletter – September 2017

A good start to the year was seen for cattle farmers in 2017, with a much-improved rainy season when compared to the previous three years. This is evident in the average dam levels of the three central dams in Namibia namely, the Swakoppoort Dam, the Von Bach Dam and the Omatako Dam, with the three dams being 44% full as at the week of the 18th September compared to just 8.8% a year ago.

Apart from the good rain falls, farmers were further greeted by strong increases in livestock prices at local auctions. As a proxy, the price per kilogram for a tolly at Agra’s Otjiwarongo auctions increased by nearly 50% between January and September. These increases were particularly notable when it comes to younger animals, with tolly prices increasing much faster than more mature animals, with the per kilogram price for a stoor increasing 23.4%, while the price per kilogram for an ox remained largely unchanged at 1.8% lower.

On a per head basis, the average price per tolly increased from approximately N$4,000 in the beginning of the year to around N$6,000 in recent auctions. This compares to the stoor price that have increased from just over N$6,000 in January to more than N$8,000 while the price per ox have gone from more than N$10,000 to closer to N$9,000 per head.

The diminishing returns of buying tollys is clearly indicated when putting the tolly price as a ratio relative to the stoor and ox prices. The chart below shows that in January a tolly roughly cost 58.2% of a stoor, while year to date to the tolly price has average 81.6% of the stoor price. End of August the average tolly per head was 5.5% more expensive than the average stoor per head.

The tolly to ox ratio shows the same trends, with the ratio being 35.4% in January and averaging 59.3% year to date. The tolly to ox ratio peaked at 89.8% early March.

This aggressive increase in the price of younger animals relative to more mature animals is abnormal, showing “backwardation”, meaning that the current price of the ultimate commodity is higher than the future price. This suggests that there are abnormal conditions at play, some of which are explored below.

The most pertinent factor at play at present is the 51.6% decrease in the South African maize price over the past year, driven by the bumper crop harvests in South Africa this year, following a major white maize shortage in 2015. This fall in the maize price means that it is  increasingly affordable for South African feedlots to hold young animals and achieve a generous yield in the daily growth in the animal. With input costs falling, and following a sizable regional drought in recent years that reduced the regional cattle heard, competition for young animals at recent auctions has been fierce.

As a result of this, the SA feedlots have been heavy participants in the livestock auctions nationwide, especially the bigger Otjiwarongo and Grootfontein auctions, with record turnover being achieved at these events in recent months. By June this year, a total of 176,520 live cattle, year to date, had been exported to South Africa, a 40% increase over the 126,130 exported in the comparable period of 2016.

It is no doubt that in the short term the surge in live exports to South Africa has a stimulatory effect on the Namibian agricultural sector, however in the medium term it does pose a risk to the economy in that three years from now the number of animals coming due for slaughter in Namibia will be much reduced. This will result in lower agricultural output, from a high base, shortages driving meat price inflation and renewed cash flow challenges for Namibian farmers. Further to this, a huge amount of value addition that could be done in Namibia has been lost to South Africa, and as a result, the ultimate impact on the country will be negative. However, for now, it is a case of making hay while the sun shines.

Source: Agra Otjiwarongo Live Auctions


Source: Agra Otjiwarongo Live Auctions


Source: Agra Otjiwarongo Live Auctions