1:39:00 AM
Zimbabwe has banned maize imports following a bumper maize harvest in the 2016/17 agricultural season after receiving good.
Authorities hope this maize harvest will be enough to feed the nation and stimulate home-grown production. Zimbabwe is expecting to produce two million tonnes of corn in 2017 - enough to meet domestic demand.
US$200 million from the Treasury and private coffers has been set aside to purchase the maize from farmers at the increased price of US$390 per tonne in a bid to encourage domestic production.
There are fears that maize from Zimbabwe's neighbours sold closer to the market rate - around $160 per tonne - could be smuggled in illicitly by criminals to cash-in on the agricultural stimulus.
Government stopped issuing grain Import permits about four months ago. The country is expected to save about $500 million dollars this year after instituting the ban, he added.
But enough of that. This article is about how does a farmer determine the market price of their maize.
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| Maize price: Marketing of maize this bumper season for those in maize farming |
Maize farmers everywhere lose millions by not carefully making use of pricing opportunities available to them.
As this season’s harvesting draws to a close, it is becoming more and more evident that the largest majority of maize farmers will not be seeing the financial benefits due to injudiciously neglecting to appropriately price their crops through options and contracts available to them.
Price to plant
Generally, it can be accepted that the market will provide a price to farmers at the beginning of the season that will make it feasible for them to plant.
Still, while government has been stimulating prices, the maize price is often determined entirely in the market place according to the laws of supply and demand.
All participants, both buyers and sellers, are therefore affected by price movements and many unknowns which is the nature of the free market.
Price volatility is an identified risk in farming today. This means that the availability of maize must be monitored both locally and globally and the timing of one’s marketing needs to be based on as much information as possible.
Part of every farmer’s job nowadays must be to get acquainted with the tricks of trading or else he risks losing potential profits through a lack of knowledge and ignorance.
What is this information which will assist a farmer in making his marketing decisions and manage his risks to his best advantage?
Maize prices are determined by the willing buyer and willing seller process and certain factors will always influence this. They are:
International markets
What have the rains been like in other major grain producing countries like the US, Brazil and Argentina? What supplies of grain are flooding the international market? What countries have experienced drought and thus will not be active in the market?
Local production
What area has been planted under maize?
How much white maize has been planted?
How much yellow maize has been planted?
What rains have fallen and what are the crop estimates for the season?
Looking beyond our borders
What potential markets exist across our borders for our grain? What is the supply and demand of maize like in neighbouring states? What is the trading environment like between our countries? What issues may arise, for example whether there is resistance to GMO maize or not. Is the demand greater for white or yellow maize? What are the regional preferences in grain consumption? How much food aid is being delivered there presenting a direct competition for our maize?
Policies and government initiatives
How feasible is it to export and import maize? What import tariffs are in place? What are the exchange rates like? What products enter the local market and compete with our market? (For example the cheap chicken imports. These chickens were raised in a foreign land, ate grain grown by foreign farmers and created employment for foreigners in the country of origin and this impacts local grain markets and job opportunities!)
Let’s look at this current season for example:
It has been a good season and this means that yields may be higher than normal.
This knowledge must influence the strategy you can follow is that it is very likely that there will be an abundance of grain; in fact government has banned imports. While this will kill demand, government has increased prices offered per tonne. So, you can still try to negotiate for the highest prices possible!
Still, some farmers might find the market saturated because of abundance and wonder how else to get rid of maize in a depressed market.
To start with, farmers must make the mind shift that an average price is better than no price at all. So how can a maize farmer manage the maize price? The answer to that question begins with what it costs to produce 1t of maize per hectare on your farm. Then add a percentage profit you are comfortable with to that cost.
Now use your farm’s long-term yield average on the lands you intend to plant. For example, if your yield averages 5t/ha over a five-year period on a 1 000ha, you can calculate the average cost of producing 1ha of maize. This cost will be different for every farmer as everyone has different equipment and debt loads, while economy of scale also plays a role in the cost per hectare.
This strategy will differ from farmer to farmer, depending on the price at the time.
The secret remains to know what it really costs you to produce 1t of maize and if you can make profit. Your motto must be: An average price is better than no price. Having said that, knowing your production cost per ton helps to determine your hedging strategy. This is sustainable thinking, and will lower price risk at the end of the day to ensure a profitable future for your maize enterprise.
Is adding value an option?
Maize farmers can also increase profit by adding value to their maize. Why not invest in a maize-milling plant to produce maize meal, one of the major food groups in Africa? While mills do decrease price risk by adding value, one must do your homework before investing in capital-intensive equipment, and remember, maize meal needs a market.
Managerial expertise is also important, and you must be in a position to be able to afford the right people to manage a mill.
And feedlotting?
Maize can be fed to livestock to ensure a better return at current low prices. By putting maize through animals, the low maize price can often be doubled. However, this option is capital intensive as livestock needs to be bought. The management inputs will be almost beyond belief. A lot of expertise is needed for feedlotting and new entrants can expect to pay heavy school fees.
What about storing?
Maize can be stored at a co-op for a long period until it can be sold for a better price. This is a huge advantage maize farmer have compared to say vegetable farmers, who are obliged to accept market prices daily. But storage can also be the downfall of farmers who don’t pay attention to storing, handling and interest costs.
Farmers can also hold on to maize stocks for too long, sometimes selling at lower prices than could have been realised originally. By paying more attention to the input cost per ton and the acceptable profit needed, deciding when to sell will be easier.
The low maize price problem
The problem remains that maize technology improves yields each year, due to the considerable investment made by seed companies. That means higher harvests and lower prices will be a reality for some time.
What’s more, maize consumption remains constant, and is not reflected by the pace of population growth, meaning that consumers are increasingly buying maize alternatives.
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