Food producers hardest hit
South Africa is experiencing a serious drought and unless we get some heavy rains soon it’s only going to get worse. The impact of this is going to be felt by a number of listed companies, most obviously those that have maize as an input. In this case, food producers are involved – especially those in the bread and poultry sectors. On the chicken side, Astral won’t suffer as much because it also sells chicken feed, which will make margins, but it won’t offset the cost increases on the chicken production side. One option for the poultry companies is to slaughter a few days earlier to save on feed costs, but this reduces bird size so while it may help, it doesn’t solve the problem. Others that will be hit are the food retailers. What we often see in this case is that retailers absorb some of the upward price pressure and by doing so they reduce their margins. So retailers will be hurt a bit, but food producers will suffer the most, as maize is a significant input in their businesses.