This morning’s blog post is co-authored with fellow agricultural economist, Tinashe Kapuya. Our aim is to briefly reflect on the recent 2020/21 global grain and oilseed production forecasts from the United States Department of Agriculture and further draw implication for South Africa.
Discussion
We have recently reflected on 2020/21 global grain and oilseed production estimates from the International Grain Council (IGC). These painted a positive picture of the supplies although there were a few minor downward revisions. We are now increasingly convinced that the recent unfavourable weather conditions in parts of Europe, Asia and even the US will not have a severe adverse effect on global production estimates. The United States Department of Agriculture (USDA) released its monthly update of World Agricultural Supply and Demand Estimates report on 11 September 2020, which painted a somewhat similar picture of abundant supplies as the IGC.
The 2020/21 global maize harvest was revised down marginally by 1% from last month to 1.16 billion tonnes, primarily on expectations of lower yields in the US, Ukraine, EU and Russia, amongst others. Nonetheless, the total projected output is still 4% higher than in the previous season. These slight reductions in monthly production estimates, coupled with the growing demand for maize, specifically in China, have in the past couple of days supported global maize prices. Also, it is worth noting that it is only in the northern hemisphere where production has advanced. The planting is only commencing this month in parts of the southern hemisphere. This means the production estimates for the latter are tentative and much will depend on the weather conditions for the coming month.
The implications of this for South Africa have been through price transmission, as the uptick in global maize prices adds, to some extent, support to domestic maize prices, even though South Africa is generally a net exporter of maize. The USDA has also maintained a fairly positive outlook of 14.0 million tonnes for South Africa’s 2020/21 maize production, although this would be 13% lower than the 2019/20 harvest. This projection accounts for both commercial and non-commercial maize.
Admittedly, it is too early to know where the maize harvest will be in 2020/21 as the planting intentions data for the season will only be released next month. That said, 14.0 million tonnes harvest is plausible in an environment that might present above-normal rainfall, coupled with higher commodity prices to encourage increased planting. Moreover, the expected harvest is well above the 10-year average total maize production of 12.9 million tonnes in South Africa, and domestic annual usage of about 11.2 million tonnes.
In the case of wheat, the USDA is more optimistic than the IGC, having lifted its 2020/21 global production estimate by 1% from last month to 770 million tonnes (compared to 768 million tonnes of the IGC). This is primarily underpinned by prospects of a large harvest in Canada and India, amongst other countries. This new production estimate is now 1% higher than the 2019/20 season. The increase in the harvests of these countries will compensate for the expected slight crop declines in the US, EU, UK and Ukraine. The estimates of a slight uptick in global wheat production bode well for wheat-importing countries like South Africa, which could continue to enjoy relative contained prices in the medium term. As previously stated in our notes, over the past 10 years, South Africa has imported on average about 51% of its annual wheat consumption of about 3.1 million tonnes. The figure, could, however, decline somewhat in the 2020/21 season as the domestic wheat harvest is set to be the largest in a decade, estimated at 1.96 million tonnes.
The USDA is rather a bit more pessimistic than the IGC is on 2020/21 global rice production, which is estimated at 499 million tonnes, slightly lower than the previous month. This is 1% lower than the IGC estimate for the same season, while above the previous season’s harvest of 495 million tonnes. The USDA sees a notable decline in rice production mainly in Thailand, which also happens to be the key supplier of rice to South Africa. On average over the past five years, 65% of South Africa’s rice imports originated from Thailand. The other key supplier was India, whose 2020/21 harvest is set to increase marginally from the previous year. The IGC estimates South Africa’s 2020 rice imports at 1.1 million tonnes, up by 10% y/y.
In terms of soybeans, the USDA lowered its 2020/21 global production estimate only slightly by 0.2% from last month to 369 million tonnes. This downward revision was mainly in the US following an expectation of lower yields in states such as Iowa after the recent windstorms. With that said, this is still 10% higher than the previous season’s harvest. The prices, however, are not reflective of a year of an abundant harvest because of growing demand, specifically in China. This is a similar case as in maize. The price increases in soybean products such as soybean meal increase the cost of animal feed for importing countries such as South Africa. The country currently imports nearly half a million tonnes of soybean meal a year.
Overall, the USDA’s monthly report reinforces the view that the IGC had already painted, which is that there will be large supplies of grain and oilseed in the global market in 2020/21. The price increases of the past couple of weeks are not caused necessarily by fears of a decline in supply, rather the shifts in demand in markets such as China. These developments have implications for South Africa as briefly explained above, although the country is a net exporter of major grains such as maize and barley. For commodities where South Africa is a net importer, the implications are even more significant. Therefore, we continue to keep a close eye on these global developments.
Wandile Sihlobo is Chief Economist of the Agricultural Business Chamber of South Africa (Agbiz) and the author of Finding Common Ground: Land, Equity, and Agriculture. Dr Tinashe Kapuya is head of Value Chain analytics division at the Bureau for Food and Agricultural Policy (BFAP).
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
