South Africa maize rally to run out of steam. But for wheat prices...


Ideas remain that South African maize prices will, thanks to record crop prospects, remain depressed, despite a bounce on Wednesday – but dryness could see support to wheat values.

Yellow maize futures for September, the best-traded contract, stood up 1.7% to 1,931 rand a tonne in Johannesburg on Wednesday, while the September white maize lot added 2.3% to 1,898 rand a tonne.

The gains came despite a further upgrade by the country's official Crop Estimate Committee of some 445,000 tonnes to a record 16.41m tonnes in the forecast for South Africa's overall maize harvest, helped by a recovery in soil moisture from last year's drought-depressed levels.

The estimate was above the 16.1m-tonne figure traders had expected, according to a Reuters survey of analysts.

The forecast for the yellow maize harvest, used largely for animal feed, saw a particular upgrade, of 318,000 tonnes to 6.76m tonnes, with the white maize crop, a food staple, pegged at 9.65m tonnes, an upgrade of 147,000 tonnes.

'Staying lower for longer'

Indeed, Wednesday's rise in maize prices was largely due to currency factors, with the rand retreating 0.4% back above 13 rand to $1, so boosting the value in local terms of assets, such as grains, traded internationally in dollars.

"Fluctuation in the rand is supporting the local price," said Wandile Sihlobo at industry group AgBiz, adding that the production upgrade may also have been "already priced in", given that some estimates for the harvest were higher than the analyst survey suggested.

The international Grains Council, for instance, has pegged the harvest at 16.7m tonnes.

The revival futures prices – which were last year driven by drought-reduced harvest as high as 4,410 rand a tonne for yellow maize, and 5,350 rand a tonne for white maize – looked like proving short-lived, without support from currency weakness.

"We still think the South African maize prices will be staying lower for longer," Mr Sihlobo told, in an assessment backed by Grain SA too.

"The large maize supply is likely to keep prices under pressure," Grain SA said.

'No room to sell'

A harvest of 16.4m tonnes would mean an exportable surplus of some 4m tonnes, according to AgBiz, making some allowance for stock rebuilding.

However, exports could end up at just 2.2m tonnes, thanks to "weak global demand" among importers, in particular for white maize, in the face of strong harvests elsewhere in southern Africa.

"Zambia is expecting a record crop, Zimbabwe is looking at its best harvest since 1990s. The crop is bigger in Malawi.

"There is no room to sell outside South Africa," Mr Sihlobo said.

Latest weekly export data came in at 8,799 tonne for white maize, well below the 25,400 tonnes for yellow maize, which is finding in particular Japanese buyers.

Wheat troubles

However, for wheat, South Africa is looking at enhanced import prospects, after the Crop Estimate Committee, in its first estimate for the 2017-18 crop, pegged it at 1.60m tonnes, a drop of 306,000 tonnes year on year.

Prospects have been undermined by, besides a drop in sowings, dry weather in the key Western Cape growing region, where about "half the region is not getting enough rain", Mr Siholobo said.

"The crop is not really in a good position," foreseeing the potential for output downgrades ahead.

Grain SA said that "there is some uncertainty about the situation in the Western Cape… due to the unfavourable weather conditions".

Import needs

South Africa's situation could be "very interesting" for exporters, with the country's import needs potentially hitting 2m tonnes, Mr Sihlobo said.

"Things should be a lot clearer in two or three weeks," depending on whether rains arrive to rescue Western Cape crops.

"The Western Cape needs rain in the next two weeks, but unfortunately the forecast is not promising".

December wheat futures stood at 4,020 rand a tonne in Johannesburg, up 0.,7% on the day, and up 3.0% over the past week.


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