South African corn prices will break fresh multi-year lows in
the coming months, as the harvest bounces back after two years of drought,
grain industry body AgBiz said.
But prices could rebound strongly by the end of the year,
with El Nino risk and rapid regional demand setting the stage for a potentially
AgBiz noted the recent upgrade to South African harvest prospects
by the USDA, which forecast the corn crop at 14.6m tonnes, up 12% from the previous
month's forecast, and up 78% year-on-year.
"The increase in corn production comes on the back of an
increase in area plantings, and higher expected yields due to favourable
weather condition," AgBiz said.
Prices to fall in
AgBiz forecast yellow corn prices to average 1,912.65 rand a
tonne in July.
Front-month yellow corn futures in South Africa are
currently trading around 2,180 rand a tonne, just above the low of 2,100 a
tonne reached two weeks ago.
July yellow corn futures are currently trading at 1,952
"White corn prices also follow a similar trend," AgBiz said,
forecasting prices to average 1,941.81 a tonne in July.
This is well below front-month white corn prices, currently
trading at 2,120 rand a tonne, although July futures are trading at 1,846.00 rand
"Toward the latter part of the year, we see prices gaining
traction, especially as we enter the 2018-19 season, with risks of El Nino
weather pattern part of our forecast," AgBiz said.
An El Nino event, if one manifests, could cause dryer weather
for the 2018-19 season, as it did for the previous harvest.
"We will revise this forecast as developments on the weather
front unfold, as risks to El Nino change," AgBiz said.
AgBiz saw yellow corn prices potentially breaking back of
2,500 rand a tonne by the start of next calender year.
Currency effect to
Given the fact that South Africa will cease needing large
corn imports following the harvest, the correlation between the rand and corn
prices will ease, said Wandile Sihlobo, lead economist at AgBiz.
The rand is currently pushing two-year highs against the
dollar, making imports cheaper, and weighing on prices.
"The dollar rand exchange correlation gets to be only
stronger when we are net-importing," Mr Sihlobo told Agrimoney.
"It will only come in to play when we start to be importers
Mr Sihlobo also noted the potential boost from regional
Production in many of South Africa's neighbours has been devastated
by the regional armyworm epidemic.
Many regional growers are not in line for strong harvests,
which will increase demand for imports, Mr Sihlobo said.
"Zimbabwe are not in good shape," he noted, with "a large
part of the crop still suffers with the armyworm."
"Around about 11% of the crop has been effected buy armyworm."
Mr Sihlobo also pointed to demand from Botswana, Swaziland, and
"South African corn markets will benefit from that," he