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Grain SA Focus introduces a series that focuses on Profitability at Export Parity. A look at Grain SA’s activities to ensure its members can produce grain sustainably. The first two video clips were posted on Grain SA's Facebook page and can be viewed here.
Part 1 – Sustainable Grain Production | Jaco Minnaar, Chairperson, Grain SA
Part 2 – Sustainable Grain Production | Jannie de Villiers, Chief Executive Officer, Grain SA
Keep an eye on the Grain SA social media channels for the next few video clips that will follow during the next week.
Dr Dirk Strydom, Manager: Grain Economy & Marketing, Grain SA
Internationally, the carryout-stock levels of maize are very high, with the WASDE report’s expected final stock totalling 200 million tonnes. It is roughly 55% of America's annual production, which is the world's largest producer. This obviously has an effect on prices and international prices on an index basis are equivalent to prices levels similar to 7 years ago.
Figure 1: Price index for yellow maize and corn
The large world stock levels are placing international as well as local maize prices under pressure. Locally we produced a record harvest this season and the National Crop Estimate Committee expects South Africa to produce a total maize crop of just short of 16 million tons. The effect of the drought brings consumption figures under pressure since fewer weaning calves are available and producers are again growing herds. The chicken industries, another major consumer of grains, are also suffering not only due to import competitiveness, but also the outbreak of bird flu in various areas. In addition, exports are not progressing as expected mainly due to price levels not yet being able to compete with deep sea exports.
What is the impact of these factors in terms of supply and demand?
The biggest factor remain a cycle of high stocks naturally pressuring domestic prices, both locally and internationally. Domestically, the following are current expectations: Current supply and demand figures indicate that total exports should equal 4.3 million tons to break even. Currently projected exports appear closer to 2.7 million tonnes, which suggest that South Africa can end the marketing season with 2.8 million tonnes, which will automatically put pressure on the next production season. Table 1 indicate the supply and demand figures for maize for the 2017/18 marketing season.
Table 1: Supply and demand of maize for the 2017/18 marketing season
If the average consumption of approximately 11.5 million tonnes (Local consumption and neighbouring exports) are taken into account, a crop of approximately 8.7 million tonnes is required for the supply and demand for maize to break even. Taking into account that South Africa was able to achieve a production of 7.78 million tonnes in the worst drought over the last 100 years. This largely allows for another season of overproduction for 2018/19 given normal production conditions, which will keep prices probably at export parity for the next season.
Table 2 illustrate a few scenarios regarding possible carryout stock levels given different export realisations.
Table 2: Scenarios regarding exports and the effect on supply and demand.JPG)
Table 2 clearly indicate the importance of the rate at which exports take place which will contribute significantly to next season’s prices. The less maize exported, the larger the transfer stock, which can also keep new season prices under severe pressure. Figure 2 illustrate parity prices of American and Argentine yellow maize versus the local SAFEX yellow maize price. Currently, the calculated Randfontein export parity price for yellow maize is approximately R1610 / ton.
Figure 2: Parity prices for yellow maize
What now?
The calculations, given production costs (directly and not directly assignable) and export parity prices, do not add up against long-term averages. Therefore, producers must ensure that fields planted in the coming season can achieve above average returns and that risk distribution between crops will be very important. If alternative crops are planted, ensure markets are available and contracts are entered into in time, to ensure these markets.
It is also very important to ensure that production economics are carefully considered, in short, to utilise inputs in a way where the highest profit can be realised and not necessarily the highest turnover. It is also very important to make sure that decisions do not affect your natural resources over the long term.
Luan van der Walt, Economist, Grain SA
Since the end of June, the import tariff has largely been at the forefront of the wheat market. The new revised tariff formula announced on 23 June, with the lower tariff (R947.20 / ton) that was immediately effected, caused a lot of panic in the markets and the market also reacted sharply, trading lower for some period. Although the revised formula elicited mixed feelings and wide-ranging responses from different sections in the value chain, players in the market were generally happy with the announcement hoping it would bring more certainty to the market. In addition, the market will return to more normal trading levels and discard the low trading volumes observed in before the announcement. However, the market initially appeared under tremendous pressure and traded lower, but returned to normal trading and resumed trading levels observed prior to the announcement of the revised formula.
