Prospect of food price inflation raised
SOUTH African maize futures hit new peaks yesterday as drought concerns intensified in Africa’s largest producer of the grain crop, raising the prospect of food price inflation pressures at a time when the central bank is in a tightening cycle.
The March contract rose more than 2% to an all-time high of R3 582 a ton after forecast rains over the weekend in the western part of the maize belt failed to meet expectations, traders said.
“Parts of the maize belt did not get the rain that was forecast in North West and the Free State. And the weather forecast is not good at present,” CJS Securities trader Piet Faure said.
“Time is running out quickly for planting in some places.”
The December contract surged almost 7% to R3 720 a ton, within striking distance of its record high of R4 000 reached last year, according to Thomson Reuters data.
The price of white maize is a major concern as it is primarily used for human consumption and is the staple crop that provides much of the kilojoule intake for South Africa’s poor.
South Africa’s headline consumer inflation ticked up to 4.7% in October compared with 4.6% in September.
The central bank raised the benchmark lending rates on November 19 to 6.25%, warning that failure to act on inflation risks could worsen the already weak growth.
Yellow maize, primarily grown for animal feed, has also hit or approached record highs. The March yellow maize contract rose 2.4% yesterday to a record high of just over R3 400 a ton.
The scorching drought, seen worsening due to an El Nino weather pattern, comes after dry conditions last season – the driest since 1991-92 – reduced South Africa’s maize output by a third.
Meanwhile, tractor sales slumped 20.1% year on year (y/y) to 385 units last month after plunging 23.2% y/y in October as farmers moved into a cash-preservative mode‚ according to the SA Agricultural Machinery Association (Saama).
“The situation has worsened since last month as the drought and heat-wave conditions prevail.
“Dry-land farmers are now totally dependent on rain falling to carry their reduced crop plantings through‚” Saama said.
“Farmers with supplementary irrigation have got to the situation where rain is required to replace the water in dams and rivers which is running critically low in many areas,” the industry body said.
“The situation is going to have far-reaching consequences on the agricultural machinery and food production industries.”