Good news for livestock farmers

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The global maize crop for 2013/2014 is estimated at 942 million tons, 9,7% up on the previous season, mainly due to record crops expected in the USA, China and Uruguay. At the same time, however, total maize demand will rise only by 5%. Stock levels will increase 24%, from 120 million tons in 2012/2013 to 149 million tons in 2013/2014.

The international soya bean supply/demand situation has also changed. Production is expected to increase by 6% from 268 million tons to 285 million tons , demand from 265 million tons to 277 million tons, and stocks by 7 million tons to 34 million tons. The International Grain Council grain and oilseed index decreased by 10% during July 2013, with a 20% decrease for maize and a 13% decrease for soya bean. The same trend, but not to the same extent, is expected for wheat.

The impact in SA
There is no doubt that international grain prices are on the decrease. But the impact of the lower world prices on South African grain producers will depend on the exchange rate and the local supply/demand situation. If SA supply is tight, prices will move nearer to import parity. If supply is large, prices may move nearer to export parity. At this stage, export parity for maize is actually below the Safex prices. This trend will probably continue, as the current crop is estimated at more than 11 million tons.

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Factors that may result in higher local prices next year are a smaller crop in 2014, a much weaker rand and higher global prices. But US futures prices show that the market there does not expect higher prices. Even a further 10% devaluation of the rand will not result in a substantial increase in local prices. Safex prices for the 2014 crop – currently at R2 146 for white and R2 090 for yellow maize – do not provide a great incentive for maize farmers to increase plantings. Adverse weather may further limit production.

Better genetics to the rescue
However, as Bloemfontein weather guru Johan van den Berg points out, maize production technology and genetics have improved to such an extent that we can produce an-above-average crop even with adverse weather. The area planted to
maize this year will also depend on the extent to which maize grain producers, especially in the western regions, manage to contain production credit for the 2013/2014 season.

Therefore, chances are that prices may remain relatively low for the rest of 2013 and into 2014. Grain farmers will have to ensure they are able to cover all variable costs before deciding to plant.

Imports hurting local industry
For both intensive and extensive livestock producers, the past two years have been difficult, with high input prices and lower producer prices. In the western parts of the country, drought has resulted in forced sales of livestock. This problem has been aggravated by imports from Namibia and Botswana. For the poultry industry, meanwhile, low-priced imports from South America have had a negative impact on the local industry, while milk producers have also had to cope with high feed and stagnant producer prices.

Lower grain prices will help to improve the situation for livestock producers. The higher supply of beef and lamb will probably continue for a few months. Thereafter, chances are that the supply of red meat to the markets may slow down and result in higher prices. But, in general, the outlook for livestock producers is better than for grain producers.

Today’s rapid, irregular cycles
Agricultural supply and prices move in cycles. Higher prices result in increased production. This in turn brings about lower prices. Under intervention, these cycles were long and reasonably regular. In the free-market system, they are shorter and more irregular. The high cost and small margins associated with agriculture make it very risky to concentrate on either livestock or grain production. Mixed farmers are able to cross-subsidise and obtain much higher returns on the grains than those without livestock enterprises.

These farmers have to sell directly to the grain trade. In coming months, grain producers will do well to maintain and develop their livestock enterprises.

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