South African Corn Trapped by Rand as Rail Favors Coal

Favorable weather and genetically modified seeds have given South African corn farmers their biggest harvest since 1982. If only it could be sold.

Dilapidated rail lines and a surging currency are trapping a record corn surplus within the country’s borders. The buildup may force growers out of business and cut jobs in agriculture, the biggest employer in a nation where one in four is without work. And it has caused the benchmark corn price in Johannesburg to slump 19 percent in dollar terms this year, while its U.S. equivalent has risen by 34 percent.

“They can’t get it out because of the rand, because of infrastructure, because some countries don’t want it,” Henk van de Graaf, assistant general manager of the Pretoria-based TLU SA farmers union, said in an interview. “It impacts the economics of the little farming towns who live off the farmers. Businesses in the towns close down, there is a real snowball effect.”

Competition authorities are considering a request by Grain SA, the Bothaville-based growers’ organization, to allow it to hold the surplus off the domestic market to support prices. The government has tried, and failed, to find buyers in China, Egypt and Tunisia, Tina Joemat-Pettersson, the country’s agriculture minister, told lawmakers in Cape Town on Nov. 9.

The country reaped 12.82 million metric tons of corn this year, the government’s Crop Estimates Committee said today in its final crop assessment. That could result in a 4.5 million ton surplus, according to Joemat-Pettersson, triple last season’s exports. At current prices that could be worth at least $818 million.

Bumper Harvests

South African farmers have compounded their difficulties by using genetically modified seeds, disliked across much of Africa, while at the same time allocating three-fifths of their crop to the white variety of the grain, popular on the continent but not in Europe or Asia. This year’s surplus comes after large harvests in 2009 and 2008.

Shipments have been further hindered by bumper harvests in southern African countries, where South Africa has traditionally trucked excess grain. While corn has been exported to South Korea, Kuwait, Spain and Japan, an inability to transport significant amounts of grain to ports has thwarted previous efforts to develop new markets.

“It’s been an absolute disaster,” said John Gordon, who retired last year as chairman of the South African Cereal and Oil Seed Traders Association, from Johannesburg. “It’s the rail system that’s the problem. Grain is not profitable for them.”

Idled Lines

Transnet Freight Rail Ltd., the country’s freight rail monopoly, is short of locomotives. Coal is easier to transport because large quantities can be loaded at one location, Sandile Simelane, a spokesman for the Johannesburg-based, state-owned company, said by e-mail.

Transnet won’t repair 3,255 kilometers (2,023 miles) of idled rural lines because it wants private investors to run them, Public Enterprises Minister Malusi Gigaba said in a Nov. 23 reply to parliamentary questions. His ministry oversees Transnet.

“Our infrastructure has gone dramatically backwards,” said Ernst Janovsky, agribusiness head at Johannesburg’s Absa Group Ltd., the biggest lender to South African farmers. “You struggle to export one to two million tons” annually.

Even as farmers can’t get their corn to ports, global demand may exceed production by 18.8 million tons this year, the U.S. Department of Agriculture said.

Rising Yields

“We’ve got such tight fundamentals for grain globally for any surplus there would be demand,” said Luke Chandler, head of agricultural-markets research at Rabobank in London.

More than two-thirds of corn planted in South Africa is genetically modified, Gert Heyns, marketing manager at the local unit of Monsanto Co., the world’s largest seed company, said from Johannesburg. That’s helped push up yields to 4.76 tons per hectare (2.471 acres) this year from 3.86 tons in 2006, according to the Crop Estimates Committee.

“The African market is reluctant to buy our maize due to its genetic modification,” Sue Middleton, a deputy director- general at the Department of Agriculture, told lawmakers this month.

South Africa has exported 365,265 tons of white corn in the marketing year that began May 1, compared with 1.41 million tons for all of last year, according to the Pretoria-based South African Grain Information Service. All of that was within Africa.

Rand, Peso

Yellow corn exports, mostly to East Asia, have risen to 508,226 tons from 261,338 tons for all of last season.

Gains in South Africa’s currency are also making its corn less competitive. The rand has climbed 34 percent against the dollar since the end of 2008 and 54 percent against the Argentine peso. Argentina and the U.S. are the world’s biggest corn exporters. South Africa ranks sixth.

The industry is looking to the government for help.

The lack of a market for South Africa’s corn “represents a threat to the survival of farm owners” and employees, Katishi Masemola, general secretary of the Food & Allied Workers union, which represents 25,000 farm workers, said in an interview. “In time of food surplus the state must buy, and in times of shortage, the state must then release to the market.”

While the government has sympathy, it can’t bail out farmers, Joemat-Pettersson told lawmakers.

“Producers must understand that demand must dictate supply,” she said.

To contact the reporter on this story: Carli Lourens in Johannesburg at clourens@bloomberg.net; Mike Cohen in Cape Town at mcohen21@bloomberg.net.

To contact the editor responsible for this story: Amanda Jordan at ajordan11@bloomberg.net. Peter Hirschberg at phirschberg@bloomberg.net.

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