Lower cereal prices may benefit SA shoppers

Published Sep 6, 2013

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Johannesburg - International cereal prices are falling sharply – with potential benefits for local consumers.

The UN Food and Agriculture Organisation (FAO) reported yesterday that there had been a steep decline in cereal prices last month, following “an already sizeable drop in July”.

The FAO said the move was “consistent with expectations for strong growth in world cereal production this year and, especially, a sharp recovery in maize supplies.

“While prices of wheat and rice were down by 2 percent to 3 percent last month, the fall reached 14 percent in the case of maize, in spite of some late-month gains on concerns over drought and heat stress conditions in the US.”

The fall is in contrast to last year, when the US was hit by what its Department of Agriculture described as the most “severe and extensive drought in at least 25 years”. The drought damaged crops and drove up prices.

The FAO cereal price index averaged 210.9 points last month, down 7.2 percent from July and 19 percent below the average in August last year.

Continuing falls in international prices of cereals and oils caused the FAO overall food price index to decline for the fourth month in a row, averaging 201.8 points last month, 1.9 percent below its July value and down 5.1 percent from August last year.

Johan du Toit, the head of soft commodities trading at Rand Merchant Bank, said the price of maize on the Chicago Board of Trade had fallen to $4.75 (R49) a bushel from $6.45 a bushel in December last year.

But the outlook for food prices locally depends largely on the volatile exchange rate, according to Du Toit.

He said the impact of lower prices abroad could be neutralised by rand weakness – the currency has ranged between R10.40 to the dollar and R8.90 over the past five months.

Du Toit cautioned that the country’s earlier maize surplus had been reduced in recent months by exports to South Korea, Japan and Taiwan.

“If the pace of current exports, combined with local supply and demand factors, persists, South Africa may need to import maize as soon as March [next year],” he said.

Importers – and therefore consumers – would then be exposed to currency risks.

Domestic prices are also affected by local conditions. Relatively low supplies of white maize (compared with yellow maize) have pushed the futures prices on the SA Futures Exchange from R2 326 a ton on August 5 to R2 340 yesterday, according to Du Toit.

But he noted that the price was down from R2 475 in March.

The size of a season’s crop is influenced by expectations of climate conditions, which determine farmers’ planting decisions. The crop is also affected by the weather that does eventually materialise – drought or floods can confound earlier expectations.

Cobus Olivier, a scientist at the SA Weather Service, said it was too early to predict the coming season’s weather but the likelihood was that there would not be much rain up to November.

“It won’t be a drought but it will be drier than the 30-year average,” he explained.

Olivier said that at this stage there was no hint of an El Niño phenomenon (hot, dry weather) or a La Niña (cool, moist weather). But he noted the absence of either made forecasts less reliable than when either of these phenomena was looming.

Ernst Janovsky, the general manager agribusiness at Absa, said the moisture content in the western side of the country was low and on the eastern side “fairly low”, which meant farmers would have to wait for rains before planting.

He said that in the event of a dry season, the maize price could rise to R2 800 a ton. If the weather was good, the price could drop below R2 000. - Business Report

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