Maize crop flip-flop
Government’s early estimates challenge the private sector’s bleak outlook
The government this week tried to calm the maize market by announcing its first crop estimates for the 2016 season a full month earlier after industry players asked the state to speed up the release of the information. The prognosis is nowhere near as bleak as the estimates from the private sector have thus far indicated, according to the department of agriculture, forestry and fisheries’ Crop Estimates Committee.
Due to the ongoing drought, earlier numbers were “desperately required for industry to plan”, said Rona Beukes, the department’s senior statistician for crop estimates.
The preliminary estimate is that South Africa’s drought-ravaged farmers will produce 7.4 million tons of maize this season.
That would still be the second worst harvest in a decade, but is a lot better than the cataclysmic crop predictions of only 5 million tons that came from some organised industry groups.
South Africa needs roughly 10.5 million tons of maize a year. The split between white and yellow maize is about 50-50.
The problem is that the white maize crop is where the drought damage is most severe. Imported white maize is far more expensive than yellow maize, and feeds directly into household food budgets.
The Crop Estimates Committee’s numbers are based on a survey of farmers and are generally in the ballpark.
The estimate was “the best number you could get”, said Wessel Lemmer, an agribusiness economist at Absa. “It demonstrates that the producers are not trying to push up prices.”
He said if farmers were trying to keep maize prices high, the committee’s survey would not have produced the numbers it did.
This was the first time the committee had attempted to estimate crops this early in the year, and there were no previous data to judge how it would affect the accuracy of the numbers, Beukes said.
Grain SA, which represents farmers, greeted the estimate with a warning that there was no guarantee it would be correct.
The largest margin of error the committee had in recent years was when it underestimated the 2014 crop by 14%, causing a short-lived price bubble.
Arguably, the early estimate means it could be conservative because some late planting of maize was still possible this month.
At the same time, the estimate indicated that farmers expected the yield to be 3.7 tons per hectare – the same as last year.
The yield can vary sharply year to year. It averaged 5.3 tons per hectare in the 2014 season, when maize production hit a historic high.
One reason the yield this year could stay the same as last year, despite the dryer conditions, was that there was a higher proportion of irrigated maize in the ground this year, said Beukes.
The good news seems to have had some effect on the sky-high maize prices on the JSE’s Safex commodity exchange.
White maize, which is harder to import because so few countries trade in it, was going for as much as R5 300 a ton last week. This week, it traded at R5 016.00 on Friday.
Yellow maize has been trading at almost exactly import parity. It hit a record of R4 000 last week. This week, it traded at R3 810 on Friday.
Prices started falling before the crop estimate was released. This probably had more to do with maize prices now being tied completely to the rand because of the expectation that massive quantities would be imported.
The import parity price for yellow maize fell from R3 953 per ton last week to R3 915.15 on Friday, mainly because of the rand.
According to Lemmer, the price of yellow maize would probably stay at import parity and move with the rand, while there was a possibility white maize prices could fall more dramatically.
White maize is trading at a historic premium to the yellow variant, and that gap could close because of the good news contained in the crop estimates.
The price reflects concerns that South Africa can’t find enough white maize on the international market.
“As soon as the first white mealies are on the ships, the market may relax a little,” said Lemmer.
What the committee said
The Crop Estimates Committee’s numbers are based on another estimate – the hectares actually planted in the traditional planting period of November and December.
This is then multiplied by the average yield per hectare from last year, which was 3.8 tons per hectare.
This week’s estimates claimed that just less than 2 million hectares of farmland had been planted with maize this year – 25% less than normal. The drop is far more pronounced for white maize. Farmers planted 30.5% less land with white maize and 20% less with yellow maize compared with last year’s numbers.
Combined with the far higher cost of imported white maize, the prognosis is still severe for food prices.
Bad news on beans and nuts
Maize is the major food crop in South Africa, but the Crop Estimates Committee’s numbers show significant problems developing elsewhere.
The dry-bean and peanut crops this year are estimated to be half of last year’s.
The country is traditionally an importer of beans, but the extent of import dependence will skyrocket this year, with the total crop estimated at only 35 150 tons. South Africans tend to consume about 110 000 tons of beans a year. The year’s peanut crop is estimated to come in at 29 600 tons – half the local requirement.