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Scarcity of Key Commodities In Nigeria Causes Price Surge - AFEX Commodities Monthly Report

Commodities	1346 VIEWS
Commodities
1346 VIEWS

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Monday, August 017, 2020 / 03:10 PM / Kainosedge Consulting for AFEX Commodities Exchange / Header Image Credit: Vegefresh Group

A. Market Summary

Local market activity increased in July for maize and paddy rice resulting in a double-digit percentage price increase, with the market activity of maize being the 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 Market for maize and soybeans leaving volatility neutral M-o-M while paddy rice increased marginally by 2%-points.

The Open Market prices for all three commodities witnessed gains 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 policy response by the Central Bank of Nigeria (CBN) 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, and price seasonality performance analysis for maize, soybeans, and paddy rice across crop endemic zones in Nigeria and the international market.

Open Markets

Commodity prices increased further in July, sustaining the seasons' upward trend which was cumulatively most pronounced for maize.

1. Soybeans

The average monthly price sustained a consecutive 5-month price increase in the open markets. The average price tightened by 8.6% M-o-M, its highest monthly price gain this season. The crop cycle is currently at its mid-season which will be terminated by harvests which commence in November annually. This indicates ongoing depletion without replenishment of market stocks.

In addition, the seasonality performance for soybeans showed a Y-0-Y price increase of 11.0% (17%-points) in comparison to June 2019. Volatility has declined for the commodity, as it recorded its highest drop M-o-M from the start of the commodity season to 5% in July (14%-points). The seasonality trend shows a Y-o-Y decline in the volatility for soybeans easing by 4%-point in July 2020.

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2. Maize

Maize prices have consistently increased from the start of the commodity season in December 2019. It experienced an 18.83% price increase M-o-M (Â¥8.5%-points), remarkably the highest net-negative monthly price gain this season for the commodity. The seasonality performance for the commodity increased by 93.9% Y-0-Y(4 36.1%-points) in comparison to July 2019. This difference in market performance is due to pent up demand accentuated by the lean season directed to the markets as market demand grows.

Volatility declined to 5% (A&17%-points) M-o-M. Comparing the volatility of July 2019 with July this current year shows that open market prices were more stable in the previous year than this year by a 19%-points margin.

3. Paddy Rice

Paddy rice prices increased by 13.2% M-o-M, thereby maintaining a 3-month consistent price increase from March 2020. The market seasonality performance surged to 39.9% Y-o-Y (24%-points). Over a clear double in comparison to May 2020.

Paddy rice price was the least stable M-o-M compared to maize and soybeans. The average volatility was 8% in July (1%-point M-o-M), while the seasonality trend revealed better price stability in 2020 with a decline in the volatility decreasing by 88%-points in July 2020.

AFEX Commodities Exchange

The Exchange experienced a relatively lower price when compared to the open market for maize, soybean and paddy rice in July 2020. The month-average executed prices on the Exchange for maize, soybeans, and paddy rice increased M-o-M by 26.9%, 14.6% and 5.3% respectively.

The M-o-M volatility declined for maize, and paddy rice and increased for soybeans; Maize 7% (63%-points), Soybeans 18% (9%-points), and Paddy Rice 9% (6%-points). The seasonality trend of the volatility revealed a Y-o-Y increase for Maize (1%), Soybeans (18%), and Paddy Rice (9%) volatility.

International Market

Maize and soybeans prices gained marginally in July; soybeans increased by 2.3%, while maize increased by 1.3% M-o-M. Paddy rice average monthly price eased by -10.7% due to seasonal pressures from harvests. The commodity market supply from South America is bolstering market stocks and is predicted to surpass last year's output.

Economic contractions still pose a direct threat to market demand uncertainty, an outcome of the global COVID-19 pandemic. Market supply remains strong, as production continues to increase in South America for maize and soybeans, and supply for paddy rice remains strong from India and Thailand.

Volatility increased marginally in July for paddy rice to 23% (2%-points) and maintained a neutral change for maize at 4%, and soybeans at 3% indicating price stability.

C. Composite Price Index Monitor

Composite Index

The AFEX Commodities Index Composite opened at 245.6 points and had a monthly average of 250.3points, a positive M-o-M performance against June 2020 to close at 251.1 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 is positive, closing 86.3 points above the index opening at the beginning of the season. The year-on-year (seasonality) performance experienced 92.0 points (58.1%) difference against July 2019.

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Maize Sub Index

The Maize Sub-Index opened at 323.8 points, and had a month average performance of 315.4 points, representing a positive performance of the Sub-Index against June 2020, closing at a value of 311.5 points.

The Sub-index recorded a positive season-to-date performance on the last trading day of the month closing 137.4 points (78.9%) above the December Index opening while the year-on-year performance experienced a 98.3% increase against July 2019. In July 2020, maize price on the Exchange was significantly higher when compared to July 2019.

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Soybeans Sub-Index

The Soybeans Sub-Index opened at 213.2 points, and had a month average performance of 234.2 points, representing a positive M-o-M performance for the sub-Index. It closed with a value of 238.1 points. It recorded a marginal positive season-to-date performance on the last trading day of the month closing 22.0% above the December opening of the index. The year-on-year performance experienced a 39.2 points uptick (20.1%) against July 2019.

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