South African corn prices will break fresh multi-year lows in the coming months, as the harvest bounces back after two years of drought, grain industry body AgBiz said.
But prices could rebound strongly by the end of the year, with El Nino risk and rapid regional demand setting the stage for a potentially rally.
AgBiz noted the recent upgrade to South African harvest prospects by the USDA, which forecast the corn crop at 14.6m tonnes, up 12% from the previous month's forecast, and up 78% year-on-year.
"The increase in corn production comes on the back of an increase in area plantings, and higher expected yields due to favourable weather condition," AgBiz said.
Prices to fall in coming months
AgBiz forecast yellow corn prices to average 1,912.65 rand a tonne in July.
Front-month yellow corn futures in South Africa are currently trading around 2,180 rand a tonne, just above the low of 2,100 a tonne reached two weeks ago.
July yellow corn futures are currently trading at 1,952 rand.
"White corn prices also follow a similar trend," AgBiz said, forecasting prices to average 1,941.81 a tonne in July.
This is well below front-month white corn prices, currently trading at 2,120 rand a tonne, although July futures are trading at 1,846.00 rand a tonne.
"Toward the latter part of the year, we see prices gaining traction, especially as we enter the 2018-19 season, with risks of El Nino weather pattern part of our forecast," AgBiz said.
An El Nino event, if one manifests, could cause dryer weather for the 2018-19 season, as it did for the previous harvest.
"We will revise this forecast as developments on the weather front unfold, as risks to El Nino change," AgBiz said.
AgBiz saw yellow corn prices potentially breaking back of 2,500 rand a tonne by the start of next calender year.
Currency effect to ease
Given the fact that South Africa will cease needing large corn imports following the harvest, the correlation between the rand and corn prices will ease, said Wandile Sihlobo, lead economist at AgBiz.
The rand is currently pushing two-year highs against the dollar, making imports cheaper, and weighing on prices.
"The dollar rand exchange correlation gets to be only stronger when we are net-importing," Mr Sihlobo told Agrimoney.
"It will only come in to play when we start to be importers again."
Rising regional demand
Mr Sihlobo also noted the potential boost from regional import demand.
Production in many of South Africa's neighbours has been devastated by the regional armyworm epidemic.
Many regional growers are not in line for strong harvests, which will increase demand for imports, Mr Sihlobo said.
"Zimbabwe are not in good shape," he noted, with "a large part of the crop still suffers with the armyworm."
"Around about 11% of the crop has been effected buy armyworm."
Mr Sihlobo also pointed to demand from Botswana, Swaziland, and Lesotho.
"South African corn markets will benefit from that," he said.