South Africa’s food price inflation is relatively contained and I am beginning to think that the 3.6% y/y average we expected for 2019 might be an overestimate. The average for the nine months data we have thus far is about 2.9% y/y, which means to average at 3.6% y/y in 2019, the next three months will have to show a notable uptick.
There are two food categories that could potentially present an uptick: bread and cereals (maize) and meat.
Bread and cereals (maize) price inflation
While maize prices have come off the higher levels we saw at the beginning of 2019 when there were fears of possible poor harvest, the current price levels — roughly R2 800 per tonne — are still double-digit higher than October 2018. Also, the expected uptick in regional maize demand, specifically from Zimbabwe and Mozambique, could add upward pressure on South African maize prices in the coming months.
The one factor that is worth monitoring, but one should not necessarily factor it into their judgement and calculation, for now, is the weather ahead of the 2019/20 maize plantings. It is currently dry out there (I’ve discussed this here (video)) and the planting might be delayed as the dates for the optimal maize planting is from 15 October to 15 November in the central and eastern regions of South Africa. So far there is not much activity in the field. With that said, this will only start to worry us if we get into mid-November with no adequate rainfall (I hope that doesn’t happen).
Wheat, which is also important for the bread and cereals food category, shouldn’t concern us this season. Yes, South Africa’s wheat harvest could be lower than we initially anticipated at the start of the season, but what is important for price movement is the global wheat harvest. On this end, 2019/20 global wheat production could amount to 765 million tonnes, which is 5% higher than the previous season, according to data from the United States Department of Agriculture. As a consequence of this, global wheat stocks could increase by 4% y/y to 287 million tonnes. This will essentially keep global wheat prices at comfortable levels, which is beneficial for consumers in importing countries such as South Africa
Meat price inflation
I am closely observing pork, poultry, beef and other meat prices. In the case of pork, the increases we saw over the past few months are in line with the developments in the global pork market where prices have been supported by increasing demand in Asia. The Asian demand comes after the region’s pig industry, specifically in China and Vietnam, declined notably because of the spread of African swine fever.
Domestic beef prices have also recovered following a period of suppressed prices when there was a ban on South African exports because of a foot-and-mouth disease outbreak at the start of 2019. South African beef exports have since resumed, and with that came an uptick in demand which supported prices. Poultry prices could also lift somewhat in the coming months as there are prospects of import tariff adjustments.
Overall, it will be interesting to see what the next couple of months will look like on the food price inflation side. The story of the weather that I mentioned earlier, will not only be important for grains per se but the overall health of the agricultural sector, and thereafter broader food basket price inflation.
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