Risk protection for SA sheep farmers

SOUTH African sheep farmers are set to reap benefits of risk protection against prices volatility after the JSE last week launched the lamb carcass futures contract on its Commodity Derivatives Market.

The JSE said the move would allow farmers and abattoirs to protect themselves against the risk created through movements in the price of mutton.

It said the creation of the lamb carcass contract followed a similar move on beef in December 2015.

JSE director for commodity derivatives Chris Sturgess said the value commodity market could assist farmers in protecting themselves against price volatility.

“We have built a strong relationship with the agricultural community and are privileged to now be able to respond to the needs of the livestock sector in managing their price risks.”

The price of lamb has always been driven by consumer sentiment with mutton remaining the most expensive meat consumed in South Africa. Prices rise when consumers buy more meat.

Sturgess said the lamb carcass contracts would allow farmers to hedge against the risk created by such price movements. He said the contracts would also provide farmers and abattoirs with greater certainty about the income they would receive for the meat they produce.

“This can help to support the mutton industry, which is well-positioned over the medium term to benefit from South Africa’s growing middle class.”

Wandile Sihlobo, head of Agribusiness research at the Agricultural Business Chamber said prices in the red meat market were expected to remain solid.

Sihlobo said the tougher economic environment would not have an immediate effect on the red meat market but could start weighing on prices later in the year. “The consumer and economic conditions will become very important within the red meat market this year, because as consumers become more squeezed they tend to shift away from anything that is more expensive.”

Sihlobo said farmers were benefiting from lower feed costs to rebuild their herds after last year’s drought.

He said as a result of promising rains, farmers have held on to their stocks and have slaughtered 11.5 percent less sheep by March, compared to a similar period last year.

“The drought increased the cost of feed and also forced farmers to slaughter more, because they couldn’t afford to keep more of their stock. This means that farmers have been slaughtering less this year.”

Absa agricultural economist Karabo Takadi said the latest agri trends report on livestock last week showed that 6.4 percent fewer cattle were slaughtered during March compared to March last year.

“As more cattle were slaughtered during the past drought, there is supply tightness in the market.

“This season’s good rainfall has improved growing conditions and subsequently triggered herd building This ultimately adds to the reduction in cattle supplies.”