by Wandile Sihlobo | Sep 13, 2020 | Daily Notes
In this blog post, I will briefly reflect on South Africa’s recent weekly grain data releases and also on the upcoming 2020/21 production season, leaning on the United States Department of Agriculture (USDA) data that was published on Friday evening.[1]
SA weekly grain data
The producer deliveries data for the week of 04 September 2020 showed that roughly 83% of the expected maize crop of 15.5 million tonnes of 2019/20 season had been delivered to commercial silos, and the quality of the crop is mainly good. Also, a greater share of the 2019/20 soybean and sunflower seed crop had already been delivered to commercial silos. This is clear from the producer deliveries data, which have slowed in recent weeks, while the sum nearly equals the expected harvest in both crops. In the coming months, I will change the focus from summer crops to winter crops when its harvest begins. This will probably be towards the end of the year, and by then, the focus on summer crops will be on the upcoming 2020/21 production season, and on that crop conditions, not producer deliveries.
However, the weekly grain trade data will remain key for both maize and wheat throughout the year. I will touch on oilseeds and other small grain trade data around month ends, which is when the data is usually released by the South African Information Services.
South Africa exported 46 092 tonnes of maize in the week of 04 September 2020. About 51% of this went to Vietnam and the rest to South Korea and Southern Africa markets (primarily Eswatini, Mozambique, Zimbabwe, Botswana and Lesotho). This placed South Africa’s 2020/21 total maize exports at 1.31 million tonnes, which equates to 49% of the seasonal export forecast (2.7 million tonnes). The leading markets thus far are the Southern African countries (Zimbabwe, Botswana, Mozambique, Lesotho, Eswatini and Namibia), mainly for white maize, and Japan, Taiwan, Vietnam and South Korea for yellow maize. About 75% of all maize exports thus far is yellow maize, with 25% being white maize.
Moreover, South Africa is a net importer of wheat and brought in 49 457 tonnes from Russia in the week of 04 September 2020. This placed South Africa’s 2019/20 wheat imports at 1.65 million tonnes, which equates to 92% of the seasonal import forecast (1.80 million tonnes). The 2019/20 marketing year ends this month. The leading suppliers of wheat to South Africa thus far include Poland, Germany, Lithuania, Russia, Ukraine and Latvia, amongst others.
2020/21 maize production season
The USDA has painted 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 on 28 October 2020. That said, the projected 14.0 million tonnes is plausible in an environment that might present above- normal rainfall, coupled with higher commodity prices to encourage increased planting. Moreover, this 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.
This means, a crop of this size would enable South Africa to remain a net exporter of maize in 2021/22 marketing year, which will begin in May 2021. For domestic consumers, this would mean that we are in for a period of prolonged relatively lower food price inflation.
Exhibit 1 below illustrates South Africa’s maize optimal planting dates. In the recent past, the country hasn’t kept up with this schedule because of delayed rainfall. But the South African Weather Service has recently indicated that the country could receive rainfall from this month, which would then enable planting from the traditional dates.[2]
Exhibit 1: South Africa’s maize optimal planting dates
Source: Grain SA, Agbiz Research
Notes:
[1] Available on the USDA’s website.
[2] The view of the South African Weather Service is available here.
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by Wandile Sihlobo | Sep 10, 2020 | Daily Notes
This has been a week of positive data releases in South Africa’s agricultural sector. So, in the spirit of closing the week on the same energy, I will leave out all global agricultural events which I would have typically covered, such as the United States Department of Agriculture’s World Agriculture Supply and Demand Estimates (WASDE) report which will be released later today and focus on the domestic developments. I will revisit the WASDE report on Monday morning. The WASDE report provides a monthly update of the global grain and oilseed supplies, which are expected to remain plentiful in the 2020/21 season.
Back on the domestic front, one aspect that is worth mentioning is that the positive news of increased agricultural output which boosted the sector’s growth and trade have also benefited the allied industries such as the agricultural machinery industry. South Africa’s tractor sales maintained the positive path in August 2020, which has been underway since June, although showing a marginal increase of only 0.2% y/y, with 430 units sold. Meanwhile, there were 13 units of combine harvesters sold compared to no sales in August 2019. As previously stated, this is underpinned, to a certain extent, by improved farmers’ financial position following a large agricultural output in 2019/20 production season, combined with relatively higher commodity prices.
I am convinced from the available data for the first eight months of the year that the agricultural machinery sales performance will be much better than one might have anticipated at the start of the year, in part, because of the aforementioned large harvest. Nevertheless, I am hesitant about the robustness of prospective sales in 2021. This is irrespective of the expected higher rainfall on the back of a La Niña weather event which should help bring another good harvest.
