NEW FEED COST REGIME CHANGE HERE TO STAY?

 

MPO POINTER 2/11 FEBRUARY 2021

The magnitude of the increase in the prices of yellow maize and soya beans leaves the producer price of unprocessed milk extremely buoyant.

The average producer price of unprocessed milk in January 2021 is estimated at R5,37/ℓ, up from R5,19/ℓ in December 2020. In Figure 1 below, trends in and levels of feed costs are estimated for 2021, using the Mark-to-Market (MTM) prices on the Johannesburg Stock Exchange (JSE) commodity markets, as at 9 February 2021, for February 2021 to December 2021 contracts for yellow maize and soya beans.

These prices are volatile, change constantly, and are influenced by factors like developments in the energy market and the value of the rand. However, they provide information on the current sentiment of role players across the international market, reflecting demand and supply going forward. The current driver of the higher yellow maize and soya prices on the Chicago Mercantile Exchange (CME), previously known as the Chicago Board of Trade (CBOT), is the unexpected higher demand from China. These developments are carried through to our grain market as well, and are reflected in the higher prices despite indications of a good grain crop in South Africa.

Figure 1 Feed costs (70% yellow maize and 30% soya)

The higher prices for formulated feed are putting downward pressure on profitability at farm level. The cost benefit of using feed concentrate ranges from paper thin to none at all. This is illustrated in the figure below. Even the simulated unprocessed milk price of R6,00/ℓ does not even reach a ratio of 1,3:1. 

Figure 2 Unprocessed milk price to feed price (70% yellow maize and 30% soya)

In these circumstances, dynamic and objective communication between milk producers and milk processors is extremely important if we are to create a balanced supply-and-demand market result.

Bertus van Heerden, chief economist, Milk Producers’ Organisation (MPO)

Download the MPO Pointer 2 of 11 Feb 2021 here 

Published on Fri, 12th Feb 2021 - 12:17

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