Farmers speculate on market shift

JOHANNESBURG – Facing prices so low they say they cannot break even, South African farmers are hoarding maize and buying futures in the hope of making money if the market rises when they fail to plant, traders and growers say.

Farmers are bringing in what is expected to be South Africa’s biggest maize harvest since 1981, but the large crop has hammered prices to levels at which farmers say it is not economical to plant for next year. “It’s now much cheaper to buy maize than produce it,” maize farmer Bully Botma, chairman of producer body Grain South Africa, told Reuters.”It would be madness to plant.If they can buy physical product now and sell it back into the market in the hope that the price will increase, that would be better.”Farmers hope sharply reduced plantings will push maize prices from around R600 a tonne to R1 000 or more.Unless exports pick up massively, South Africa’s total maize carry-over this year might almost equal annual domestic consumption.Traders say farmers have been deploying money they would normally spend on inputs such as seeds and fertiliser to buy SAFEX grain futures.”Some of the banks are saying they will not finance inputs but will finance a long SAFEX position,” said one trader.”You’re seeing a lot more of it, but it’s very risky.”In the short term, prices might fall as farmers are forced to sell in August to repay bank loans, the trader said, while a fall in Chicago Board of Trade corn prices might also drive the market lower.Even if 20 to 30 per cent of farmers failed to plant, that would not be enough to push prices to 1000 rand unless South Africa also suffered drought or crop damage, or export demand boomed, the trader said.Grain South Africa said it was not encouraging farmers to speculate, but those who could afford to might do better to hold their maize on farm.- Nampa-Reuters”It’s now much cheaper to buy maize than produce it,” maize farmer Bully Botma, chairman of producer body Grain South Africa, told Reuters.”It would be madness to plant.If they can buy physical product now and sell it back into the market in the hope that the price will increase, that would be better.”Farmers hope sharply reduced plantings will push maize prices from around R600 a tonne to R1 000 or more.Unless exports pick up massively, South Africa’s total maize carry-over this year might almost equal annual domestic consumption.Traders say farmers have been deploying money they would normally spend on inputs such as seeds and fertiliser to buy SAFEX grain futures.”Some of the banks are saying they will not finance inputs but will finance a long SAFEX position,” said one trader.”You’re seeing a lot more of it, but it’s very risky.”In the short term, prices might fall as farmers are forced to sell in August to repay bank loans, the trader said, while a fall in Chicago Board of Trade corn prices might also drive the market lower.Even if 20 to 30 per cent of farmers failed to plant, that would not be enough to push prices to 1000 rand unless South Africa also suffered drought or crop damage, or export demand boomed, the trader said.Grain South Africa said it was not encouraging farmers to speculate, but those who could afford to might do better to hold their maize on farm.- Nampa-Reuters