CBN's Policy Response on Maize Resulted by Lean Season - AFEX Commodities Monthly Report

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Wednesday, September 23, 2020 / 11:15 AMKainosedge Consulting for AFEX Commodities Exchange / Header Image Credit: Pakissan

 

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A. Market Summary

Local market activity in August for maize and paddy rice was marked by a double-digit percentage price increase, with market activity for maize being most pronounced amongst the commodities of focus in the current crop season. This was complemented by declining volatility in the open market across all commodities, while the Exchange saw volatility decline for maize and paddy rice. Price stability was pronounced in the international markets for maize and soybeans leaving volatility neutral M-o-M while paddy rice increased marginally by 2%-points.

 

The open market prices for maize and paddy rice surged in response to the lean season of the crop calendar in the agrarian North which indicates a continued depletion of market stocks from the last planting season which was terminated in December 2019. The current narrow supply has resulted in a policy response by the Central Bank which has stopped the provision of scarce foreign exchange for the import of maize.

 

The Exchange executed prices for the month under review increased considerably for maize due to transmission effects from commodity scarcity. However, the Exchange prices were collectively lower than the physical markets for comparative commodity grades being offered on the Exchange. Paddy rice price eased considerably on the international market as a result of optimal production output which is bound for a record. This is despite the market impact of COVID-19 in local markets which centre around sluggish demand and the slow recovery of logistics operations which provide access to food.

 

B. Market Perspective

This report focuses on the average monthly price, analyzing three key indicators: Price variance analysis, volatility analysis, price seasonality performance analysis for maize, soybeans, and paddy rice across crop endemic zones in Nigeria and the international market.

 

Open Market

Commodity prices increased further in August for maize and paddy rice while soybeans prices eased marginally, sustaining the seasons' upward trend which was cumulatively most pronounced for paddy rice.

 

1. Soybeans

The average monthly price eased for the first time since January, following a 5-month consecutive price increase in the open markets. The average price eased by 0.3% M-o-M, dipping by 8.9%-points in comparison to July, 2020. The influence of the crop cycle which indicates expectations of early harvests in the crop endemic zones of Benue and Kaduna States.


In addition, the seasonality performance for soybeans showed a Y-0-Y price increase of 13.1% (up 2.1%-points) in comparison to August, 2019. The commodity price, however, experienced a slight rebound in volatility, as it recorded a 6% volatility in August (up 1%-points). The commodity, however, had the lowest volatility in the group of commodities reflecting Soybean's comparative price stability this season.


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2. Maize

Maize prices have had a unique 4-month run, consistently rising by a double-digit percentage price increase outperforming market expectation. It experienced a 14.72% price increase M-o-M (down 4.1%- points), a remarkable slowing of its bullish trend.


The seasonality performance for the commodity increased by 124.8% Y-0-Y (up 30.9%-points) in comparison to August, 2019. The pent up demand accentuated by the lean season is still being directed to depleted stocks as market demand grows.


There was however a reversal in price volatility in August with a rebound to 7% (up 2%-points) M-o-M. Comparing the volatility of August, 2019 with this current year reveals relatively equal market price stability in open market prices for maize.

 

3. Paddy Rice

Paddy rice prices have mirrored the maize market price increase. The commodity returned an increase of 17.7% (up 3.1%-points). M-o-M, thereby maintaining a 4month consistent double-digit percentage price increase from March, 2020. The market seasonality performance surged to 111.2% Y-0-Y (up 80.9%-points).


Paddy rice market price has remained the least stable of the group of commodities (M-S-P) M-o-M compared to maize and soybeans. The average volatility was 7% in August (down 1%-point M-o-M), while the seasonality trend revealed a consistent price volatility decline over the past three years reflecting increasing market stocks, a possible outcome of the Federal Governments interventions on rice farming.

 

AFEX Commodities Exchange

The Exchange experienced a relatively lower price point when compared to the open market for maize, soybean and paddy rice (M-S-P) in August, 2020. The month-average executed prices on the Exchange were lower than the open market prices for maize, soybeans, and paddy rice by 15.5%, 3.9% and 17.8% respectively.


The M-o-M volatility declined for Maize and Soybeans, and increased for paddy prices on the Exchange; Maize 7% (down 0.37%-points), Soybeans 10% (up 7%-points), and Paddy Rice 12% (up 3%-points).


The seasonality trend of the volatility revealed a Y-o-Y decline for maize (down 2%-points), and soybeans (down 10%-points), while paddy rice experienced a positive shift (up 10%-point) in volatility.

 

International Market

Maize and soybeans prices increased marginally in August; soybeans increased by 1.7%, while maize increased by 2.2% M-o-M. Paddy rice average monthly price on the other hand eased considerably by 8.3% due to seasonal market liquidity from Asian producers.


Economic contractions are increasingly being acknowledged globally, and still pose a direct threat to market demand uncertainty, an outcome of the COVID-19 pandemic. However, market supply remains strong, as production continues to increase in South America for maize and soybeans.


M-o-M Volatility increased marginally in August for Maize and Soybeans to 5% (up 1%-points), and 4% (up 1%-points). Paddy rice volatility dipped to 4% (down 19%-points) its lowest in 6 months. This is as a result of market liquidity as harvest peak in Asia for the commodity.

 

C. Composite Price Index Monitor

 

Composite Index

The AFEX Commodities Index Composite opened at 251.1 points and had a monthly average of 261.lpoints, a positive M-o-M performance against August, 2020 to close at 269.7 points at the last trading day of the month. The season-to-date! performance of the ACI Composite at the last trading day of the month was positive, closing 104.9 points above the index opening at the beginning of the season.


The year-on-year (seasonality) performance experienced 100.4 points (62.5%) difference against August, 2019.


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Maize Sub Index

The Maize Sub-Index opened at 311.8 points, and had a month average performance of 333.1 points, representing a positive performance of the Sub-Index against August, 2020, closing at a value of 350.1 points.


The Sub-index recorded a positive season-to-date performance on the last trading day of the month closing 176.0 points (101.1%) above the December Index opening while the year-on-year performance experienced a 91.0% increase against August, 2019. In August 2020, Maize price on the exchange was significantly higher when compared to August, 2019.


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Soybeans Sub-Index

The Soybeans Sub-Index opened at 238.1 points, and had a month average performance of 234.4 points, representing a positive M-o-M performance for the sub-Index. It closed with a value of 232.7points. It recorded a positive season-to-date performance on the last trading day of the month closing 19.2% above the December opening of the index. The year-on-year performance experienced a 49.8 points uptick (27.0%) against August, 2019.


In August 2020, Soybeans price on the Exchange was relatively lower when compared to August last year.


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Paddy rice Sub-Index

The Paddy Rice Sub-Index opened at 196.6 points and had a month average value of 209.7 points, representing a M-o-M positive performance to close at 222.6 points at the end of the month. The Sub-Index recorded a positive season-to-date performance on the last trading day of the month closing 97.6 points (78.1%) above the Sub-Index opening at the start of the season while the year-on-year performance experienced a 67.8% increase against August, 2019.


Paddy rice Exchange price was significantly higher in August 2020 compared to August, 2019.


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Proshare Nigeria Pvt. Ltd.


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