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| South Africa: Shock for Food Prices As As Wheat Futures Rocket |
| 2008-02-19 |
| I was going put my own headline on this - Famine Alert - but decided it was too goulish. If there isn't a good N. American harvest this year then that is what the world is facing. It's due to a combination of factors, but diversion of crops to biofuel production combined with the current abrupt climate cooling will probably tip us over the edge. I think it was Herschel in 1801 who observed when sunspot numbers were low, wheat prices were high. Sunspots are currently at their lowest level for at least a century.THE price of wheat on the JSE futures exchange broke through R4000 a ton yesterday to a new record on supply concerns, making increases in the price of bread and other foodstuffs inevitable. After hovering around R3900 a ton for some time, the future prices for delivery in May broke the psychological barrier of R4000 a ton, and the price for delivery in July closed at R4000, although it was as high as R4030 during the day yesterday. Wheat prices have now more than doubled from R1878 a ton a year ago, and further increases are expected. Milling and bread companies warned yesterday that with the steep hike in the price of wheat, further increases in the price of bread were unavoidable. While there has been an outcry in SA, bread prices here still lag behind global prices, with bread in the US, UK and Australia costing as much as R15 a loaf, according to the National Chamber of Milling. Supply is constrained by a range of factors, said Jannie de Villiers, executive director of the chamber. Wheat planting has been curtailed by drought, and farmers worldwide have switched to more lucrative maize to feed the world's biofuels frenzy, causing a considerable reduction in hectares planted to wheat. Moreover, growth in China and India has led to increased beef consumption, further stoking demand for wheat. The supply situation might ease somewhat when the northern hemisphere harvest season started in June-July, he said. "We are facing quite a dilemma," De Villiers said. "It is a challenge to keep the mills going, given the difficulty to procure enough good quality wheat at these high prices, combined with the power cuts we have experienced lately." According to figures from the South African Grain Information Service, better qualities of wheat from the US are now trading at R7250 a ton, while Canadian wheat costs R6766 a ton to import. Cheaper German wheat can be bought for R4200 a ton. But De Villiers noted that some net exporting countries were now opting to close their markets in a bid to ensure food security and ease food inflation. Argentinian wheat, for instance, is at R3640 a ton, but the Argentinian government has opted not to sell current wheat stocks. As a net importer of wheat, SA is, however, unable to shield itself against price increases. The country produced 1,77-million tons of wheat last year, but consumed 2,8-million tons. "In the past we (SA) relied on free trade for food security, but the world has changed. The message that the government needs to hear is that there has been a fundamental shift globally and this needs to be addressed in policy. Farming has for long been treated as the black sheep in policy making," De Villiers said. Tiger Brands corporate affairs executive Jimmy Manyi said yesterday a price increase was inevitable; it was "just a question of time". Rising wheat prices meant the company's under-recovery would widen and add to the pressure it was experiencing. Tiger Brands was attempting to contain price increases and should have hiked the price of bread again this month, but was holding back, Manyi said. A price increase of 40c a loaf last month had unions crying foul. Bakers have been under fire after allegations of price-fixing, which resulted in Tiger Brands paying R99m for its role in the scandal. The Competition Commission is still investigating allegations of price fixing in the baking and milling sector. Manyi said Tiger Brands was seeing margins in its bread division being "eroded to the core" . Pioneer Foods milling and baking executive Tertius Carstens said Sasko was determining what steps to take, but it was clear that a "significant" but unspecified price increase was imminent. |
| Posted by:phil_b |
| #13 1/3 of the US corn crop is now used to make ethanol and the US produces 40% of the world's corn. The offset is that the mash is used as a feed. Less energy but higher protein. The US doesn't use wheat to make ethanol. Europe does, but has to priced out of the market without extraordinary subsidies. Which they have. Euro farmers even get a subsidy for designating farmland for biofuel crops. The other major driver is meat demand has more than doubled in China and India as their income rise. A rule of thumb is 8 pounds of grain produces 1 pound of beef. Don't forget the new mantra: One barrel for one bushel. |
| Posted by: ed 2008-02-19 20:27 |
| #12 Colorado has been cold, but not a bunch of snow. Just dribbles. In the mountains we are getting record setting snowfall so the reservoirs will be full for the farmers. The winter wheat crop has done well this year too so far. I see a bumper crop this year for the farmers. |
| Posted by: DarthVader 2008-02-19 14:53 |
| #11 Read a report from the BC Canadians this weekend; although expenses are up, the price for wheat is double from just a 'few' months ago; as a result, BC farmers are in a buying frenzy; replacing all sorts of equipment. The banks have stated that they are watching to ensure the farmers don't over-extend, and all in all, it sounds like the BC forecast for this year is positive. (spent the w/end in BC, read a lot of their papers) |
| Posted by: USN,Ret. 2008-02-19 14:37 |
| #10 What effect are the heavy snowstorms having on winter wheat? |
| Posted by: trailing wife 2008-02-19 14:07 |
| #9 Next years wheat crop is not very promising here in western Ks. |
| Posted by: bman 2008-02-19 12:23 |
| #8 "Those poor african farmers should benefit from the higher prices and spur production" thats true, BUT A. Its not South Africa, which is more of an industrial-mining economy. And few countries in tropical africa grow wheat in any quantity. |
| Posted by: liberalhawk 2008-02-19 12:16 |
| #7 Has there been some HUGE upsurge in biofuels production? I don't think so. Yet the media keeps claiming this is having a significant impact. |
| Posted by: Darrell 2008-02-19 11:59 |
| #6 Wheat between $10 to $11.30 bushel on us exchanges. |
| Posted by: 3dc 2008-02-19 11:14 |
| #5 All the more argument for closing down all the American farms and outsourcing agriculture the same way we did manufacturing! |
| Posted by: gromky 2008-02-19 10:42 |
| #4 Not too many I know are worried about wheat right now. The most sought after commodity at the moment is a "Green Card." |
| Posted by: Besoeker 2008-02-19 08:56 |
| #3 This ought to be viewed with optimism. Those poor african farmers should benefit from the higher prices and spur production. I would like to here Ox Fam's take on the higher prices since the US agriculture has blamed for all Africa's ills because of food programs and overproduction. |
| Posted by: darrylq 2008-02-19 08:44 |
| #2 Yeah, well.... Keep seizing those farms anyway. It worked for mugabe. |
| Posted by: newc 2008-02-19 06:52 |
| #1 Time for Farmin B. Hard to weigh in on how long it will be before SAf looks like Zim. |
| Posted by: Jomosing Bluetooth8431 2008-02-19 06:37 |