South Africa’s agricultural machinery industry will be pressured by the weak exogenous macroeconomic fundamentals going into 2021. First, the weaker domestic currency will lead to higher prices for imported agricultural machinery, which will reduce farmers’ ability to acquire tractors and combine harvesters. Second, the recent further downgrade of South Africa’s sovereign credit rating to the sub-investment grade could negatively influence the financing of agricultural equipment.
Aside from the aforementioned macroeconomic fundamentals, one must always keep in mind that, a year of relatively good sales such as 2020, will likely to be followed by a subdued period as the rate of replacement of machinery with new ones would ordinarily be lower than the previous years. These are all signs that 2021 could be a year of relatively poor sales for the agricultural machinery industry.
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by Wandile Sihlobo | Sep 9, 2020 | Daily Notes
The ongoing COVID-19 crisis has brought uncertainty in global trade because of disruptions it is causing in global supply chains and weakening demand. South Africa’s agricultural sector, which is export-orientated, is one of the sectors we had feared would be disrupted by the pandemic, as we witnessed a couple of disruptions in some of the local ports. But the data shows that the country has managed to maintain trade as shown by the agricultural trade surplus which expanded by 32% y/y in Q2, 2020 to US$1.05 billion, as illustrated in Exhibit 1. Exports remained flat compared to last year, while imports declined notably.
The growth in exports was underpinned by citrus, wine, maize, apples, sugar cane, pears, avocados, grapes and macadamia nuts, amongst other agricultural products. These products will continue underpinning South Africa’s agricultural exports in the next two quarters of 2020. Citrus feature prominently from the second quarter data onwards as its exports for this year are expected to reach a record 142.6 million cartons, up by 12% y/y. Similar to citrus, maize will dominate this year; we estimate South Africa’s maize exports to reach 2.7 million tonnes, up 89% y/y because of higher domestic harvest.
From a destination point of view, the African continent and Asia were the largest markets for South Africa’s agricultural exports in the second quarter of this year, respectively accounting for 33% and 29% in value terms. Europe was the third-largest market, taking up 28% of South Africa’s agricultural exports in the second quarter of 2020. The balance of 10% value was spread across other regions of the world.
In terms of imports, the leading products included wheat, palm oil, rice, poultry meat, sunflower oil and sugar. For the year, I believe rice, wheat and palm oil will dominate the agricultural import product list. South Africa’s 2020 rice imports could amount to 1.1 million tonnes, up by 10% from 2019, according to data from the International Grains Council. Meanwhile, South Africa’s 2019/20 wheat imports could increase by 29% y/y to 1.8 million tonnes. There could also be an increase in palm oil in the coming months.
In a nutshell, while the pandemic will result in a loss of incomes in various regions of the world, and in turn, a decline in demand for goods; the agriculture and food sector is one of the few that might not be as hard hit. As such, for the year, South Africa’s agricultural exports could increase from the US$9.9 billion of 2019 to levels above US$10.0 billion. The key catalysts this year will be the increase in grains and horticulture output and to some extent the weakening domestic currency.
Exhibit 1: Solid activity in our agriculture exports, folks!
Source: Trade Map, Agbiz Research
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by Wandile Sihlobo | Sep 8, 2020 | Daily Notes
Well, South Africa’s agricultural gross value-added didn’t quite expand by the same magnitude that I had expected but was nonetheless in a similar trend. I had pencilled an expansion of between 20% – 25% q/q on a seasonally adjusted and annualised rate (saar), but the figure came out at 15.1% q/q saar. This followed an expansion of 27.8% q/q saar in the first quarter.
We’ve realized this growth because most of the sector was classified as essential and didn’t close down during the strict lockdown period, whose effect extended to the second quarter. Importantly, this is a recovery year in agricultural output across all subsectors (field crops, horticulture and livestock) following prolonged periods of drought, and a surge in exports (supported by the weak exchange rate).
To add a bit of colour to the latter point of output, from a field crops perspective, South Africa harvested its second-largest grains harvest on record. Within this category, maize, sunflower seed, and soybeans produced in the current season (2019/20 production year) are up 38% y/y, 16% y/y and 8% y/y, estimated at 15.5 million tonnes, 785 910 tonnes and 1.3 million tonnes respectively. Also, South Africa’s sugar cane production is set to increase by 1% y/y to 19.4 million tonnes.
In the case of horticulture, South Africa has generally had a good fruit harvest this year, with the citrus industry recently noting a 12% y/y increase in available supplies for export markets in 2020. There is also a broad recovery in the production of deciduous fruit with apple and pear production up by 5% y/y and 1% y/y respectively in 2020.
