Nonhedging farmers to lose thousands of rands per maize ton, says Standard Bank
Maize producers are likely to lose up to R1 860/t, offsetting the third-largest production season on record, as 60% of producers chose not to hedge their prices and lost gains when grain prices reversed, says Standard Bank.
It is expected maize production will rise to 14.32-million tons this year.
However, the price for white maize, accounting for 56% of the crop, dropped from above import parity of R4 081/t in December 2016 to below export parity of R2 220/t currently, Standard Bank primary agribusiness senior manager MC Loock said on Thursday.
“It would have cost farmers R400/t to protect themselves against the fall in prices. The amount they have lost is more than four times the cost of protecting themselves,” he said in a statement, recommending that farmers hedge one-third of their crops.
“The ideal scenario is to sell one-third of the crop on a pre-season minimum price contract and one-third on a pre-season fixed price contract. One can then keep the last third for the end of season premiums, without risking losing good income from the main part of the crop.”
Meanwhile, Loock warned that this season’s large crop would bring “a few additional problems” with it, including increased pressure on the logistics needed to bring it to market.
While South Africa can handle current export volumes of 2.8-million tons, the challenge will be taking back market share following a prolonged drought.
“Our absence has enabled other countries to take a share of our usual markets. The US and Argentina, for instance, have made inroads into our traditional international markets and Zambia has moved into our regional markets. So, marketing this year’s export volumes may mean having to quickly develop new markets,” he said.
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