Tag Archives: rand

Some Positive light for South Africans.

by Wandile Sihlobo

SouthAfrica1

Many of us South Africans have been feeling a pinch in our pockets since the 2008/09 economic crisis, but the pain worsened last year, May 2013, when the US Fed announced the tapering of the quantity easing (QE), which is basically “an unconventional monetary policy used by central banks to stimulate the economy when standard monetary policy has become ineffective”. This announcement resulted in a significant weakening of the Rand value against the US dollar, meaning that it became more expensive to import goods. On the other hand, there were hopes that this will result to an increased competitiveness of South African goods to export markets, and even economic growth. However, weak global economic climate curbed these gains. Nevertheless, this article will attempt to highlight some few expected positive news for South African citizens this festive season and early 2015. In doing that, we’ll highlight a brief overview of the major event “2013 to 2014” which happened in the in food (grain) markets.

In November 2013, South Africa’s maize (corn) prices, which serves as an input/feed in milk, meat and poultry production, increased by more than 20% per ton (from R2200/ton of white maize to R3200/ton). Meaning that South Africa’s meat, milk, eggs, poultry, maize-meal etc prices also increased significantly. All this added a burden to fellow South Africans, especially the poor, who consume a large part of the above-mentioned commodities. These maize price increases were mainly due to unexpected demand from Zimbabwe, which resulted to a sale of about 240 000 tons of South Africa’s white maize to Zimbabwe, as well as increased buying by Mexico.

SouthAfrica2

However, in the beginning of March 2014, South Africa’s great agriculture saved us all, as the early harvest started to get into the markets and prices responded to normal levels. Nevertheless, these gains were not as quick to reach consumer’s pockets, due to high fuel prices (Petrol and Diesel) which were mainly supported by high Brent crude prices, at the back of unrests in the Ukraine-Russia region, Libya, as well as the weak Rand.

Recently, Brent crude prices have weakened to levels below $80 per barrel, and this has started to filter in on South Africa’s fuel prices. As a result, on the 3rd of December 2014, petrol and diesel prices are expected to respectively decrease by 79 and 57 cents per litre. This is going to come in handy during festive season, as many families will be driving long distances to holiday resorts, as well as on food prices.

SouthAfrica3

In January 2015, South Africa might see further relief on fuel prices, as the “Organization of the Petroleum Exporting Countries (OPEC)” will continue with its elevated oil supplies (It was decided on the OPEC meeting held on the 27th of November that oil supplies won’t be decreased). Moreover, on the 27th of November, South Africa’s annual Producer inflation came out at 6.7% in October, from 6.9% in September. Additionally, 2014 South Africa’s maize production reached a record of 14.3 million tons. However, the country did not see large exports (white maize) as the previous years, owing to soft demand in the traditional African markets. In 2015, the International Grains Council (IGC) expects South Africa’s maize production to easy around 13 million tons. Currently, maize prices (spot price) are at low levels of R1900/ton, and expected to remain at low levels owing to available good stocks and expected normal weather conditions for the rest of the season. On the International markets, there is a lot of maize (mainly United States, South America and the Black Sea region) which will continue to put pressure on the international maize (corn) prices. On the continent, Zambia is expected to have a good crop, and will possible supply Zimbabwe, which will lessen South Africa’s export demand.

All the aforementioned aspects will translate to low inflation, which is already within the Reserve Bank’s target (3-6%), at 5.9% in October 2014. In conclusion, if spending is managed properly, Christmas time and January 21 might not be as bad as expected. There’s more exciting news in the food markets, which will indirectly translate to other gains in the economy.

A Drastic Fall of South African Maize (Corn) Prices.

images-146

In the South African grain markets, the fourth quarter of 2013 and the first quarter of 2014 were largely dominated by high (white and yellow) maize prices, and there were steaming worries of rising food prices. On the 11th of March, yellow maize prices were in all time high of R3 850/ton; at the same time white maize reached R3 765/ton. However, from April 2014, the situation turned around; on the 15th of May Safex yellow maize traded around R2 072/ton and white maize traded around R2 089/ton.

These price hikes were mainly driven by increasing demand in the world market, and tight stocks in the domestic market. The leading importer in 2013/14 white maize was Zimbabwe with quantity at 246 692 tons, followed by Mexico at 190 097 tons, the rest mainly went to the BLNS countries (Botswana, Lesotho, Namibia and Swaziland), Angola, Mozambique and Cameroon. For 2013/14 yellow maize, Japan was the leading importer with quantity at 596 315 tons, followed by Taiwan at 168 680 tons, the rest went to the BLNS countries, Zimbabwe, Mozambique, Angola, Cameroon, South Korea, Madagascar, North Korea and Nigeria.

Some producers might have hoped that the high maize prices were going to last for a prolonged period, but the early deliveries/harvest pressure have significantly decreased the domestic prices. There is also a weak demand in the international markets, especially for white maize. The largest importer of the previous season “Mexico” is reported to be having a favourable producing season, hence expecting an increase on domestic white maize production. This will mean there are limited chances that South African 2014/15 white maize will reach the Mexican market.

images-145

Most African countries such as Malawi and Zambia a said to be having favourable 2014/15 production season, with production expected to reach 3.9 million tons and 4 million tons, respectively. Malawi is having 1 million tons for export market, which might serve the rumoured expected 2 million tons demand from Kenya. Zambian 2014/15 maize production is mainly driven by increasing fertilizer subsidies by their government, hence an expected significant increase of 700 000 tons. This significant increase in Zambian maize production might pose a strong competition to the Zimbabwean market.

According to the Crop Estimate Committee, South African 2014/15 maize production is also expected to reach 13 million tons, with white maize expected to be at 7 million and yellow maize being around 6 million tons. This significant increase in production is also among the factors that are currently keeping maize prices on the low levels.

Unknown-38

Furthermore, in the United States maize production is expected to reach 13.9 billion bushels, up slightly from the 2013/14 record with higher expected yields more than offsetting the year to year reduction in planted area. On a global view, maize production for 2014/15 is expected to reach 979.1 million tons, which almost unchanged from 2013/14’s production. Expected decreases for Ukraine, Brazil and India are mostly offset by increases for China, Argentina, Russia, and Mexico.

For the rest of the year, South African maize prices might continue to trade at low levels. Good planting progress in the United State, expected large domestic crop, domestic harvest pressure will continue to suppress the prices.

However, even though this might be putting a strain on South African farmers, it is good news for the consumers. Stats SA reported in April that Agricultural commodities’ price inflation has dipped to 8.0% year on year from 13.3%, owing to a bumper maize crop; with the cereals and other crops price inflation rate falling to 9.7% year on year from 26.5% year on year in March. This means that in a month or two (leg effect), South African consumers will start to see low prices of grain related products on their retail shelves. Furthermore, Grain South Africa’s Supply and Demand figures show that the country still has more than 1.7 million tons of maize for export market. So, given the weak demand on the traditional South African export market, this is going to continue suppressing prices for a prolonged period.

 

1236455_10201166193989847_169122925_n  Wandile Sihlobo is a South African Economist; his main interests are Agribusiness, International Trade and Public Economics