There is also a general recovery in the livestock industry although this particular subsector was not as robust as other subsectors. The latter is also evident as slaughtering activity softened when the country went into strict lockdown at the end of March. With that said, the livestock sector activity will probably recover in the third quarter, depending on the widespread opening of restaurants and the ability of consumers to afford animal products.
Unfortunately, however, this did very little to change the overall GDP picture of South Africa as primary agriculture is a small share of the economy. The overall economy contracted by 51% q/q saar, largely reflecting the effects of lockdown restrictions put in place to slow the spread of the pandemic that negatively affected productivity across various sectors.
Overall, I am still of the view that South Africa’s agricultural gross value-added could expand by at least an average of 10% y/y this year (compared to a contraction of 6.9% y/y in 2019).
This blog contains extracts from an Agbiz note we sent out after the release of GDP data.
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by Wandile Sihlobo | Sep 7, 2020 | Daily Notes
This is an important day in the South African economics calendar. At 11h30 this morning, Statistics South Africa will release GDP data for the second quarter of the year. Recent surveys of macro analysts’ forecasts of the second quarter GDP show that the South African economy could contract by around 47% q/q on a seasonally adjusted and annualised basis, largely reflecting the effects of lockdown restrictions put in place to slow the spread of the pandemic across various sectors.
The agricultural sector, however, will probably be the only shining star, in part because the sector was classified as essential and didn’t close down during the strict lockdown period, whose effect extended to the second quarter. Most importantly, because this is a boom year in agricultural output, across all subsectors (field crops, horticulture and livestock).
As I have recently highlighted in the previous blog entries, South Africa’s agriculture already had a solid start to the year with first-quarter gross value-added growing by 27.8% q/q on a seasonally adjusted and annualised basis. I noted then that the succeeding quarters would likely continue to show strong growth, a view I still maintain. But the second-quarter expansion could be somewhat milder than the first quarter, possibly at a range of 20-25% q/q on a seasonally-adjusted and annualised basis. The key drivers will remain somewhat the same as the previous quarter, which was an uptick in animal products, field crops and horticulture.
Within field crops, sugar was the main driver, while in horticulture, deciduous fruits were the primary drivers of the bounce in the first quarter. In the second quarter, however, summer grains and oilseeds will likely be the key drivers of growth as harvest processes and deliveries started gaining momentum during this quarter going into the third quarter, as the season was delayed due to dryness when the season began. Meanwhile, in the horticulture industry, citrus most likely dominated in the second quarter. I doubt that the animal products remained as robust in the second quarter as slaughtering activity softened when the country went into strict lockdown at the end of March. If anything, the animal products activity will probably recover in the third quarter, which is when restaurants started opening more widely.
With that being said, I am still quite optimistic about the performance of this sector in 2020, maintaining our forecast, at Agbiz, for the year to average at about 10% y/y (compared to a contraction of 6.9% y/y in 2019). Other institutions such as the Bureau for Food and Agricultural Policy (BFAP) are more optimistic than us, placing their agricultural growth forecast for the year at 13% y/y. This optimism is based on the bumper maize crop of 15.5 million tonnes (the second largest in history), surging export prices of major fruits (further supported by the weak exchange rate) and strong overall sales of agricultural produce in the first four months of the COVID-19 pandemic. This is, of course, with the exceptions of the wine and tobacco industries, where domestic trade has been restricted through various stages of the lockdown, and only permitted in August 2020.
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by Wandile Sihlobo | Sep 6, 2020 | Daily Notes
I’m making it a routine to use this Monday note to reflect on the two weekly data releases in the South African agricultural market, namely (1) the grain producer deliveries and (2) trade activity. For now, the focus on the producer deliveries data is on summer grains, but that will change in the coming months when the winter crop harvest begins.
Admittedly, most people are probably not watching the producer deliveries data for summer grains closely as in the past few weeks as the harvest is virtually over and the attention is shifting towards the 2020/21 production season which commences next month. The outlook for the upcoming season is positive, with prospects of above-normal rainfall. In its Seasonal Climate Watch report which was released on 04 September 2020, the South African Weather Service noted that “the multi-model rainfall forecast for spring, late spring and early summer (Sept-Nov, Oct-Dec and Nov-Jan) indicate increased chances of above-normal rainfall over most parts of the country with the main focus being on the summer rainfall areas in the northeast of South Africa.” The northeast comprises parts of Limpopo, Mpumalanga, Free State and parts of KwaZulu-Natal provinces.
Back to the producer deliveries, the data for the week of 28 August 2020, showed that South Africa’s grain harvest activity has been delayed because of the late start of the 2019/20 season, specifically for maize which will be a primary focus in this note. Roughly 82% of the expected maize crop of 15.5 million tonnes had been delivered to commercial silos that week, and the quality of the crop is mainly good.