The recent triggers
During the past two months, many events have taken place in especially the international wheat markets that caused huge price movements in international markets. Problems of adverse weather conditions occurring in the US caused the American price of hard red winter wheat (this price is the international reference price that impact on the local tariff) to sharply increase – resulting in the rate triggering lower to a level of R379.34/ton by mid-July, but was never announced at this level.
US prices have since mid-July started to decline sharply after new reports from the USA indicated the yields of the winter wheat were not as adversely affected by the weather conditions as initially expected. However, the sharp fall in the American wheat price again supported the local tariff. The purpose of the tariff is, however, to protect the local market from low international prices, and the tariff again triggered higher on 8-August to a level of R752.35/ton - which is also the last level at which the tariff triggered.
Since none of the above-mentioned tariffs have, at time of writing, been published in the Government Gazette, the current tariff is still equivalent to the last tariff published at R947.20/ton, with this tariff being in effect until such time a new tariff is published in the Government Gazette.
The uncertainty
Currently considerable uncertainty exist in the market with regards to the tariff. This time it is not as a result of the revision whether there will be a tariff or not, but rather about the timing of the tariff announcement and its ultimate promulgation in the Government Gazette. The rate has already triggered twice in recent months, of which none has been officially announced in the Government Gazette yet. However, the question surround rather how the promulgation will ensue. The most likely way should be a tariff announcement to the 1st trigger (R379.34/ton) before the next announcement to the 2nd trigger (R752.35/ton). As a result, the market should come under pressure with the lower tariff in the short-term due to the fact that the lower tariff fail to fill the gap between international prices and the reference price (see the practical schematic presentation below). Yet, the question beckons when the Department will adjust the tariff again to the R752.35/ton-level, which will then be a supportive factor in the market, considering the higher tariff will be in keeping with what is required for the tariff to be equivalent to the international reference price.
The practical implications
The purpose of the tariff is to keep the local import parity price in line with the international reference price equal to 9/ton. Thus, the international price movement has an impact on the local tariff and increases/reduces the rate depending on international price movement. However, the international import price plus the tariff is supposed to keep the domestic price equivalent to the reference price. Figure 1 is a schematic representation of the effect of dragging the announcement of the tariff, indicating the gap between the international price and the reference price. It is clear that the rate currently should be equal to R752.34/ton to make up the difference between the international price and the reference price. If the tariff is only announced to the previous trigger-level (R379.34/ton), it will not make up for the total price and the market can thus trade lower than those levels.
Figure 1: Schematic representation of the effect of the delay in the announcement of the tariff
A sudden announcement of a tariff - especially if announced lower - usually causes a lot of emotion in the market and the market usually reacts strongly downwards to such an event. However, it is important that producers do not panic when such an event occurs but rather keep to marketing plans when making decisions, and make use of opportunities in the market for marketing purposes when the market offers such opportunities.
Corné Louw, Snr Economist: Inputs, Grain SA
Fertiliser price trends
International versus local fertiliser price trends:
In order to compare the local fertiliser market's performance to the international market, a comparison is made between year-on-year price trends of the most important raw materials. International prices have been used in certain ports while an average of various fertiliser companies’ price lists have been used domestically. The purpose is to depict a comparison in the year-on-year trend and not necessarily the physical price.
Table 1 indicate global price trends in dollar terms, while Table 2 indicate the same prices in rand value. The rand has strengthened by 8.8% over a year-period, which should be favourable towards imported fertilisers. Table 2 illustrate international fertiliser prices’ decline in rand terms between 2.9% and 43% over a year-period.
Table 3 indicate changes in domestic fertiliser price trends over a year-period. Except for local CAN which did not follow international ammonia prices, prices for domestic urea, MAP and KCL, correlated well with international prices. Thus, over the short term (except for CAN), domestic price trends have compared well with international prices in rand value.
Fertiliser price expectations: Market commentators still expect international fertiliser prices to maintain a side-to downward price trend for 2017 due to an overproduction of fertiliser. The direction of the exchange rate may also affect local prices for the rest of 2017.
AGRICULTURAL CHEMICALS
Almost 100% of the active ingredients needed to manufacture agricultural chemicals are imported. International trends and the exchange rate will therefore play a decisive role in local pricing.
