Cost of bread, dairy, eggs and maize after drought
JOHANNESBURG – The prices of staple breakfast foods such as maize, dairy, eggs and bread could go down.
A senior agricultural economist at FNB Business, Paul Makube takes a look at how the drought and subsequent recovery has impacted four basic breakfast foods – dairy, eggs, bread and maize.
Dairy
This industry has seen pastures improving, thereby reducing the frequent need for irrigation, which translates to lower electricity costs. In addition, supply outlook for grain crops has improved and the subsequent decline in prices from the second half of 2017 indicates a reduction in food manufacturing costs is eminent.
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Producer prices are expected to approach the long-term average share of approximately 37 per cent of the retail prices. “We should see stable to firmer demand with new marketing strategies to reach more consumers in the country; the rebound in the industry following a devastating drought looks positive,” explained Makube.
Eggs
The egg market is stable and producer prices remain at profitable levels. Prices at consumer level have also remained relatively stable with a steady increase on an average of six per cent year-on-year in January 2017.
“We’ve seen a lot of suppliers enter the egg market, which has increased supplies and placed profitability under pressure. Nonetheless, producers do have an option to reduce their stocks by shortening the lifecycles of their layer hens. The improved grain production outlook bodes well for feed prices, as feeding margins improve towards mid-year,” added Makube.
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Bread
According to statistics issued by Agbiz, South Africa’s total bread production grew by 12 per cent year-on-year in December 2016 to a total of 182 million loaves. The growth came from brown bread, which moved up from 82 million loaves in January to 90 million loaves. In fact, from October to December 2016, brown bread production was consistently higher than white bread. Prices of loaves of white and brown bread (700g) increased by 14 per cent and 13 per cent year-on-year growth at R13.60 and R12.28 respectively. The price of a loaf of white bread, however, slowed in January 2017, finishing up at 11 per cent year-on-year, while that of brown bread was up 13 per cent year-on-year.
Maize
The price of the staple food, white maize has, for the first time in 2017, fallen below R2 000 per ton, currently trading at R1 917 per ton, an advantage for food inflation, which has remained sticky at double-digit levels of 11.8 per cent year-on-year in January 2017. The latest production estimates indicate a harvest of 13.9 million tons of total maize with the white variety up by almost 144 per cent year-on-year at 8.3 million tons.
“While this is the first production estimate and is likely to change as the season progresses, our view is that it is likely to improve given the good production conditions. However, the excessive moisture, if rains persist, coupled with early frost for some areas, may result in a slight downward revision to the current crop estimate in the months ahead,” cautioned Makube.
“The continued fall in maize prices on a year-on-year basis is expected to begin to filter through into the feed prices. Maize is a major input cost component and a reduction in prices effectively means we will see feed prices begin to slowly stabilise. Agriculture is not out of the woods yet, but it is on its way out of the red and back into the positive,” concluded Makube.
