Solid maize exports critical for SA farmers

Cape Town - South Africa will have to put in place a solid export programme for its expected record harvest for any hope of restoring the maize price, because at the present price levels it is not profitable for farmers to grow maize, according to Neel Rust, chief operating officer of Laeveld Agrochem.

The latest South African crop estimate indicates that 2 8 million tonnes of maize must be exported before the next planting season in November to ensure that the stock that is carried over to the next season is not too much.

Although that sounds like a lot, a Free State grain trader says it can be done because in six of the last 13 years about 2 million tonnes per year were exported.

According to independent agricultural economist Fanie Brink, the gross production value of this season's maize crop is totally overrated.

He says the average price of maize lately traded on the local South African Futures Exchange (SAFEX) market is about R2 000 per tonne, compared to an average price of R5 000 per tonne last season.

The main reason for this lower price can be attributed to the much larger maize crop which, according to the third estimate of the Crop Estimate Committee, amounted to 14 5 million tonnes this year compared to 7.8 million tonnes produced last year.

"This means that the gross value of last year's maize crop was almost R39bn compared with the estimated gross value of about R29bn this year," says Brink.

"As a result, the maize crop will make a much smaller contribution to the total gross domestic product (GDP), according to which the country's economic growth rate is measured, contrary to the overall optimistic expectations that the agriculture industry will help to drive the economy in 2017."

Rust believes that for export to take place, the local maize price first has to move closer to export parity - the price level at which maize can be competitively exported. At the moment, there is a gap of about $10 (about R135) per tonne between export parity and the price at which local maize is currently traded.

Export parity is not constant and changes primarily in relation to the American maize price and the rand/dollar exchange rate, with the American maize price having the biggest impact on export parity.

According to the Free State grain trader, the current American maize price of about $3.80 per bushel (39 bushels equals 1 tonne) is considerably lower than the last 10-year average price of $4.80.

American surplus

Rust says the reason for this is that America is currently sitting with its largest surplus in 12 years.

American maize farmers are currently in their planting season which lasts until the end of May, and this is followed by the pollination period which extends to the end of August. Difficult planting and pollination circumstances could bring about an increase in the American maize price, which would be positive for the local maize price.

“If the American maize price rises from its present level of $3.80 per bushel to its 10-year average price of $4.80, a price increase on the local maize price of about R540 per tonne will be realised,” says Rust.

As at 11 May 2017 yellow maize for delivery in July 2017 is currently trading at about R2 003 per tonne.

If the American planting and pollination period goes well, it can mean that the price of American maize may continue to trade at the current low levels for a number of months.

“If the American maize price does not lift its head, and the South African farmer can position himself so that he is not forced to price his maize at harvest time, he may in all likelihood have to wait until the end of the year, which is the beginning of the next local planting season, for a possible significant recovery in the maize price,” says Rust.

The reason for this is that the oversupply of maize will by then most probably be exported or be included in an export contract that has been closed.

Added to this is the expectation that local farmers will plant less in the next planting season because of the current low maize prices. This bodes well for future maize prices.

“All the factors that can have an adverse effect on the South African maize price have already been discounted. This includes the expected large local harvest, the strengthening of the rand/dollar exchange rate from about R14 to the current level as well as the American maize price which currently is $1 lower than the average 10-year price," says Rust.

"The only answer for the low local maize price is the export of the current oversupply. If this does not happen, there is a risk that our maize prices may remain at these low levels until the end of 2018."