White maize products will put the sting in food basket prices
On 14 March, the International Grains Council (IGC) released its monthly update of the 2023/24 global grain and oilseed production. The global maize harvest is forecast at 1.2 billion tonnes, up 6% year on year. Consequently, the stocks will increase by 5% year on year to 294 million tonnes.
The IGC forecasts that the global wheat harvest will reach 789 million tonnes, well above the long-term average levels (albeit down by 2% year on year). Global wheat consumption is likely to remain strong, particularly in Asia. As such, the IGC forecasts a 5% decline in stocks to 267 million tonnes.
The global rice harvest is forecast at 511 million tonnes, well above the long-term average (but down 0.6% year on year). Global rice consumption is likely to remain stable this marketing year, and the IGC left the ending stocks roughly unchanged from the 2022/23 marketing year at 43 million tonnes.
These stock levels are broadly favourable for price moderation of rice in the months ahead; it had started softening since the beginning of the year. This followed a price surge at the end of 2023 when India limited the exports of the product.
The global soybean harvest is estimated at 391 million tonnes, up 5% year on year. With global soybean consumption reasonably stable, the increase in production resulted in an improvement in the global soybean stocks, now forecast at 66 million tonnes, up 12% year on year.
Though the global focus in the coming months will shift to the 2024/25 production season when countries in the northern hemisphere start planting in May, it is worth noting that there are abundant grain and oilseed supplies in the world market, which support the continuous moderation in global agricultural prices and subsequently global food prices.
The global agricultural prices already reflect this environment of improved supplies. The UN’S Food and Agriculture Organization recently released its Food Price Index for February 2024. This index measures the monthly change in international prices of agricultural commodities, not final food products.
The index averaged 117.3 points in February, down 1% from its revised January level and 11% from last year’s corresponding period. The broad decline in grain and oilseed prices underpinned this moderation, again underscoring the importance of improved supplies in the 2023/24 season.
That said, the food price inflation dynamics in South Africa may not necessarily follow the global trend this year. The country faces challenges in white maize production areas (and other grains and oilseeds).
The challenge with white maize is that it is not as widely traded as yellow maize, which forms the bulk of the globally traded maize. Therefore, there could be a disconnect between the domestic white maize prices and the general global maize prices, which are likely to continue softening because of improved supplies.
The products that play favourably for South Africa are wheat and rice, of which it remains a significant importer. Moreover, the exchange rate will also matter, as South Africa imports about half of its annual wheat and rice consumption. Still, the challenge presented by persistent dryness domestically, at least over the short to medium term, is white maize supplies and the potential price reaction to reduced supplies.
Considering these developments, the major risks to consumer food inflation in South Africa in 2024 will primarily be white maize products, whereas other products in the food basket may moderate or show sideways movement in prices.