We now have further evidence that the good rains that the Western Cape received over the past couple of months will have a meaningful contribution to South Africa’s 2020/21 winter crop production. The data released by the Crop Estimates Committee on August 27 shows that South Africa’s 2020/21 wheat, barley and canola production could increase by 28% y/y, 46% y/y and 29%, respectively, to 1.96 million tonnes, 505 215 tonnes and 122 820 tonnes (see Exhibit 1).
To bring some colour on this, the aforementioned wheat harvest will be the largest in a decade, while barley and canola harvests are the largest on record. The conversations I have recently had with farmers in the province confirm this great crop. Some argue that if there are favourable rains in September, the country will be looking at a nice recovery in production this year.
On July 24, in its Seasonal Climate Watch report, the South African Weather Service highlighted prospects for “increased chances of above-normal rainfall over the South-Western and Southern parts of the country between August and October 2020”. We have already received good moisture in August, and hope that rains will continue in the coming months and support the crop. Of course, the Western Cape is not the only province that has contributed to these expected fortunes, specifically in the case of wheat, the Northern Cape, Free State, Limpopo, North West and Eastern Cape are amongst the contributors.
What does this all mean?
To start with wheat, which South Africa over the past 10-years imported on average about 51% per annum of its consumption, there will be a decline in imports. Now, I haven’t factored these numbers in my Supply and Demand Estimates Spreadsheet yet (it’s been a hell of a day, will get to this on weekend), but the back of the envelope calculations suggest that a harvest of 1.96 million tonnes would see South Africa’s wheat imports falling by over 300 000 tonnes in 2020/21 from the currently expected imports of 1.80 million tonnes in 2019/20 season. My colleagues at Grain South Africa (Grain SA) are a bit more cautious than I am, they tentatively looking at roughly 200 000 tonnes decline in wheat imports in 2020/21. Whatever the number will be, the bottom-line story is that a decline in wheat imports bodes well for South Africa’s agricultural trade balance.
With that said, the domestic developments will have minimal impact on wheat prices. As a net importer of wheat, the South African wheat market prices are primarily influenced by developments in the global market as well as the ZAR/USD movements, amongst other factors. On August 26, 2020, the South African wheat spot price was up 9% y/y, trading around R5 048 per tonne.
In terms of barley, South Africa will remain a net exporter. Meanwhile, for canola, the harvest will probably be utilized in the domestic market.
In a nutshell, the favourable rains that the Western Cape received in the past couple of weeks, and good soil moisture in other provinces has been of immense benefit to the South African winter crops. We can now safely say – with caution, of course, as the season is still at early stages – that South Africa will not only have one of the good summer crops seasons but a brilliant agriculture season. I have discussed elsewhere the good outputs coming out of the horticulture sub-sector, and also recovery in the livestock industry, which completes the statement I have made about 2020 having been a season of abundance in South Africa’s agriculture.
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