Written for and first appeared on Business Day, October 27, 2020
It is not my usual practice to revisit the subject of a previous column. But in this instance, I am compelled to do so because of the fast-changing global agricultural outlook and its implications for prices.
The sentiment around 2020/2021 global grain and oilseed production is now somewhat less optimistic due to a possible downward revision to the respective harvests. This comes amid doubts over the potential size of South American and Black Sea grain and oilseed harvests because of dryness threatening crops.
In Brazil and Argentina, which account for 14% and 50% of global maize and soya bean production respectively, there are reports of persistent dryness that has caused delays in plantings. It seems the rains of last week in parts of this region did not much improve soil moisture. On October 20 about 47.2% of Brazil’s maize had been planted, compared with 58.8% in the corresponding period last year, according to AgRural, Brazil’s commodities consultancy. On the same day, AgRural stated that only 6.1% of Brazil’s 2020/2021 soya beans had been planted compared with 19.5% on October 20 2019.
Meanwhile, Russia (Black Sea region) and the US, which collectively account for 17% of global wheat production, reported potential damage to their crops because of persistent dryness. That said, the scale of the potential impact on the 2020/2021 global maize, soya bean and wheat harvests remain unclear. I suspect there could be downward revisions from the optimistic estimates reported by both the International Grains Council (IGC) and the US department of agriculture.
Under such a scenario, grain and oilseed prices, which are already enjoying support from reports of unfavourable weather conditions, could remain elevated for some time. On October 23 US maize, wheat and soya bean prices, which can be viewed as global prices, were up on a yearly basis by 32%, 30% and 20% respectively, trading at $229, $279 and $466 per tonne.
The weather effects are, of course, not the only driver of prices. Growing demand from among others China, which is rebuilding its pig herd, as well as Egypt for wheat, have also boosted commodities prices. The challenge now is that the reprieve from price increases might not materialise in the near term if there is a sizeable downward revision to 2020/2021 global grain and oilseed production forecasts.
We will only have a clearer sense of the impact of dryness on global crop harvests when the US department of agriculture releases its update of the monthly “World Agricultural Supply and Demand Estimates” report. The data we have thus far, which I partially leaned on in my previous column on this subject, paints a positive picture of 2020/2021 global grain and oilseed supplies. For example, the US department of agriculture estimated 2020/2021 global maize, wheat and soya bean harvests at 1.16-billion, 773-million and 368-million tonnes respectively, up 4%, 1% and 9% year on year.
Some of the countries that had underpinned these optimistic harvest prospects are among those now experiencing delays in planting due to dryness and potential damage to the wheat crop. Updated data will be released on November 10.
While SA is a net importer of only two of the commodities I have discussed — wheat and soya bean products — the changes in global prices will definitely filter into domestic prices. The consequence could be lagged domestic food price inflation. Nevertheless, I maintain the view that SA’s food price inflation will not exceed 5% year on year, all other factors being equal.
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