Lower prices for maize on the horizon

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Namibian farmers’ intentions to plant might be lower than previous years, as local producers were exposed to adverse droughts for the past four years. This had a tremendous effect on the producers’ financial ability to be exposed to such risks again, says Namib Mills and Namib Poultry CEO, Ian Collard.
Speaking exclusively to New Era, Collard noted that this must also be seen in light of the very slow process and inadequate drought relief received from government.

Local dry-land producers are unable to insure against drought, as insurance companies perceive the risk to be too high.

He said: “This, however, is detrimental for dry-land plantings under the current drought-relief regime. The scheme does not facilitate the needs of commercial farmers. In the longer-term this will lead to lower dry-land plantings and therefore lower national harvests,” he observes.

“The good news, however, is that price decreases on maize meal can be expected up to the next harvest, as prices are coming down on the expectation of better rains this season.”

This situation will, however, be subject to volatility in weather conditions throughout the planting season until the end of March 2017. Prices will then tend to stabilise as the harvest of 2017 approaches, he said.

Over the past season southern Africa as a whole has been exposed to a very severe drought and Namibia was not spared.

The biggest effect on local conditions was that in terms of maize the normal surplus producing country, South Africa, was also exposed to a severe drought. The drought occurred mainly in summer rainfall areas, which created havoc in the local supply of maize to the region.

Prices soared immediately after it became evident that the rainfall was not sufficient at the beginning of January.
“Theoretically, what happens during such a period is that local maize prices immediately start to move upwards from export parity to import parity. Export parity is the normal buying price of any importer of our maize in the country that is importing, less transport costs to get it from South Africa. Import parity prices are the price of maize from whoever is exporting, plus the transport to South Africa. The difference between these two prices is normally in the region of N$1 000 per tonne, ex-SAFEX,” Collard notes.

“Unfortunately the Namibia Dollar deteriorated against the US Dollar during this time due to political uncertainties in South Africa. Furthermore, it had a dramatic upward effect on the import parity price of maize. This caused super price hikes to be implemented in order to facilitate the sharp increase of maize prices ex-Randfontein of over 70%.

“Prices then soared to about N$5 000 per tonne in South Africa. These hikes were also on the back of the uncertainty of continuous availability of specifically white maize to be imported to southern Africa, which included Namibia,” he says.

According to Collard, although the SADC region initially procured enough white maize in the region, so as not to have availability problems for Namibia, there were concerns in the market that availability would be an issue, along with the fear that South Africa’s harbours would not be able to accommodate the volumes.

Collard says fortunately these fears did not materialise and the availability of maize from the USA and Mexico never posed a problem.

“Later in the year the Namibia Dollar started to strengthen against the US Dollar and the fears of inferior quality and import problems subsided. The end result of this was that availability never became an issue. As initially predicted, availability would not be the problem, but rather affordability,” he remarked.

“Current expectations are that the next rainy season will be normal or above normal, depending on popular opinion. Bearing this in mind, the expectations are that specifically South Africa will again be producing normal or even above normal harvests of maize. This will lead to prices moving down from import-parity nearer to export-parity.

“This can already be seen on the SAFEX Commodity Exchange, where prices for July 2017 are substantially lower than current price levels. Prices will most probably trade below N$3 000 levels per tonne, should South Africa have a crop of ±13 million tonnes for white and yellow maize,” Collard concluded.