MARKETS
market. A conservative approach ensures
that adjustments can be made continuous-
ly to the tonnages being hedged and that
more tons than realistically expected, are
not hedged.
FACTORS TO BE MONITORED
The factors which will probably play a
significant role in domestic prices, are dis-
cussed below.
Exchange rate
The domestic market is sensitive for move-
ment in the rand/dollar exchange rate. This
rate has a huge impact on imports and
exports, which determine the bands within
which the local market should theoretically
trade.
The rand is currently in a downward
phase, mainly due to poor economic
prospects on the local front and a strong
American dollar. The weaker currency
results in local commodities being more
competitive internationally and it stimulates
exports.
Any extraordinary movements (as seen
recently, up to R1,30/dollar in one day)
can be used, should a hedging decision
be made at that stage.
El Niño
The El Niño effect has a huge impact
on rainfall, particularly during the critical
time around December - February. An El
Niňo effect impacts particularly the west-
ern production area. Although the time of
rainfall is more important than the quantity
of rain, concern about a possible drought
could be made worse by the presence of
an El Niño event.
The expectations in respect of an El
Niño event for the summer season, are
indicated below:
It is evident that the probability of an El
Graph 2: El Niño probability.
Niňo for the coming season is very strong.
The effect of an El Niňo for this season is
not expected to be very severe, but the
presence thereof could result in an overre-
action in the market as a result of predict-
ed dry conditions.
Plantings
Uncertainty about planting levels could
drive prices in the coming season. The
function of the market is to incentivise
producers to plant, despite the risk of,
for instance, drought. However, certain
additional factors may result in more
uncertainty during the coming season.
These factors include the relatively bet-
ter profitability of sunflower, uncertainty
regarding the land issue, concern about
a possible El Niňo, producer cash flow
being under pressure, etcetera. It must be
borne in mind that the market is driven by
uncertainty and that one has to look past
all these uncertainties, to profitability, in
order to determine when hedging should
be done.
Closing stock
Although significant closing stock levels
in respect of maize are still expected,
the impact of exports and increased
consumption levels can not be ignored.
Consumption and exports are currently
at high levels. Should these levels remain
Source:IRI
higher than expected, prices may move
away from export parity levels, which will
ensure more certainty about domestic
stock levels.
In respect of oilseeds, an excess of
soybeans is still expected. Domestic
press capacity is not sufficient to process
total production levels. The sunflower
situation is, however, totally different. The
sunflower consumption rate is very high
and there is a possibility of stock levels
being very low towards the end of the
season.
IN SUMMARY
The domestic market will probably be
driven by uncertainty during planting time
(and even later). One should look past
these uncertainties when deciding about
hedging. The hedging strategy should be
planned in advance and can be adjusted
dynamically according to new market
information. Please phone you grain
marketing consultant or Safex broker for
assistance in this regard.
Lees ’n artikel deur Johan
van den Berg, klimatoloog
van Santam Landbou, oor die
El Niňo-weerstelsel. Volg die
skakel http://fwd2.co/santam
of skandeer die QR kode.
SENWES SCENARIO | SUMMER 2018
77