Tables 1 to 4 indicate trends in international agricultural chemicals (active ingredients) prices. The tables clearly indicate the large impact the exchange rate may have on local prices - Tables 2 and 4 indicate international prices in rand value. The rand has strengthened 9% over the period from July 2016 to July 2017.
Herbicides’ active ingredients display year-on-year decreases in rand value, except for glyphosate, which display an increase of 14.4%.
Table 1: Herbicide prices: International in dollar value
Table 2: Herbicide prices: International in rand value
When reviewing insecticide prices, the majority of actives display a rising trend in both dollar- and rand values. Only Carbofuran display a decrease of 8.7% in rand value.
Table 3: Insecticide prices: International in dollar value
Table 4: Insecticide prices: International in rand value
Fuel price expectations for September 2017
According to the latest information from the Central Energy Fund, diesel prices are expected to increase with 52 cents per litre on 6 September, while the petrol price may increase by 62 cents per litre. The recent rise in international fuel product prices due to higher crude oil prices is the main reason for these expected increases.
The development programme which we know as The Jobs Fund Project (From Subsistence to Abundance) is going into its third production year. The past season was a good year for these subsistence farmers (as it was for the commercial farmers) and of course, it would have been great if the price of maize could have been at last year’s levels. However, ‘the good does not fill the cup to overflowing’ and I believe that farmers would rather have a good yield at a lower price than no crop at a high price (after all, nothing times anything remains nothing!).
One of the important aspects of this project is that the farmers have to make an own contribution which increases each year. The table below shows the deposits this year compared with the previous two seasons (they are still depositing as their crops dry and they are able to sell). We will only be closing the ‘season’ for farmer deposits on 25th of August so as to accommodate the farmers who are still harvesting.
To appreciate this project requires a paradigm shift in the minds of the commercial sector – it is small in terms of hectares planted per person, but it has made a huge difference in the lives of those individuals who now have food security (perhaps for the first time ever), they have maize to sell to generate additional income for their families, and their domestic livestock have more feed (grain and stover). Many of these farmers whom themselves are poor, take care of those more vulnerable in their communities – Mavis Hlatswayo from Hereford in Mpumalanga said “No one in our valley is hungry any more”.
We invite all grain producers to visit one of the Grain SA stands below, or to participate in the Grain SA Golf Day, which will take place this month.
Grain SA/Bothaville Golf Day
26-August 2017
Grain SA is presenting a big sponsorship-day at the Bothaville Golf Club and would like to invite members, farmers and the community to join in thanking Bothaville’s involvement during the NAMPO Harvest Day. The format - a "golfer/non-golfer" Betterball/Scramble to the hole – offer everyone the opportunity to get involved. Contact Cobus Claassen on 082 574 3107 for further information.
Boertjiefees, Bultfontein
31-Aug tot 2-Sep
In addition to the Grain SA exhibition which will be at the Boertjiefees, Grain SA is presenting a SAFEX course at the Boertjiefees-grounds in Bultfontein on 30-August, before the start of the festival. Anyone interested are welcome to attend. Costs are R150 / pp for Grain SA Members and R1,500 pp for non-GSA Members. For more information or confirmation of attendance, email luan@grainsa.co.za
The Mpumalanga-Show, Mbombela-stadium, Nelspruit
31-Aug tot 3-Sep
This show, taking place for the first time this year from 31 August to 3 September at the Mbombela Stadium in Nelspruit will focus on agriculture, forestry, wildlife and tourism. The show will be concentrating on the entire province, which includes the grain producing areas of Mpumalanga and surrounding provinces. If you are in the area be sure to visit the Grain SA Exhibition
Die Swartland Skou, Moorreesburg, Wes-Kaap
6-9 September
Grain SA invites you to the Swartland Show in Moorreesburg, from 6 to 9 September 2017. Grain SA will not be involved in the 2017 Agri Mega Week and will offer the Grain SA Member’s tent access at Swartland as an alternative. Agricultural Seminar - Grain SA, together with Nedbank and Kaap Agri will present an agricultural seminar on Friday, 8 September 2017. Click here for a copy of the programme
