Why South African wheat prices are hitting record highs

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Grain prices are skyrocketing amid expectations of tightening supplies.
Grain prices are skyrocketing amid expectations of tightening supplies.
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  • Global grain prices are surging on the back of expectations of supply shortages.
  • A weaker rand-dollar exchange rate is also pushing up the price of agricultural commodities, says an economist.
  • Consumers are expected to feel the impacts on food prices in three months.

Grain prices are skyrocketing on the back of supply shortage fears, and consumers will likely be paying more for bread in three months, according to an agricultural economist.

On Monday, wheat prices reached a record high of €435 or R7 338 per ton, this after India - the world's second-largest wheat producer - banned exports of the grain to ensure its own food security, AFP reported.

Domestically the price of wheat is also at record highs, noted Paul Makube senior agricultural economist at FNB Agribusiness. The price of wheat is now above R8 000 per ton.

The price of maize (white) is nearing R5 000 per ton, with the price of yellow maize breached R5 000 per ton, according to the South African Futures Exchange. 

"We have in previous years reached above R5 000 per ton, during a drought situation … The current prices are encroaching into those levels," said Makube.

The price increases are driven by developments in international markets, coupled with a weaker rand-dollar exchange rate.

The local unit on Monday slumped to its lowest level in months since November 2021, trading at R16.29 to the greenback.

Heleen Viljoen, intern economist at GrainSA, noted that the global outlook for supplies is also poor.

The US Department of Agriculture's May report for the World Agricultural Supply and Demand Estimates (Wasde) released last week showed the outlook of grain supplies are a lot less than expected - and this translated to price hikes.

"Global supply is lower than they [the market] had anticipated, and that is why this week prices are skyrocketing," said Viljoen.

The Wasde report indicates the global outlook for wheat is for lower supplies and consumption in 2022/23. The global production of wheat is forecast to be 774.8 million tons - this is 4.5 million tons lower than 2021/22. Lower production is specifically expected from the Ukraine, Australia and Morocco.

Historically, Ukraine accounts for 4% of global wheat production, and along with Russia accounts for 30% of wheat exports. But the conflict is changing this.

The Guardian last week reported that Ukraine's wheat production could be a third lower than what it usually produces.

Lower production of maize is also expected globally. "World corn [maize] production is forecast to decline from last year's record high, mostly reflecting reductions for Ukraine, the US, the EU, and China that are partially offset by increases for Brazil, Argentina, Serbia, and South Africa," the report read.

READ | India bans wheat exports as heat wave hurts crop, domestic prices soar

Makube said that the Wasde report indicates a "tightening supply situation" going forward. He noted that the availability of fertiliser has also been tight - which drove up those prices.

But domestically, South Africa's maize supplies are still looking good. The forecasts indicate production of 14.79 million tons of maize, against consumption of 11.8 million tons. Stock is at about three million tons - higher than the historical 1.8 million tons. "We have sufficient availability in the country," he stressed. The record harvest last year as well as a bumper crop expected this year has also helped with supplies, Makube explained.

Food inflation

Given the global price movements of agricultural commodities, coupled with rising fuel prices, consumers will likely feel the impacts on food inflation.

"Obviously, at the current levels of price movement, we are likely to see a follow-through into food inflation," said Makube. The price lag could be about three months, as has been the trend historically, he added.

Higher fuel prices particularly feed into various aspects of the food value chain - from planting, harvesting to packaging.

About 80% of grain is transported by road, which means grain producers and logistics companies will feel these costs.

Yellow maize, which is used as feed for livestock could also add to the cost pressures of livestock producers and affect meat prices. As a net importer of wheat, South Africa will be affected by the developments in the international market, which will affect bread prices.

Makube sees food inflation remaining above 6% in the near term.

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