South Africa’s Crop Estimates Committee has lowered its estimates for the country’s 2019/20 wheat production by 5% from October 2019 to 1.6 million tonnes. This equates to a 16% decline from the 2018/19 season.

We are not surprised at all by this development as we stated in the previous blog post that Western Cape’s winter wheat crop, which has largely been harvested, wasn’t in good shape as initially anticipated. The decline in South Africa’s overall wheat harvest estimate is underpinned by lower yields in this particular province. The Northern Cape, Free State, Eastern Cape and North West aren’t in particularly in good shape either.

With South Africa being a net importer of wheat, this downward revision of production prospects might not have notable implications on wheat prices. The domestic wheat prices are largely influenced by international wheat market conditions (aside from local currency movements).

Currently, there are large wheat supplies in the global market. In its November 2019 update, the United States Department of Agriculture estimated the 2019/20 global wheat production at 766 million tonnes, which is 5% higher than the previous season. As a consequence of this, the stocks could increase by 4% y/y to 288 million tonnes.

This will essentially keep global wheat prices at relatively lower levels, which is beneficial for consumers in importing countries such as South Africa. (We currently forecast South Africa’s 2019/20 wheat imports at 1.6 million tonnes, up 14% y/y because of the aforementioned poor harvest this year).

With that said, the relatively weaker domestic currency has somewhat provided support to South Africa’s wheat prices which currently trade at R4 370 per tonne, up 4% y/y. All else being equal, we could see a sideways movement of South African wheat prices around its current levels over the next couple of months.

Written for Agbiz.

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