SA wheat gains to seven-year high

But drought cuts yields.

South African wheat prices surged to the highest level in seven years as harvesting shows below-average yields in some parts of the Western Cape, the nation’s biggest producing region.

Wheat for delivery in December gained 1.6% to R4 286 ($317) a metric ton, the highest for a most-active contract since March 2008 on the South African Futures Exchange. Prices rose for a third straight day.

The wheat-producing Swartland area of the Western Cape, the province that 51% of the nation’s crop came from in 2014, has had its driest season in 75 years, Agri Wes-Cape, a farming lobby group in that region, said earlier this month. Producers in Sandveld are experiencing their worst drought since 1957, it said.

“Harvesting is at the early stages in the Western Cape, with the Swartland region, one of the areas harvested so far, getting roughly 40 to 50% below-average yields,” Wandile Sihlobo, an economist at the Grain SA farmers’ lobby, said in an e-mailed report. “This is due to the dry weather conditions experienced the previous weeks.”

There is no rain predicted in the province for Thursday, Friday and October 24, the South African Weather Service said on its website.

While South Africa is the sub-Saharan region’s biggest producer of wheat after Ethiopia, it’s still a net importer, according to the US Department of Agriculture’s data. South Africa’s Crop Estimates Committee cut its forecast for production of wheat in the 2015-16 season by 3.3% to 1.64 million tons on September 29 from its previous prediction. That would be the smallest harvest since 2011.

©2015 Bloomberg News

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The price is at an all-time high in nominal terms, but the inflation-adjusted price is the lowest in history. Combine that with the fact that the cost of capital (interest rates) in SA is 10 times higher than in competing countries, it becomes clear that the local wheat industry won’t survive without more efficient protection against subsidized imports.

End of comments.

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