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Drier conditions spook maize traders

The price of white and yellow maize is soaring.

The spot price of white maize smashed through R3 000 a ton this week, up 51% from its mid-2017 harvest low. Similarly, yellow maize has touched R2 800 a ton, up from R1 850 in 2017.

The prices are rising as the window for planting maize for South Africa’s 2019 season narrows in the absence of good rains in parts of Gauteng, the upper Free State and the North West province.

Higher maize prices will directly affect input costs at companies like Pioneer Foods and Tiger Brands as well as chicken producers such as Quantum, Astral and Rainbow.

“These prices reflect a significant increase,” says independent analyst Anthony Clark, who tracks the price of soft commodities closely. “It will be difficult for manufacturers and protein producers to recover these costs from the consumer.”

Yellow maize is the biggest input cost for chicken producers like Astral and Quantum Foods, which purchase between 800 000 and one million tons of the grain a year.

In its annual report released in mid-December Astral Foods chairman Theuns Eloff notes that between April/May 2018 and mid-September there was a steady decrease in commodity prices. However, this is changing and the short-term trend is up, he says.

Global food prices on the up

Global food prices, he adds, are projected to increase in 2018 by 2.3%, and by a further 1.7% in 2019.

Astral, the country’s biggest producer of chicken products, has benefited from the positive growing and trading environment that continued from the second half of 2017 well into 2018. This was mainly driven by record maize crop conditions leading to significantly lower pricing levels. During 2016/2017, South Africa harvested a record maize crop of 16.8 million tons, followed by an above-average crop of 12.9 million tons in 2018.

High stock levels of maize resulted in lower local maize prices in a global market characterised by an adequate supply of corn. Feed costs reduced markedly in the second half of Astral’s financial 2017 year, and remained low, assisting its earnings for the full year. “Feed cost remains the key driver of profitability, representing about 67% of the live cost of a broiler chicken,” says Eloff.

Clark adds that weather disruptions add further risk to the maize forecast. In August the US National Oceanic and Atmospheric Administration put the chances of El Niño – which makes conditions drier and hotter – during winter 2018/19 at 70%.

US trade conflicts add risk

A deepening of the trade conflict between the United States, the world’s largest food exporter, and several of its key trading partners adds to the risks.

In a blog on his website agricultural economist Wandile Sihlobo notes the growing concerns that the dry weather conditions in most parts of South Africa could lead to a lower maize harvest in the 2018/19 production season, and higher spot prices for maize and sunflowers in the interim.

“October to February is the period, from planting to pollination, where the weather becomes an important factor in the South African grains and oilseeds market and, to some extent, one of the major driving forces of price. So, the current dry weather conditions in the central and western parts of South Africa are the primary reason for the recent sharp increases in maize and sunflower seed prices,” he says.

Source: WandileSihlobo.com

Fortunately, the production expectations for the season have not been reduced to the acute levels seen in the 2015/16 drought periods where South African maize production amounted to 8.2 million tons — turning the country into a net importer of maize.

Figures released by the US Department of Agriculture show that South Africa’s maize harvest could amount to 12 million tons, down 8% from November’s estimate and 11% from the 2017/18 production season.

While the country still has a surplus of maize, this is being drawn down which could lead to a tight supply and demand position next year, says Clark.

The situation remains fluid, however. Should good rains come between now and January, the situation will change completely, he adds.

In the meantime, prices on the SA Futures Exchange (Safex) are indicating that traders are worried about next year.

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At least Transkei is getting good rain, those farmers will be able to supply the shortfall.

The maize price increase tells a story. When you drive, you can see how many farmers are not planting ( no preparation to plant at all) and the drought damage on the current maize. If we have good rains, we still could have a good harvest. Unfortunately no commercial maize is planted in Transkei.

Time is running out , because maize planted after 1 January will usually be damaged by frost . With the lack of good rains in the northern parts of SA , it seems that maize farmers are going to have a difficult 2019 season .
Climate change is rearing its head more and more , with the USA maize producers also now prone to regular drought conditions .
All the more reason for government to be very careful with expropriation of
farms from successfull farmers .

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