In order to better comprehend the impact of rail cable theft on the maize industry, the importance of the maize export programme and the necessity of an efficient maize value chain have to be understood as well.
Near record production in 2021
Producers achieved a near record maize crop in 2021, amounting to 16,2 million tons. This has only been surpassed by the record of 16,8 million tons produced in 2017. Annual production has and will probably remain volatile. By comparison, in the drought year of 2016, only 7,8 million tons were produced – not nearly enough to meet the local demand.
During the past twelve years, local demand has remained stable and has grown steadily from 8,9 million tons in 2011 to 11,4 million tons in 2021. This signifies an average growth rate of 2% per year. Some analysts say that one should add the cross-border Southern African demand to this number. Even if one does, it is worth noting that it only comprises about 6% to 7% of South Africa’s local demand.
Accumulation of stocks
As a result of the large 2021 crop, South Africa suddenly found itself in a position where it was likely to accumulate a large exportable surplus. Since the drought of 2016, deep-sea exports had varied between 0,2 million and 1,7 million tons per year, while in the same period, exports to Southern African countries had varied between 0,6 and 1,4 million tons. With another good crop year in 2021 following on that of 2020, and with sufficient carry-over stock levels of 2,1 million tons as at 1 May 2021, the focus quickly shifted to deep-sea exports. Initial predictions at the time showed that South Africa had an exportable surplus of about 4 million tons, after provision had been made for 2 million tons of carry-over stock on 30 April 2022. This was more than the logistical capabilities of the South African harbours.
Declining market prices to facilitate export deals
The market was quick to recognise this and since about April/May 2021, prices have traded lower to export parity and below. This enabled the traders to book export deals.
Traditionally the optimal period for South Africa to export maize is May to October, before the new crop in the United States is harvested and prices come under pressure. However, partly due to prices trading at export parity in South Africa and higher international prices, exports were booked into early 2022. The latest predictions are that South Africa will have deep-sea exports of about 3,0 million from May 2021 to April 2022. May 2022 signals the start of the new marketing year, as well as the start of the new harvest. All available vessel slots have already been booked until April 2022 and are included in the above prediction. This will generate approximately R14 billion in foreign exchange for the country.
High international prices combined with improved production technology and high yields in 2021, meant that many producers in the eastern Free State, parts of KwaZulu-Natal and southern Mpumalanga could sell for the export markets and still make a profit. The average yellow maize JSE/Safex July 2021 contract price from 1 June to 22 July 2021 was R3 317/ton. The average yellow maize yield for the Free State according to the Crop Estimates Committee (CEC) was 5,95 t/ha. If the Grain SA production cost survey for 2020/2021 is used to substitute these numbers in the calculations for the eastern Free State, producers would have made a profit of R692/ton. This includes the Grain SA provision for overheads of R398/ton and excludes any premiums achieved on the export lines.
Calculating export parity
Key elements in determining whether traders could profitably execute deep-sea contracts are (1) where the maize is located; (2) the premiums payable for suitable locations; and (3) ease and cost of moving the grain to Durban. Of course, there are other factors, but traders either have little or no control over factors like market prices or the exchange rate. Then there are factors of which the cost impact is fairly constant, like the terminal cost to load a vessel. This compares to the above three factors where trading experience and skills may make a difference in concluding a successful deal.
Map of main and branch lines
Maize for exports is normally sourced in KwaZulu-Natal, the eastern Free State and southern Mpumalanga. The cost and efficient execution of transporting maize to Durban form a very important part of the export calculation. The objective for the trader is to source maize close to or on the main transport routes to Durban. It is worth paying a premium for this maize. The saving in transport cost, availability of trucks, transport time to Durban, efficiencies at the export silos, backloads for transporters, et cetera, more than compensate for the premium. These areas also traditionally have a well-developed rail transport network. The latter has also been well maintained in comparison to other areas. The area and silos most popular and operationally active are depicted in Figure 1. Note that the main line between Bethlehem and Harrismith and the three branch lines and the silos on these lines are the most sought after.
Cost and efficiencies of transport
Why still load by rail? Silos were designed to off-load producer deliveries (intake) while simultaneously loading rail wagons for out-loading. If the silos out-load by road, they have to stop the producer deliveries. One can also load many more rail wagons in a much shorter period of time than road trucks. It is also much more efficient for the harbour terminals to off-load rail wagons than road trucks. Moreover, road trucks cause huge congestion in the harbour area and the city of Durban as well as increasing the cost of maintenance of the roads.
With 220 000 tons exported every month and an 80/20 split in road supply versus rail, approximately 5 100 interlink road trucks use the N3 to off-load in Durban harbour every month. Lastly, electrical locomotives are significantly cheaper than road trucks powered by diesel. The rate per ton by rail wagon from say Reitz to Durban, is approximately R255/ton. This compares to the current road truck rate of approximately R420/ton.
