On 10 November 2020, the Australian Bureau of Meteorology reaffirmed its forecast of a La Niña occurrence from this year until at least February 2021. While this weather phenomenon presents prospects of higher rainfall and a potentially good agricultural season in South Africa, other regions of the world could experience the opposite. Within the African continent, one such region is East Africa, where the La Niña weather event typically correlates with below-average rainfall in the months from December to February. This is a period just before the start of the summer grains planting, which is typically in February of each year. Therefore, the current La Niña event has raised the risk of yet another poor agricultural harvest for countries in this region, such as Kenya, Somalia and Ethiopia. This means that these countries will likely still depend on maize imports in the 2021/22 marketing year.
Another region which is at risk, and more important for global maize and soybean supplies is South America. The La Niña weather event typically correlates with dryness in parts of Argentina and Brazil. The early effects of this are clear in the 2020/21 planting season, which is still underway, with planting progress in these countries lagging behind the previous years’ pace because of dryness. There is also concern that even when planting is completed, the crop yields will likely be much lower because of dryness. The regions of southern Brazil have already rung alarm bells to this possibility. Brazil and Argentina collectively account for 14% and 50% of global maize and soybean production, respectively, hence the concerns about crop conditions in this region having implications on both global supplies and prices.
Interestingly, the United States Department of Agriculture (USDA), which released its update of the World Agricultural Supply and Demand Estimates report on 11 November 2020, is still optimistic about Brazil and Argentina’s soybean and maize production in 2020/21. The USDA currently forecasts Brazil’s 2020/21 soybean harvest at a record 133 million tonnes, up by 6% year-on-year (y/y), with Argentina’s 2020/21 soybean harvest also set to be up by 4% y/y, estimated at 51 million tonnes. For Argentina, the current harvest estimate is down marginally from the October 2020 estimate, which mirrors the nervousness about the yields, while for Brazil, the USDA kept its estimate unchanged from last month. In addition, the USDA forecasts Brazil’s 2020/21 maize production at 110 million tonnes (up 8% y/y), which is unchanged from the October 2020 estimate. Meanwhile, for Argentina, the 2020/21 maize production estimate is down by 2% y/y, estimated at 50 million tonnes.
The USDA reviews its estimates monthly. Therefore, there is still a chance that the current optimistic estimates about 2020/21 soybean and maize production in Brazil and Argentina could change as more information about post-planting crop conditions become available. Historic data does illustrate that in La Niña periods, crop yields in these countries are generally poor. Hence, I am convinced that it is a matter of time before the USDA begins downward revisions of their crop estimates for these countries.
Under such a scenario, the 2020/21 global soybean and maize production estimates would have to be revised downwards. Currently, the USDA forecasts 2020/21 global soybean and maize production at 362 million tonnes and 1,14 billion tonnes, which is up by 8% y/y and 3% y/y, respectively. The possible downward revision of these production estimates will mean that crop prices will remain at their current elevated levels. Soybean and maize prices have in the past few months largely been supported by growing demand, specifically in China, and the prevailing weather issues are an added factor. These relative price increases are illustrated in the FAO Cereal Price Index, which averaged 111.6 points in October, up 17% from the corresponding period in 2019.
In sum, the La Niña weather event in 2020/21 presents varying fortunes for global agriculture across regions. East Africa and parts of South America could see crops being negatively affected this season. For Southern Africa, La Niña tends to bring higher-than-average rainfall, as we have stated previously. Therefore, there is little concern at this stage in terms of maize supplies as the country is expected to harvest over 16 million tonnes of maize in 2020/21 (this estimate is from both Agbiz and the USDA), and remain a net exporter. But for soybeans, South Africa remains a net importer of roughly half a million tonnes of soybean meal, the bulk of which originates from Argentina, which means there could be risks for the domestic livestock and poultry producers. Importantly, global price movements will still influence commodity prices in South Africa. This is something that the livestock, dairy and poultry sectors should keep an eye on over the coming months.
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