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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.

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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.