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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.
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.
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.
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.
In
July 2020, Soybeans price on the exchange was relatively low when compared to
July Last year.
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