The South African maize industry has made a remarkable rebound and it is expecting a bumper crop this season. However, new developments have compelled me to revise parts of my recent maize export market analysis (written on 19 January 2017), particularly regarding maize export opportunities within the African continent. The dynamics in African agricultural markets have changed dramatically. While South African maize farmers are struggling to break-even due to lower prices, white maize prices in East Africa are well above R7,200 a tonne, which is treble the current prices on the Johannesburg Stock Exchange.
This notable uptick in East African maize prices is largely due to lower supplies in these respective geographies, caused by adverse weather conditions during the 2016/17 production season. Meanwhile, the South African maize market is depressed as a result of an expected 15.63 million tonnes harvest - the biggest crop on record, and well above an average production of 12.5 million tonnes in a normal season.
As a result, South Africa has regained its status as a net exporter of maize after being a net importer for two consecutive seasons - 2015/16 and 2016/17 marketing seasons. The 2017/18 exports are set to reach at least 3.0 million tonnes. About 52 percent of this is set to be white maize and 48 percent to be yellow maize. This will be the largest maize export volume in two decades. The last time South Africa exported a volume of maize larger than the expected 2.7 million tonnes was in 1994/95 season – a volume of 4.7 million tonnes. The second biggest volume since then was in 1996/97 season - a 2.6 million tonnes, followed by 2.2 million tonnes in 2005/06 season.
My initial expectation was that a part of these exports would be absorbed by the East African market and South Africa would benefit from the prevailing higher prices in those markets. However, this is unlikely to happen mainly due to competition from other African maize producing countries that produced above market expectations and Genetically Modified (GM) seed restrictions. Approximately 85 percent of South Africa's maize production is grown with GM seeds which could restrict the country from penetrating many African markets.
Despite fears that Fall Armyworm could decimate maize crops in Zambia and Malawi earlier this season, the pest caused minimal damage and bumper harvests are expected in both countries. As a result, even within markets that permit GM maize imports, South Africa will face stiff competition from the likes of Zambia and Malawi.
Maize production in Zambia and Malawi could reach 3.6 and 3.2 million tonnes this year, respectively. Increases of 29 percent and 36 percent, respectively, from last year. Zambia and Malawi are expected to pose strong competition not only from upticks in production but also from the lifting of maize export bans earlier this month.
A possible short-term option is for South Africa to increase white maize consumption within the domestic animal feed market and export yellow maize.
Another major importer of white maize, Zimbabwe, is set to harvest a bumper maize crop of 1.8 million tonnes, which is treble last year's output of 512,000 tonnes. According to data from the United States Department of Agriculture, Zimbabwe's annual maize consumption is roughly 2.2 million tonnes, which means that there will be a need for imports later in the season of approximately 400,000 tonnes. This will be a notable improvement after last year's higher maize imports of 1.4 million tonnes.
The aforementioned developments resonate with the concern I raised in my column dated March 30, 2017; emphasising the need for South Africa's maize industry to penetrate new maize export markets, particularly outside the continent.
My MSc thesis 'An Evaluation of Competitiveness of South African Maize Exports,' addressed the same concern. Japan, Mexico, Taiwan, the United Arab Emirates, Thailand and Zimbabwe were identified as key and attractive markets that South Africa should prioritise to increase its export share in the short to medium term.
That said, Mexico will most likely fall out of the equation this year due to large domestic supplies, with recently imported maize volumes from South America buffing up the country's maize supplies. One special feature of markets such as Japan, Taiwan, the United Arab Emirates and Thailand is that they typically import yellow maize for animal feed industries and will likely show a similar trend this year. This poses a further challenge for South Africa where 60 percent of maize produced is white.
Indonesia, Malaysia, Saudi Arabia, Mauritius, Iran, the Democratic Republic of Congo and Yemen were also identified as attractive markets for South African maize exports. However, they also have more appetite for yellow maize imports.
This is likely to be a challenging year for South Africa's white maize producers due to lower global demand. Meanwhile, yellow maize could potentially see a better uptake in the global markets. A possible short-term option is for South Africa to increase white maize consumption within the domestic animal feed market and export yellow maize. If that is done, white maize prices will remain depressed in the short to medium term and that will weigh on farmers' financials. In the longer-term, a possible shift towards more yellow maize production could prove to be a viable option.
*This blog post is an extract from my Business Day Column, published on 25 May 2017