Cape Town - The benefits of the uptick in agricultural production is
already reflecting in producer price inflation, this was determined after data
released showed that South Africa’s food producer price inflation slowed to
5.7% y/y in May 2017 from 6.4% in April 2017.
This suggests that consumer food price inflation could
moderate over the coming months, as lower producer prices are transmitted to
the retail and consumption end of the food chain.The slowing trend in food producer inflation is due to the
recovery in the agricultural production.
The production of summer grains and oilseeds in total is
estimated at 18 million tonnes, which is a 92% annual recovery. However, the
reduction in food producer inflation was expected given the fall in
agricultural commodity prices.
White maize spot price currently trades at levels around
R1,678 tonnes, which is a 64% lower than the same period last year, while
yellow maize spot price is trading at levels around R1, 804 per tonne, which
puts it at 50% lower than the same period last year.
Read also: Faster-than-expected drop in PPI inflation
Soybean spot price is at a level around R4,387 per tonne
putting it at a 43% annual decline and the decline in these particular
commodity prices also benefits other sectors, such as the livestock and
poultry.
Although we expect the overall food producer inflation to
reduce further over the coming months as the lower grain prices could prevail
for some time, meat inflation presents some upside risks.
Farmers are starting to restock their cattle herds, this
means that the slaughtering activity could remain depressed and this will lead
to a possible increase in beef prices, an example of this would be farmers
slaughtered 193,373 head of cattle in April 2017 and that’s down 19% from the
corresponding period last year.
The recent outbreak of avian influenza in the poultry sector
also presents risks. With that being said, the virus is still in isolated farms
in Mpumalanga and the Free State.
However, the Agricultural Business Chamber stated that they
will closely monitor the developments within the poultry industry to understand
the impact on inflation.
BUSINESS REPORT ONLINE