Food prices likely to spike

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Maize

Reuters.

South Africa’s consumers could pay up to 50 percent more for mealie meal, meat and poultry products as maize prices had soared in the new year due to low inventories, a weaker rand and oil price increases, analysts said yesterday.

The latest data show that the country had available white maize stock to cover 23 days of demand at the end of November last year – down from 37 days at the end of June – because of dry weather conditions.

The stock of yellow maize, which is mainly used as animal feed, had fallen to 30 days from 42 days five months earlier.

Analysts said this was causing a panic in the maize market, resulting in millers stocking up at higher prices.

The latest Absa Agri Trend market analysis for November said the drought in the North West would continue to put upward pressure on maize prices.

“Some meaningful rains in the maize planting regions could help bring relief and help with soil moisture for the development of the crop,” it said.

Thys Grobbelaar, an analyst at agribusiness Senwes, said the weaker rand and the dry weather were the biggest concern for maize producers.

Grobbelaar said the impact of the maize shortage had been felt since the previous season.

Severe shortages were experienced in the western parts of Free State and some parts of the North West, which are predominately producers of white maize.

South Africa had also been exporting a considerable amount of maize to Botswana, Zambia and Namibia.

“Due to low carry-over stock, the maize market has become nervous as millers fear that they will not be able to acquire enough maize locally and are now obliged to pay more for maize in order to secure stock,” he said.

He estimated that white maize prices had increased by between 47 percent and 50 percent in the past year. White maize prices have risen from R2 050 a ton in January last year to around R3 000 a ton at present. White maize for March delivery ended at R2 985 on the SA Futures Exchange yesterday, up from Friday’s R2 913.

Food producers would be caught in the mincer because they could not unilaterally increase end-product prices as they would be met by consumer resistance, Grobbelaar said.

“Consumers will certainly find an alternative to maize-meal and opt for cheaper starch like rice or potatoes.”

He said prices of eggs, milk, beef, chicken and other meat products could also increase because of the increase in the yellow maize price.

According to the National Agricultural Marketing Council’s 2012 Food Cost Review, prices of animal feed, of which yellow maize makes up 50 percent, increased by 15.2 percent.

 

Grobbelaar said consumers would feel the impact of price increases immediately and for the rest of the year.

“The weakening of the rand has also played a big role in food price increases. It remains a concern.”

Goolam Ballim, the chief economist at Standard Bank, said it was good to recognise that food inflation at retail or producer level had been in line for several quarters.

“Inflation generally has been subdued due to well-behaved price activity in the food chain. Admittedly, as we head out into a new calendar year the developments in the maize market do appear to be a concern.”

Ballim said rising food inflation might prove to be a real prospect this year.

“Despite the high cost of living and eroding discretionary income, this will also impact on consumers’ spending power.”

He said the weakening of the rand last year was likely to remain a feature in the new year. “The rand is unlikely to make a material recovery, and while South Africa continues to exhibit both a substantial deficit on the current account and on the [budget], this will weigh on foreigners’ appetite for local business.”

Ballim said the the maize shortage would be especially felt in the second quarter.

“The transmission of high production prices to retail prices has occurred relatively quickly,” he said, “and when combined with the further pick-up in transportation costs, consumers may find the second quarter to be especially punishing for staple food items.”

SA Poultry Association chief executive Kevin Lovell said maize price would not only have an effect on the price of feed but it would also have a major impact on the poultry industry’s international competitiveness because prices of maize were falling elsewhere in the world, where crops were thriving.

He said yellow maize made up about 65 percent of the production cost of a live bird and about 50 percent of the final production costs.

“Maize price increases will have a substantial cost on poultry production.”

Lovell said the big questions were, “when will this impact the feed-producing companies and how will the industry respond?”


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