No need to import maize but weakening rand could become severe!

And, with expectations that the planting season will produce a reasonable crop, there may be no need to import maize, exposing local consumers to the ravages of a weak rand.

The latest crop estimate for the season puts white maize at 6.3 million tons, compared with 6.7 million last year, while yellow maize is forecast at 5.4 million tons from 5.1 million.

Lower maize prices have both a direct and indirect impact on inflation. The first is via the cost of cereal products and the second is on feedstock, which affects the cost of meat and chicken.

The development should be good news for households that faced high food inflation last year, along with high and rising fuel and electricity costs. A complex supply chain distorts the connection between production on farms and the cost of food on the table, but a lower producer price implies subsiding consumer inflation somewhere down the line.

Statistics SA data show food inflation at the consumer level fell from 7.5 percent in November to 7 percent, 6.4 percent, 6.3 percent and 5.9 percent in the following months.

Stats SA executive manager Patrick Kelly said consumer and producer data had reflected lower food inflation overall and, in some cases, price falls.

On the futures market, the price of maize for July delivery has tumbled since a peak in November last year, according to Andre van der Vyver, a lecturer at the University of Pretoria.

According to Bloomberg data, the closing price on November 26 was a high of R2 459 for white maize and R2 446 for yellow maize. Yesterday on the SA Futures Exchange, the numbers had fallen to R2 173 and R2 148, respectively.

However, there are several factors that could neutralise the benefits.

One is the volatile exchange rate, which has ranged between R8.80 and R9.20 to the dollar over the past two months. The cost of white maize, which closed at a low of R1 824 on February 11, was boosted to R2 413.60 on March 26, partly on currency concerns, before retreating to present levels.

Andre Louw, a professor at the University of Pretoria, noted that the country could be forced to import. He said a dry spell in the Free State after Christmas had dented expectations about the crop.

Van der Vyver said the North West was also a casualty area for maize production.

Van der Vyver identified another danger in outstanding export contracts, which, he said, could not be quantified because the process was not transparent. If exports were higher than expected, the country could face a sudden shortage.

Agri SA senior economist Dawie Maree noted that, in Cape Town, it could be cheaper to import maize than transport the crop from the maize-growing regions locally.

According to Maree, another factor that could dispel the benefits of lower farm prices is the rising cost of administered prices – including electricity and fuel.

Producer figures for February show that food inflation at the agricultural level stood at only 3.1 percent year on year, while food inflation at the manufacturing level was almost 11 percent.

Moving the food into the retail environment adds a further layer of costs.

For these reasons, Maree said, consumer food prices were unlikely to fall, but could remain stable.

Meanwhile, global conditions remain favourable. The US Department of Agriculture has forecast US farmers would harvest a record 14.4 billion bushels of maize this year.

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