Ordinarily, at this time of the year, I would be writing about the upcoming summer crop season, which starts this month. But this year it is a hard act to follow due to several lingering, significant developments from the 2019/2020 summer crop season.
Most notable of these is the persistent upsurge of summer grains and oilseed prices. SA had its second-largest maize harvest on record at about 15.5-million tonnes (yellow maize 6.5-million tonnes and white maize 9-million tonnes) and the third-largest soya bean harvest on record (about 1.26-million tonnes) — yet commodity prices do not reflect the increased production.
On September 25, the soya bean spot price was at R8,100 a tonne, up 39% year on year. White and yellow maize spot prices ended the week at R3,494 a tonne and R3,350 a tonne respectively, each up about 23%. While it is tempting to be excited about these price levels as they mean a better financial position for grain farmers, who have endured droughts over the past two years, they raise the risks for poultry, dairy and other livestock farmers, who are the major consumers of yellow maize and soya beans as feed ingredients.
The price increases are precipitated by the weaker domestic currency, coupled with growing demand from China and other Asian markets. China is rebuilding its pig herd, the world’s largest, that was decimated by the African swine fever in 2019. This process has led to a notable increase in global soya bean imports, pushing up prices. For Brazilian and US soya bean farmers, this rising demand has been a windfall.
For us, the opposite is true, for two reasons. SA is a net importer of soya bean meal, a by-product of soya beans that is used in animal feed. We import about half-a-million tonnes of soya bean meal a year, primarily from Argentina. Therefore, the rising price of soya beans and its by-products, combined with the weaker domestic currency, also means increased costs for the livestock and poultry industries. SA’s soya bean prices tend to follow the global market, partly because of our import dependence. The uptick in global soya bean prices has thus fed into domestic prices.
In the case of maize, SA is a net exporter, which means global market developments tend to have a smaller effect than with soya beans. But the likes of South Korea, Vietnam, Japan and Taiwan have been relentless in buying domestic maize (primarily yellow maize). In the week of September 18, SA’s 2020/2021 total maize exports were 1.46-million tonnes, 54% of the seasonal export forecast of 2.7-million tonnes. Yellow maize exports accounted for 75% of the volume already exported, with white maize accounting for the rest. This growing global demand, coupled with the weaker domestic currency, which makes exports more lucrative, and generally higher global maize prices, have added to the increase in domestic maize prices.
As this dynamic is unlikely to change in the near term, soya bean and maize prices could remain fairly high for some time, at least within the 2020/2021 marketing year, which ends in February for soya beans and April for maize. This will lead to sustained higher costs to the users of the grain and oilseeds, mainly the livestock and poultry industries.
Due to higher grain prices, animal feed costs and producer price inflation, the situation will need to be monitored closely in the next months to assess whether retailers will pass the costs on to consumers or manage to absorb them despite the tough economic environment.
Written for and first appeared on Business Day, September 29, 2020
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