Food producers are seeing an easing of price pressures due to relatively low agricultural commodity prices. Data released this morning showed that South Africa’s food producer price inflation slowed to 9% y/y in February 2017 from 10.6% in January 2017. This could be transmitted to the consumer over the coming months, as we expect a lag period before it can and be reflected in the Consumer Price Index (CPI) data.
The broad recovery in agricultural production is mainly the key driver of this slowing trend in food producer inflation. South Africa is set to harvest record supplies for crops such as maize and soybeans. Total maize production is estimated at 14.3 million tonnes, which is the second-biggest crop on record after 1980/81 season. Soybeans are set to be the biggest on record, estimated at 1.2 million tonnes.
The benefits of this recovery are already reflected in agricultural commodity prices. White maize spot price currently trades at levels around R1 957 tonnes, which is 60% lower than the same period last year. Yellow maize spot price is trading at levels around R2 011 per tonne, which is 40% lower than the same period last year. Soybean spot price is at a level around R4 935 per tonne, which is an 18% annual decline. Sunflower seed spot price is trading around R4 532 per tonne, down by 34% from a corresponding period last year.
Looking ahead, while we expect the overall food producer inflation to decelerate further over the coming months on the back of large supplies, dairy products and meat inflation could remain at fairly higher levels. The South African Milk Processors’ Organisation Milk Purchasing Index fell by 7% in February 2017 to 112.23 points – suggesting that the manufacturers bought relatively less milk. Moreover, as the winter season approaches, milk production could decline, in line with seasonal trends and subsequently support prices. The meat inflation could remain fairly high due to slowing slaughtering activity. In January 2017, South African farmers slaughtered 227 483 head of cattle, which is 28% lower than the previous month.