Maize prices take a tumble

Good rains and prospects for a bumper crop have seen South African maize prices fall to 2½-year lows and analysts say inflation should start slowing as a result in the third quarter of 2017.

This will ease the burden on poor households, which rely on maize as a staple, and may give the Reserve Bank room to hold or cut rates. The flip side is meat prices, which could accelerate after drought-induced culls last year reduced cattle numbers.

The July white maize contract fell more than 4% yesterday to a 2½-year low of R1,817 a ton after the government crop estimates committee forecast a 2017 harvest of 13.918 million tons, 79% more than in 2016.

That forecast was 6% higher than expectations of 13.11 million tons.

Domestic consumption is between 10 million and 11 million tons.

Cold weather, rains and resilient genetically modified crops have also limited the damage caused by an armyworm outbreak.

The difference with 2016 is stark, when the main white maize contract scaled record peaks above R5,000 as an El Nino-triggered drought parched lands. Prices are now around a third of that.

Consumer inflation slowed to 6.6% in January from 6.8% in December, while food inflation braked to 11.4% from 11.7%. "There is a time lag. Food processors bought the grain we are using now a few months ago. CPI for food should only really start coming down in the third quarter," said Wandile Sihlobo, an economist at the Agricultural Business Chamber.

Traders said prices should soon bottom out.

"We are already R83 below the calculated export parity price, but in the past it went up to R140 below so there is a chance it can go a bit lower," said one trader.