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This year’s commercial mealie harvest, which could be as much as 79% more than last season’s – when the most important agricultural regions were still in the grips of a serious drought – will give economic growth a considerable boost.
Johann Els, a senior economist with the Old Mutual Investment Group, said an improvement of just 10% in real agricultural production will push gross domestic product (GDP) up by 0.5%, even if there is no growth elsewhere in the economy.
The 2017 mealie harvest is estimated at more than 13.9 million tons, the national crop estimates committee said in its first estimate of the season. That’s 6.1 million tons more than 2016’s 7.8 million tons.
The bigger maize harvest also looks promising for lower food prices and lower food inflation, and has already had a positive influence on the share prices of certain food companies listed on the JSC.
According to Wandile Sihlobo, an economist from the agricultural business chamber Agbiz, they are expecting a harvest of 11.9 million tons. Good rains over the past two months and sufficient days of sunshine have created favourable conditions for a good harvest.
He said that closer to harvest time the committee changes its estimates and they become more accurate. In total, seven estimates will be released.
According to the committee, about 8.3 million tons of white maize can be delivered – 144% (or 4.9 million tons) more than the previous season. The committee expects 5.6 million tons of yellow maize, 28.27% more than the previous season’s 4.4 million tons.
Sihlobo said a good maize crop would lead to lower prices for consumers, but is not really good news for maize farmers.
Anthony Clark, an analyst with Vunani Securities, which monitors listed food producers and the agricultural sector, said the lower mealie price is the reason poultry producer Astral Foods is one of its top shares for 2017.
During the drought, the high cost of yellow maize, which is used as feed, hit many companies hard. So, for example, the profitability of Astral’s poultry division declined by more than 91% in the book year ending in September.
Clark said 50% of the cost of raising a chicken goes towards feed.
“A big harvest, lower maize price and lower input costs for food producers, will restore their margins.”
According to him Astral has already announced it expected dampened interim results because higher maize hedging contracts were still in place. When these contracts end in March or April, better interim results could be expected.
Clark said Astral had already reached a 52-week high. If the maize crops harvest was even bigger, Astral would save even more on input costs and its share price would likely jump.
In December, Astral was trading at R122.50 and by the end of February it was in the region of R148 a share.
In January, Senwes said good rains in February and March could result in a maize harvest of 14 million tons.
A white maize harvest that is larger than expected could also make primary food producers like Pioneer Foods more sought after.
Clark said it’s also one of his share picks for 2017 because the company has such great exposure to basic food items.
At the beginning of December, Pioneer’s food prices were at R153 and on Wednesday had already risen to more than R166 a share.
Sihlobo said consumers should start benefiting from the lower prices by the third quarter of the year and that inflation would also be reduced.
Els is of the opinion that food inflation could decline from 12% to about 3% by the end of the year. Especially inflation on grain and bread would contribute to the decline, although it will to a certain extent be counteracted by higher meat prices.
