News
Breakfast?
Sunnyside up.
Costs after the
drought
The agricultural sector has
survived the worst of the
drought that gripped South
Africa in the past three
years. The recent rains have
however positioned the
sector favourably in parts
of the country.
Paul Makube, senior
agricultural economist at FNB
Business recently took a look at
how the drought and subsequent
recovery has impacted four
basic breakfast foods, namely;
eggs, maize, dairy and bread.
Dairy:
This industry has seen pastures
improving, thereby reducing
the frequency for the need
for irrigation which translates
to lower electricity costs. In
addition, supply outlook for
grain crops has improved and
the subsequent decline in prices
from the second half of 2017
indicates a reduction in food
manufacturing cost is eminent.
Producer prices are expected to
approach the long-term average
share of approximately 37% of
the retail prices. “We should
see stable to firmer demand
with new marketing strategies
to reach more consumers in
the country, the rebound in the
industry following a devastating
drought
looks
positive”,
explains Makube.
Eggs:
The egg market is stable
and producer prices remain
at profitable levels. Prices
at consumer level have also
remained relatively stable with a
steady increase on an average of
6% year on year in January 2017.
“We’ve seen a lot of suppliers
enter the eggs market which has
increased supplies and placed
profitability under pressure.
Nonetheless, producers do have
an option to reduce their stocks
by shortening the lifecycles of
their layer hens. The improved
grain production outlook bodes
well for feed prices, as feeding
margins improve towards mid-
year” adds Makube.
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Paul Makube
Bread:
According to statistics issued
by the Agbiz, South Africa’s total
bread production grew by 12%
year-on-year (y/y) in December
2016 to a total of 182 million
loaves. The growth came from
brown bread, it moved up from
82 million loaves in January
to 90 million loaves. In fact,
from October to December
2016, brown bread production
was consistently higher than
white bread. Prices of loaves of
white and brown bread (700g)
increased by 14% and 13% y/y at
R13.60 and R12.28 respectively.
The price of a loaf of white bread
however slowed in January 2017,
finishing up 11% y/y while that of
brown bread was up 13% y/y.
Maize:
The price of the staple food,
white maize, has for the first time
in 2017 fallen below R2 000
per ton currently trading at R1
917/ ton, an advantage for food
inflation which has remained
sticky at double digit levels of
11.8% y/y in January 2017.
The latest production estimates
indicates a harvest of 13.9
million tons of total maize with
the white variety up by almost
144% y/y at 8.3 million tons.
“While this is the first
production estimate and is
likely to change as the season
progresses, our view is that it is
likely to improve given the good
production conditions. However,
the excessive moisture if rains
persist coupled with early frost for
some areas may result in a slight
downward revision to the current
crop estimate in the months
ahead” cautions Makube.
“The continued fall in maize
prices on a year-on-year basis
is expected to begin to filter
through into the feed prices.
Maize is a major input cost
component, and a reduction in
prices effectively means we will
see feed prices begin to slowly
stabilise. Agriculture is not out of
the woods yet, but it is on its way
out of the red and back into the
positive”, concludes Makube.
SABI | APRIL / MAY 2017
29
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