Don’t take risks on the maize price

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We live in a very uncertain world, where financial uncertainty, climate variability and low stock levels create a very volatile market environment. Over the past 12 months, the South African maize industry has gone from having a surplus to probably having to import maize soon.

In November 2010, Dr Kobus Loubser, then Grain SA’s CEO, warned that unless the rand weakens and we find new export markets for South African maize, prices will remain depressed. Grain SA also encouraged farmers to plant less maize to prevent a surplus in 2011.

However, the 2010/11 crop is again a good one with an estimated crop of 10,6 million tons. Various calculations indicated it would be impossible to export the projected surplus, considering the lack of rail and road infrastructure and other countries’ alleged aversion to genetically modified maize.

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Yet, higher global grain prices and excess demand in many countries did create export opportunities, which the South African grain industry ably exploited even though the competition authorities refused its application to operate a joint export pool.

The South African maize industry has always maintained that our maize is of much higher quality than that of other countries, as indicated by its popularity on the global market. By the end of October 2011, South Africa had exported 1,7 million tons of maize, of which 273 000t went to African countries and the rest to so-called deep sea exports.

By November 2011, it had become clear that if the current export level is maintained, we will soon have to import maize. Apparently arrangements to do so are already in place. Global and local uncertainty has caused a large variation in the maize price in South Africa.

Monthly Safex maize prices for the 2010/11 crop varied by 41% between R1 645 in July 2010 and R2 345 in July 2011.

Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed are his own and don’t reflect MPO policy.