This must be a challenging year for the animal feed companies and by extension the livestock and poultry industry. The years of a large harvest like the 2019/20 season are typically followed by a notable decline in commodity prices which is beneficial to the livestock and poultry industry. We had the second largest maize harvest on record, about 15.5 million tonnes (yellow maize at 6.5 million tonnes and white maize: 9.0 million tonnes) and the third-largest soybean harvest on record (about 1.26 million tonnes); yet prices didn’t reflect this increased production.
On 21 September 2020, soybean spot price reached a record R 8 090 per tonne, up by 40% y/y. Meanwhile, yellow maize, which is also a key input along with soybeans in animal feed, traded at R3 284 per tonne, up by 22% y/y. The weaker domestic currency, coupled with growing demand from China and other Asian markets, are amongst the key factors underpinning the uptick in maize and soybean prices. China is rebuilding its pig herd, the world’s largest, which was devasted by the deadly African swine fever last year. This process has led to a notable increase in global soybean imports in the recent month, and in turn, prices.
South Africa as a net importer of soybean products generally follows the global prices, which have been on the upside. Hence, we are witnessing these relentless increases in prices. In the case of maize, South Africa is a net exporter, which means that the global market developments tend to have a smaller impact than in soybeans. But the likes of South Korea, Vietnam, Japan and Taiwan, to name a few, have been relentless in buying the domestic maize (primarily yellow maize). In the week of 11 September 2020, South Africa’s 2020/21 total maize exports were at 1.4 million tonnes, which equates to 52% of the seasonal export forecast (2.7 million tonnes). Yellow maize exports accounted for 76% of the volume already exported.
These dynamics are unlikely to change in the near term, which means that soybeans and maize prices could remain at fairly higher levels for some time, at least within the 2020/21 marketing year. This will subsequently lead to increased costs to the users of the grain and oilseed, mainly the livestock industry. On the question of how much of this and when will it be passed on to consumers, it’s unclear. My sense is that the current environment of lower consumer demand, the South African retailers might not have the ability to easily pass on the price increase which will emanate from these higher grains and oilseeds products to consumers that are focusing on resilience in the face of job and income losses. With that said, the data so far doesn’t suggest that this is already the case as illustrated in Exhibit 1 below. Producer price inflation has over the past few months remain at lower levels than the consumer price inflation.
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