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A G RI
CO
L UM
- WNE N K E
THYS GROBBELAAR
GRAIN MARKET PROSPECTS:
January 2016:
Current situation
BACKGROUND:
Most South African commodity
prices increased dramatically over
the recent past. We will therefore
look at the factors which gave
rise to these increases.
INTERNATIONAL
FUNDAMENTAL FACTORS:
Crude oil prices:
It is a known fact that the world
economy ran away with us
during 2008. This was mainly
due to the excessive GDP-
growth in China, which resulted
in a huge demand for energy and
other resources. It was rumoured
that crude oil resources would
only be sufficient for the next
40 years. The Americans did
not want to depend on the Arab
world for their energy requirements and started to produce
ethanol from maize on a large
scale.
Energy prices increased to record levels during 2008, around
$145/barrel. The Brent crude oil
Graph 1. The international Brent crude oil price movement ($/barrel-Reuters).
Graph 2. Changes in GDP (gross domestic product) of China. (%)-IMF
36
Feb/Mar 2016 • SENWES Scenario
price lingered at a level of $110/
barrel for a considerable period
of time. Ethanol plants made a
lot of money and 38% of the
American maize crop is being
converted to ethanol at present.
At this stage the Brent crude
oil price is at a level of approximately $30/barrel. Despite
the low American maize price,
most of the ethanol plants in the
mid-western parts of the USA
are suffering losses - a situation
which does not support the international maize price. Alternative energy such as wind energy,
fracking and intensive exploration for crude oil, amongst others, played a role in the declining
international crude oil prices.
Slowing Chinese economy:
A factor which is putting a lot
of pressure on international
commodity prices is the slowing
Chinese economy. The graph
below reflects the GDP-growth
in China. Certain projections
indicated that the GDP-growth
in China could move to 20%.
Fears existed that the Chinese
would take up all available commodities such as crude oil, grain
and oilseeds. However, the GDPgrowth has decreased by 57% in
the meantime, which resulted in
a significantly lower demand for
all commodities. As we know,
the Chinese demand for steel has
also decreased, which resulted
in processed steel being dumped
globally.