Insider Perspective – June

Glen McMaster lets loose with what he calls a ‘rant’.  We prefer to call it ‘Chicken Nuggets of Truth’.

Important Note:
This Insider reflects on events prior to the 2024 elections. New cabinet appointments and shifting political dynamics can have a major effect on investor and consumer confidence, which might have a profound impact on any predictions.

Insider Perspective – May/June

The challenges over the last 24 months in the poultry industry have been immense and the fact that so many companies are still standing is a miracle and shows that South African businesses are a resilient bunch. I have to commend all involved and remind you that hard work and smart decisions will always prevail. Nobody wins in a market like this and there is no joy when any business is struggling.

So, let us assess:

The local fresh prices have remained volatile with month-end gains so slight that they do not compensate for the three weeks of straight losses that follow. I have not seen such poor retail results since COVID. Production and availability is around 20% to 30% above the demand. The glut has been created by oversupply and yet the increase in growers/ live bird supply does not match the percentages. I am not certain how the imbalance has come about but I do have some ideas…

  • Average spend per shopper has declined.
  • Protein is now seen as a luxury for those on or below the breadline.
  • Retailers are not passing on the discounts.
  • QSR (Quick Service Restaurants) and hospitality sales are down.

Let’s deal with a few of the myths:

  • Vegans/ Vegetarians are on the rise. This is a silly idea. The impact is so small that the percentages don’t warrant a calculation.
  • Consumers are opting for canned fish. This is plausible, but let us note that none of the major brands in that category have reported an upswing in demand.
  • Local factories have increased their production substantially. – Yes some facilities have increased their numbers but it is all in line with annual growth figures.

So now what?

The truth is, we need to see a resurgence in our economy which will encourage consumers to improve their spend. The average household and even those in the lower income bracket have always been inclined to spend at their favorite fast food outlet – it is an affordable way to reward themselves for a hard day’s work or a long week. That spend is now depleted and the frequency of those visits has been downgraded to adapt to their financial situation. Rewards are slim in a tight economy.

So let us not under-estimate the effect from the QSR and Hospitality sector on sales. Breast fillets are a key component in that sector and the facts outlined below support my theory:

  • 20/ 30% drop in price of breast fillets over the last 6 Months.
  • Weekly glut at a manufacturing level.
  • QSR stats on sales show a substantial decrease in monthly unit sales, Rand value turnover is a skewed marker (menu price increases) because that is affected by inflationary increases.
  • New store openings have come to a grinding halt.
  • Numerous locations have closed their doors.
  • If you aren’t in the Kruger region or Cape Town then – lets be honest – you won’t experience the upswing of international visitors and their spend.

Importers are facing their own set of challenges. The future does not look bright and they certainly have more hurdles in their way:

  • High duties have created an unfavorable and impossible disparity.
  • Global prices are high and the weak Rand does not help.
  • Ports are an absolute mess to say the least, delays leave importers navigating cancelled loads from their clients in an already challenging market.
  • Delays due to changes in shipping routes have added a new challenge with arrival dates being pushed and clients scrambling for stocks in desperation.
  • Increase in cold store fees.
  • Increase in Freight fees.
  • Increase in road freight fees.
  • With this range of obstacles, even the best will struggle.

The truth is, trading houses will need to adapt and challenge the stronghold of the EU companies in Africa. We have to create South African-based or -owned trading companies who rival their EU counterparts for business ON OUR CONTINENT. This is probably a tough ask, as our financial assistance and interest rates are not favourable. EU banks offer preferable rates and this gives their trading sector a competitive edge.

You can argue with me, but if you are an importer who does not have contractual supply in place locally, I don’t think you will be able to survive on the open market. The guarantee of a set sale with a margin to bank and pay your overheads allows for the navigation of unpredictable swings in pricing and demand.

The market has changed. End users import direct, independent traders finance their own deals and new buying groups are on the rise. The big boys of trade now find themselves in a level playing field where a one container importer gets the same price as a 450 container heavyweight. The options to finance loads are available, end users are seeing the benefit of a slight cost saving and even more importantly the benefit of controlling their supply.
However, this is not all good. There are unreliable fly-by-nights with paper-thin contractual obligations. So while we need new players we cannot discount the value of the tried and tested, or the school fees they paid to be where they are.

But now I need to embark on a rant, to share my own frustrations and those of you who find yourself in the same position:

  • Where is the assistance for our industry?
  • Where are the favourable interest rates?
  • Where are the dispensations, reductions and trade alignments?
  • In fact, where is the government department that was appointed to help this sector?

So… Local producers – spend some money and develop your foreign trade. New markets and buyers await, so get a move on. The daunting scale of work required is a shadow of the inevitable foreclosure you will face if you don’t develop that market. The pond has shrunk, the fish have food options and you are clouding the water in oversupply.

And…. Importers – it’s time to claim your piece of the African pie, get your footprint and trade into new regions. The truth of the matter is you are in the same pond that has now become a glass of water. Stop relying on local demand, adapt to the demands of the whole continent.

And…. Government – just do something! We have amazing businesses. Our people have the capacity, they need help. Government officials must now start to earn their salary and develop a platform that is capable of linking our supply with Africa’s needs.

And…. Retail – PASS ON THE DISCOUNT! You are killing the industry and changing shoppers’ buying patterns. We all have to absorb the losses. I cannot stress enough how infuriating it is when a retailer negotiates a CLQ at R31 and sells at R65 or R70 per kg.

I would implore all consumers to support factory outlets, local butchers and competitive wholesalers…. IF YOU WANT A FAIR PRICE support the people willing to give you one. Stop complaining about the high cost of living if you don’t adapt and support the community of butcheries who bring you fresh product at great prices.

Local Frozen May & June: 

IQF Mixed Portions (6x2kg) @ R26.50 to R29.50
Drumsticks @ R34.50 to R38.00
Leg ¼ @ R31.00 to R34.00
Wings @ R36.00 to R40.00
Thighs @ R26.50 to R30.00
Fillets De-boned/ skin off @ R37.00 to R44.00
Whole Birds 1.3 to 1.5kg @ R29.50 to R33.50

Fresh whole Birds @ R29.50 to R33.50

Wholesale Imported Frozen prices as of Feb & March:

Drumsticks USA Jumbo @ R28.50 to R32.00 – Jan, Not much has changed
Leg ¼ USA Smalls @ R33.95 to R36.95
Leg ¼ Irish – None available
Wings Argentinian @ R42.50 to R45.00
Thighs USA @ R28.50 to R32.50
Fillets De-boned/ skin off Brazil @ R48.50 to R55.00 – No demand, very little imported currently

Noteworthy info:

  • Offal is the only constant demand from an imports perspective, bone-in and boneless cuts are not price competitive.
  • MDM is still King & Queen.
  • No Major upswing in seasonal demand and shortages, we have not seen offal prices skyrocket…. In fact Soup Packs are piling up and prices are below the summer deals.
  • Chicken Feet have improved with the flush out of the 20g batches from Brazil.
  • Chicken Hearts will remain short.
  • Chicken Livers are in abundance with weekly local deals, don’t hedge your bets here people you will lose money in the short term.
  • Big winner for winter….. Feet, Hearts, Gizzards and chicken skins….. the dark horse will be CLQ if the IQF Market improves.
  • Buyers tip….. Don’t over commit and watch for the glut deals, you can earn a few margin percentages with some shrewd buying.
Latest Poultry Analysis
Closer Look – Imports

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