In past years, a maize crop of 10 million tons would have resulted in a surplus on the local market and prices at, or very near, export parity level. Last year there was much speculation about South Africa’s ‘inability’ to export this surplus. All types of problems, including the lack of rail infrastructure, were cited as reasons for this inability.
By the end of 2011 it was already clear that we managed to export so much maize we had to resort to imports to supply local demand. Safex prices never moved down to export parity level. Indeed, they remained very near to import parity level.
The current season’s maize crop is estimated at 11,06 million tons. White maize July contracts are quoted at R2 025 on Safex with import parity at R2 910 and export parity at R1 643. Thus, even with an above-average crop of 11 million tons, prices tend to remain very near to import parity levels or actually to export-to-Africa parity levels.
In the US, the largest area since 1937 was planted to maize. This had a negative effect on prices on the Chicago Board of Trade. The expected higher US crop will probably result in higher global stocks by year-end. Stock levels are, however, still below the 2008/2009 levels. Any climatic problems experienced in the US will impact negatively on stock levels and may result in higher global prices. The use of close to 40% of the US crop for biofuels production puts more pressure on the total maize market.
US prices determine global maize prices. In a presentation at the recent conference on benchmarking in the crop industries, hosted by the National Agricultural Marketing Council (NAMC), researchers from SA’s Bureau for Food and Agricultural Policy (BFAP) and the US presented a comparison of the maize production cost in SA and the US. The SA production cost is higher than in the US and our production under irrigation is comparable to its rainfed production. If you use global prices as a yardstick it’s clear we can’t compete with the Yanks.
Their cost of production is lower due to lower transport costs and various subsidies. But this doesn’t mean we can never compete with them. We have a large market in Africa and can export at higher prices than those indicated by current export parity calculations. SA maize producers can thus expect favourable prices during the coming season.
Chances are that the next crop estimate may reduce the total crop to below 11 million tons, and we may see a further increase in prices in coming months. The sharp increase in production costs in the past two years puts a lot of pressure on maize producers and many farmers find that they struggle to make a profit – especially smaller producers, who are unable to employ the latest technology to improve efficiency.
Room for improvement
The benchmarking exercise done by BFAP and the NAMC clearly shows some areas producers will have to attend to if they want to improve efficiency and profitability. Fertiliser use and fertiliser prices are one and farmers can reduce costs here in various ways. Early and joint purchase of fertiliser, for example, can save a lot of money. Farmer groups which buy jointly pay much less than those who wait until planting time and then buy small quantities from the local co-op.
US maize producers historically farm on maize-soya bean-hog or maize-soya bean-dairy farms. The incorporation of intensive livestock enterprises provides a lot of manure for their crop enterprises. The benefits of biological farming are well known. The crop enterprise benefits from the manure produced by the livestock industry and the livestock industry benefits both from the saving in transaction cost for grains used in rations, and from the use of plant residues from the crop enterprise.
Global prices will continue to determine the maximum and minimum range for SA maize prices. A larger US crop will probably not result in a much lower world price, especially as the demand from developing countries continues. A stronger rand may lower the rand-based value of global prices.
The probability of producer prices remaining at current levels or even increasing somewhat in the next year remains strong. But relatively high producer prices will not ensure that maize producers make profits. Profitability will depend on production and marketing efficiency. For those who run efficient crop production enterprises, profits will remain relatively high.
Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed are his own and don’t reflect MPO policy. Contact Dr Coetzee at [email protected] with ‘Global farming’ in the subject line.