Sufficient summer rain has boosted South Africa s maize crop, leading to a 6 million ton surplus that has kept prices down. Farmers may benefit from higher global food prices after droughts and floods.
Plentiful summer rain in the maize triangle has enabled farmers to harvest bumper crops, boosting the surplus of maize stocks, according to Ernst Janovsky, the head of agribusiness at Absa.
As a result, the estimate of this season’s maize surplus has been revised to 6 million tons from a projection of 4 million tons in November last year.
At a recent presentation on the agricultural outlook, Janovsky said 70 percent of local agricultural prices were influenced by world prices.
Andre Jooste, a senior manager for marketing and economic research at the National Agricultural Marketing Council, explained that South Africa was a relatively open market, which meant the current concern over food prices globally would inevitably spill over into the South African market.
He said South Africa was currently a net importer of processed foods, rice and wheat, and an exporter of commodities such as maize and soya beans.
A report from Econometrix said indices of international food prices had risen by an average of 30 percent a year in dollar terms in the recent past.
The head of commodities at PSG Prime, Pieter van Wyk, said US maize prices had risen by 85 percent since July last year and the trend reflected a shortage of grain stocks.
His analysis of the prices was based on Chicago Board of Trade figures, which showed a sharp increase in maize futures from $130 (R886) a ton in July 2010 to $240 a ton this month
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“International prices have been rising and maize earning stocks are the tightest in 15 years. In contrast our stocks are fairly loose, which will result in a 3 million earning stock, so it looks like its going to be a good season,” he said.
With higher revenues and relatively low input inflation, profits are likely to improve in the long run.
Nico Hawkins, an economist from Grain SA, said farmers stood to benefit from better prices internationally, although prices would stay low on the domestic front.
Hawkins said farmers could not currently make a profit because the costs to cultivate a hectare of maize were higher than the income per hectare. He said farmers could benefit from price increases if the exchange rate weakened.
Hawkins said if current prices increased, traders stood to make a profit in the local market. He noted that if there was going to be a reduced global supply of maize, it would put South African farmers in a better position.
He also maintained that domestic maize prices were currently at their lowest in years because of the surplus and the strength of the rand.
Elizabeth Trudeau, a spokeswoman for the US diplomatic mission to South Africa, said the exporting of South African maize had helped to meet the demand for food in other parts of Africa and across the world.
A report from Econometrix said the rise in international food prices could be attributed to crude oil gains and economic growth on the back of massive global stimulus packages.
Food prices had also surged because floods and droughts had hit crops around the world.
Janovsky explained that although the stronger rand reduced the value of exports, it presented good investment opportunities, especially for imported machinery.
Low interest rates were also helping, he said.. - Ayanda Mdluli
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