Bloomberg News

South Africa Corn Export Push May Exhaust Stocks: Commodities

January 23, 2012

Jan. 18 (Bloomberg) -- A government-backed plan to export a record corn surplus may leave South African silos drained of the country’s staple food by the end of April.

The price of white corn, used to make the corn meal eaten by many South Africans, has risen to a record in Johannesburg and the nation is importing the yellow variety of the grain for the first time in two years. Millers, chicken producers and cattle breeders are facing a surge in costs and food inflation may quicken to as much as 15 percent from 11.1 percent in November, said Gina Schoeman, an economist at Absa Group Ltd.

The mismanagement that is pushing up food prices and consumer inflation comes as South Africa grapples with the gap between rich and poor. It is the most unequal of 67 countries assessed by the World Bank and one-fourth of South Africans are jobless.

“It is clear now that exports were done irresponsibly,” Chris Schutte, chief executive officer of Pretoria-based Astral Foods Ltd., the nation’s second-biggest chicken producer, said in an interview. The price increases “will hit that section of the market that can afford it the least.”

Facing a record surplus two years ago after the biggest crop in almost three decades, farm bodies such as Grain SA, which represents 7,000 commercial growers, pushed the government into helping find new corn markets ranging from South Korea to Italy and Mexico.

“There will be very little maize left in silos come April 30,” Christo Booyens, assistant general manager for Grainlink marketing service at Klerksdorp-based Senwes Ltd., the country’s biggest grain-storage company. “Ideally you want about six weeks’ stocks to ensure smooth supplies to millers.”

June Deliveries

Corn is also known as maize.

South Africa will need to import 700,000 tons of corn between January and July, Jannie de Villiers, the chief executive officer of Grain SA, said in a phone interview. The crop will mostly be delivered to silos in June and July, according to Senwes.

South Africa has exported at least 2.14 million metric tons of corn in the marketing year that began May 1, compared with 2.07 million tons in all of last season, according to the South African Grain Information Service, a Pretoria-based industry body known as Sagis.

“The house is on fire now,” Jozeph du Plessis, chairman of the Schweizer-Reyneke District Agricultural Union, told a corn summit called by the Solidarity labor union in August 2010 to discuss what to do about the surplus. “The crisis is here.”

Less Information

At the same time, an antitrust crackdown that led to grain miller Pioneer Foods Ltd. being fined a record 500 million rand ($62 million) curbed information-sharing in the industry, leaving buyers unclear on how much corn is leaving the country.

Corn inventories plunged 40 percent in November from a year earlier, the biggest drop in that month since at least 2000, Sagis said. Measured in dollars, the price of white corn has risen 72 percent over the last year on the South African Futures Exchange in Johannesburg, to about $335, while the benchmark price of corn in Chicago has fallen 7.7 percent.

Tina Joemat-Pettersson, South Africa’s agriculture minister, told reporters in Cape Town in April last year that the government had been successful in draining a grain surplus that could have damaged the corn industry.

“We have traders from the East, the Middle East, the Far East,” she said then. “The interest for our grain and the maize surplus has become absolutely phenomenal. We have turned the crisis into a gain.”

Grocery Prices

Retail prices for a 5-kilogram (11-pound) bag of corn meal in urban areas rose 32 percent in the year to October to an average of 27.87 rand, according to the National Agricultural Marketing Council.

Five corn-meal brands sold for an average of 31.77 rand per 5-kilogram bag yesterday at a shop in Sandton, Johannesburg owned by Shoprite Holdings Ltd. About 39 percent of South African households live on less than $52 a month, according to government data.

“The inequality between racial groups is lowering, but it is increasing within groups. Overall, income inequality seems stable, but there is no sign that it will start coming down anytime soon,” Servaas van den Berg, an economics professor at the University of Stellenbosch, said by phone. “South Africa is very close to top of the list of most unequal societies in the world, if not right at the top.”

The price increases are a result of demand and supply forces in a free market, Simphiwe Ngqangweni, acting director general of the Department of Agriculture, said on Jan. 12 in an e-mailed response to questions.

No Approval

While South Africa has traditionally bought corn from Argentina in times of need, that country now produces much of its grain using a genetically modified seed variety that hasn’t yet been approved by the African nation for import, Astral Foods’ Schutte said.

Companies that face a surge in costs include Tiger Brands Ltd., South Africa’s largest food company, and Rainbow Chicken Ltd., Astral’s biggest competitor.

The price spike is the latest disruption caused by government management of South Africa’s food supply. In 2005, officials overestimated the size of the crop, driving prices to a record low and forcing some farmers out of business.

“If it wasn’t for supplies from the Black Sea countries, South Africa would be in very big trouble,” Schutte said. “Does it make sense for a country where maize is the basic foodstuff to export it at 1,400 rand a ton and buy it back at 2,800 rand a ton?”

Romania Shipments

Ships carrying 81,885 tons of Romanian corn have arrived in South Africa since Dec. 10, according to Sagis. Measured in rand, South African corn prices have doubled in the past year. Futures for white corn reached an intraday record of 2,722 rand a ton on Jan. 9.

Local corn prices may climb to as much as 3,100 rand a ton in the first quarter, Benjamin Swanepoel, a trader with Trademar Futures (Pty) Ltd., said from Johannesburg.

Inflation in Africa’s biggest economy accelerated an annual 6.1 percent in November, the most since January 2010, from a month earlier. Grains comprise about 3.5 percent of the inflation basket directly and a further 4.5 percent indirectly through meat prices, said Elna Moolman, an economist at Renaissance BJM in Johannesburg.

White corn makes up half of producers’ feed expenses, which in turn comprise 30 percent of input costs, Dave Ford, chairman of the Red Meat Industry Forum, said from Johannesburg. “The next six months will be tough,” he said.

The nation harvested 10.36 million metric tons of corn in the season through August, 19 percent less than a year earlier, the Crop Estimates Committee said on Dec. 1.

The National Agricultural Marketing Council is in talks with the grain industry to make import and export information more transparent, Ngqangweni said, without providing details.

“It would have been a different story if it wasn’t a basic food stuff, and if food security wasn’t the third priority on the government’s agenda,” said Schutte. “In such a case, you need a more comprehensive strategy.”

--With assistance from Andres R. Martinez, Ana Monteiro and Mike Cohen in Johannesburg. Editors: Ana Monteiro, Antony Sguazzin

To contact the reporters on this story: Jana Marais in Johannesburg at; Tshepiso Mokhema in Johannesburg at

To contact the editor responsible for this story: John Viljoen at

The Aging of Abercrombie & Fitch
blog comments powered by Disqus