Depletion of Global Stocks Causes Price Hikes in the International Market


Monday, November 23, 2020 / 5:18 PMKainosedge Consulting for AFEX Commodities Exchange / Header Image Credit: Nairametrics

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A. Market Summary 

Local market activity increased the most for soybean in September while paddy rice Slumped the most by 15.94 percent month on month as against trend witnessed in the past 12-months., with market activity of paddy being most pronounced amongst the commodities of focus in the current month.


Scarcity of commodities domestically saw little or no trades on the exchange resulting into low price volatility on the exchange, similarly in the international markets the depletion of global inventory caused a slow upward price changes. While the exchange saw volatility decline across all commodities, prices on the open markets became increasingly unstable most especially for maize and paddy rice.


The open market prices for maize and paddy rice decreased in response to the termination of the lean season of the crop calendar in the agrarian North which indicates the beginning of harvests from the current planting season which will span Q4, 2020.


On the exchange, the prices for most commodities experienced a decrease driven by the availability of new crops due to the on- going harvest. However, the Exchange traded prices were collectively higher than the open markets for comparative commodity grades. The international prices of commodities all experienced an increase due to the increase in the cost of logistic from export countries to the Nigeria market. This is despite the sharp decline in prices of paddy rice across all major markets due to onset of the harvest of major Asian suppliers.


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 high production zones in Nigeria and the international market.


Open Markets

Commodity prices increased considerably in October for soybean while maize and paddy rice prices experienced a large decline. This was primarily due to large supply of maize and paddy rice attributable to the harvest of these commodities, of which it was cumulatively most pronounced for Maize, as it's crop cycle is at its harvest peak in the high production zones.


1. Soybeans

The average monthly price for October experienced a positive trend. The average price tightened by 4.2% M-o-M, and a 0.87%- different between the change in comparison to September, 2020. The nature of commodities in Nigeria, especially for grain, prices were expected to drop as new crops will be introduced in the market, indicating August to September to be the months with the highest expected price peak, however for soybean the prices reached its peak in October on the open market. In addition, the seasonality performance for soybeans showed a Y-o-Y price increase of 17.13% in comparison to October 2019. The commodity's price has continued to rise as it recorded a 14% volatility in October. The commodity however had the highest price volatility in the group of commodities reflecting Soy's comparative price instability this season.

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2. Maize

The average monthly price experienced a downturn reversing its 5-month bullish trend. Maize prices defied market expectations, with an unprecedented price rally necessitating financial policy from the apex bank on importation in 2020. This trend experienced a reversal, with prices easing considerably as it experienced a 32.98% price decline M-o-M, the highest reversal of the commodity's bullish trend.


The seasonality performance for the commodity increased by 44.37% Y-o-Y in comparison to October, 2019. The market demand declined as the lean season has ended as main harvests has come to replace depleted stocks.


Price volatility for the commodity in October was 10% M-o-M. The commodity however had the lowest price volatility in the group of commodities.


3. Paddy Rice

Paddy rice prices have mirrored the price decline of maize. The commodity returned a decline of 15.94% M-o-M, thereby maintaining last month's bearish trend. The market seasonality performance was 46.48% Y-o-Y.


In the open market, paddy rice experienced a drop in the level of price volatility. The average volatility was 13% in October, while the seasonality trend revealed a consistent price volatility increase over the past three years reflecting increasing market price instability.


AFEX Commodities Exchange

On the exchange, maize and soybean experienced a decline while paddy rice price increased for the month of October. In comparison to the open market, price decline on the exchange was small in magnitude for October 2020. Paddy rice and soybean on the exchange performed in the opposite direction as that in the open market, while price decline of maize was consistent in both the exchange and open market, showing the effects of the CBN policy relaxation in the important of maize in both markets. The month-average executed prices on the Exchange were lower than the open market prices for soybeans by 12.19% and higher than the open market prices for maize and paddy rice by 24.22% and 11.33% respectively.


The M-o-M price volatility increased by a considerable margin for maize, soybean, and paddy rice on the exchange by 27%, 7%, and 20% respectively. The seasonality trend of the volatility revealed a Y-o-Y decline for maize by 7%, soybeans by 11%, and paddy rice 8% in volatility.


International Market

There was a general price increase in the international market across all commodities. This is driven by the reduced production prospect, tighter inventory, and the increased logistic cost of transporting these commodities from different export countries to Nigeria. For the month October, maize, soybean and paddy rice increased by 8.53%, 6.4%, and 2.62% M-o-M respectively.


Large production areas for paddy rice experienced a reduction in production volume, coupled with the global depletion of the commodity, prices experienced an uptick despite the price drop in the Asian markets. Furthermore, the global stocks for soybean have also been impacted by the low production in the USA, as the highest growing states of soybean in US are the hardest hit with the number of COVID-19 cases. Exports from South America and Europe have however bridged the gap but not sufficiently enough to moderate market prices.


M-o-M price volatility increased in October for maize to 4% while soybean and paddy rice maintained the same level of volatility as September at 4% and 3% respectively.


Price seasonality (Y-o-Y) performance experienced wide margin changes for maize by 13.4% , soybean by 17.3% and paddy rice by 13.93%. 

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AFEX Commodities Index (ACI)

The AFEX Commodities Index opened at 271.0 points and had a monthly average of 271.0 points, a zero M-o-M performance against September 2020 mainly as a result of the way the index is modelled to remain unchanged from the month of September to November, in order to reflect the illiquidity of the commodities market for those periods. The Season-To-Date! performance of the ACI Composite at the last trading day of the month was positive, being 106.21 points higher than the start of the season closing at 64% above the index opening at the beginning of the season. The Y-o-Y performance experienced 106.2points (64.4%) difference against October, 2019. 

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Maize Sub Index

The Maize Sub-Index opened at 350.1 points, and had a month average performance of 350.1 points, representing a neutral performance of the Sub-Index against September, 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 at 176.0 points higher than the December Index opening, representing a 101.1% change from the start of the season till date, while the year-on- year performance experienced increased by 101% due to maize price in October 2020 being higher than that in October 2019. 

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Soybeans Sub-Index

The Soybeans Sub-Index opened at 237.4 points, and had a month average performance of 237.4 points, representing a positive M-o-M performance for the sub-Index. The sub-index recording a positive season-to-date performance on the last trading day of the month closing 21.6% above the December opening of the index. The year-on-year performance experienced an uptick of 21.6% against October, 2019.


In October 2020, Soybeans price on the exchange was relatively higher when compared to October last year. 

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Paddy rice Sub-Index

The Paddy Rice Sub-Index opened at 222.6 points and had a month average value of 222.6 points, representing a zero M-o-M positive performance to close at 222.6 points at the end of the month. The SubIndex recorded a positive season-to-date performance on the last trading day of the month closing by 78.1% while the year-on-year performance experienced a 78.1% increase against October, 2019. Paddy rice Exchange price was significantly higher in October 2020 compared to October, 2019. 

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