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Maize prices hit record highs

Economy

The recent increases in grain prices and the maize shortfall forecast for 2012 are set to apply enormous pressure on industries that use the commodity.

Food industry insiders say escalating prices and commodity shortages will hit hard on storage companies, the animal feed industry, consumers, and the poor.

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2260810 30% of South African commercial famers will no longer be able to farm due to to the price of maize.photo by Simphiwe Mbokazi

The only winners will be grain producers, who will reap the rewards of record high prices. Since the rapid price increases, farmers’ buying power has increased significantly.

According to Christo Booyens, the assistant general manager for Grainlink grain marketing at Senwes, silo grain stocks may be depleted by April 30.

However, this will depend on the availability of a pipeline of supply that can be carried over from the old to the new season. If there is no pipeline, and taking into consideration that 500 000 tons of white maize is consumed every month, then stocks may be depleted by the end of this month.

“Milling companies withdrew maize from silos so the stock is lower than normal. The stock is running out quicker and we expect a lower storage income,” Booyens said.

The grain price increases have been felt by consumers since early last year, as chicken prices increased by up to 10 percent in 2011 and were expected to increase by a further 20 percent this year.

Since March last year, maize prices have risen by 60 percent.

Grain SA has forecast a shortfall of between 200 000 and 500 000 tons this year. Last year there was a surplus of more than 2 million tons.

The increases have been attributed to traders who sold much of the surplus from the bumper crop to foreign buyers.

Analysts are unsure how much the resultant shortage will cost local consumers.

White maize for March delivery touched a record high of R2 722 a ton on the SA Futures Exchange on Monday before closing R2 up at R2 685. The contract gained a further R1 to close at R2 686 a ton yesterday.

Chris Venter, the chief executive of Afgri, said volumes were down, and performance of the silos would depend on grain stock levels to come in during the July harvesting period.

The industry was expected to see increased margin pressure on the processing of grain products. However, the higher prices were positive from an industry viewpoint in spending by farmers.

“We expect prices to remain high. The question is the size of the new crop. We had good rain, so we need to wait for about six to eight weeks for a good indication of what the crop will look like,” Venter noted.

“For the time being, there is no additional stock available, I can’t give specifics, but we will see a reduction across the industry.”

Chris Schutte, the chief executive of Astral Foods, the listed chicken producer that owns brands such as County Fair and EarlyBird Farm, said maize was at an all-time high because of record exports.

“We believe that exporters were irresponsible and didn’t check the situation… In hindsight we exported too much maize, now we have to import,” he said.

In addition, it did not make sense that maize had been exported at around R1 600 a ton, and now the grain was being brought into the country at almost R2 800 a ton.

Schutte attributed this to the “net effect of a free market system”, which had benefited maize producers.

“Maize farmers will benefit, they will buy more land, tractors and fertiliser.” - Ayanda Mdluli

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