In terms of trade, South Africa exported 80 309 tonnes of maize in the week of 28 August 2020. About 43% of this went to Japan, 35% to Vietnam and the rest to Southern Africa markets. This placed South Africa’s total maize exports at 1.26 million tonnes, which equates to 47% of the seasonal export forecast (2.7 million tonnes). The leading markets thus far are the Southern African countries (Zimbabwe, Botswana, Mozambique, Lesotho, Eswatini and Namibia), mainly for white maize, and Japan, Taiwan, Vietnam and South Korea for yellow maize.
About 75% of all maize exports thus far is yellow maize, with 25% being white maize. As I set out in the previous blog entry, there will likely be an uptick in white maize exports towards the end of the year and into early 2021, which is when Zimbabwe’s maize stock will be low and the country will increase its import activity. We can rule out Kenya as a potential market. While Kenya will experience maize shortage towards the end of the year into early next year, South Africa is unlikely to be a country of choice for its imports because of the prohibitions on the importation of genetically modified maize, which South Africa produces roughly 80% of it.
In the case of wheat, South Africa is a net importer and brought in 9 022 tonnes from Russia in the week of 28 August 2020. This placed South Africa’s 2019/20 wheat imports at 1.61 million tonnes, which equates to 89% of the seasonal import forecast (1.80 million tonnes). The leading suppliers of wheat to South Africa in the 2019/20 marketing year include Poland, Germany, Lithuania, Russia, Ukraine and Latvia, amongst others. This marketing year ends in September 2020, which means South Africa will have to bring in an additional 193 924 tonnes of wheat within the next few weeks if we are to meet the import forecast for the season.
Best wishes for the week!
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by Wandile Sihlobo | Sep 3, 2020 | Daily Notes
Though SA is a net exporter of some grains, such as maize and barley, the country is not insulated from developments in the global grains market. International price movements in these commodities do influence trading conditions in the domestic market to an extent. For rice, wheat and soybean meal, of which SA is a net importer, global market conditions matter even more. The livestock and poultry industries, which rely heavily on maize and soybean meal for feed, often bear the brunt of global grain market aftershocks.
I therefore always take a keen interest in developments in the global grains market. Over the past few weeks, there have been numerous reports of dry weather conditions threatening crops in Europe. Parts of the US have experienced severe windstorms, which destroyed maize and soybean fields, while parts of Asia have been affected by floods. These events have raised concern that earlier expectations of a record global grains harvest in 2020/2021 could turn out to have been overly bullish.
The International Grains Council (IGC) report of August 27 maintained an optimistic picture, with the 2020/2021 global grains harvest estimated at a record 2.23-billion tonnes, a 2% annual increase. It is supported by expected large maize, wheat, rice and soybean harvests. This suggests unfavourable weather conditions have thus far caused less damage than previously feared.
Starting with maize, which accounts for more than half of global grain in volume terms, the 2020/2021 harvest projection is 1.17-billion tonnes, up 4% year on year. The potential increases will be mainly from the US, Brazil and Canada. This will offset projected harvest declines in Argentina, India and parts of the EU, whose crops have been negatively affected by the unfavourable weather. The large global maize harvest has not translated into price declines in recent weeks. On August 27 the global maize (Chicago maize) price was up 7%, trading at about $173 a tonne. The price drivers of global maize prices have been the weather concerns and growing Chinese demand.
In the case of wheat, the 2020/2021 harvest is projected to increase 0.1% to a fresh high of 763-million tonnes, boosted by expected large harvests in Russia, Australia and Canada. Similar to the maize market, the strong global demand for wheat has sustained global prices (US HRW) at higher levels. On August 27 global wheat prices were up 15% trading about $232 a tonne.
For rice, the IGC forecasts the 2020/2021 global harvest at 505-million tonnes, up 2%. This is underpinned by an expected large harvest in Asia after expansion in the area planted and expectations of higher yields. The floods that have caused damage in parts of Asia in recent weeks seem to have caused minimal disruptions to paddy rice, a semiaquatic crop anyway. But similar to other commodities, rice prices have remained elevated. On August 27 Thailand (5% broken) rice prices were up about 25% at $500 a tonne.
There is also optimism about soybeans, with the 2020/2021 global harvest estimated at 373-million tonnes, up 10%. The US, Brazil, Argentina and Paraguay are the key drivers of the expected large harvest. But strong soybean demand from China has continued to sustain prices at relatively high levels. On August 27 US, Argentina and Brazil soybean prices were up 11%, 7% and 9% from the previous year, trading at $389 a tonne, $376 a tonne and $405 a tonne respectively.
Global grain markets will still be well supplied in the 2020/2021 season, but the recent weather disruptions and changes in demand have caused price increases, which is not conducive for importing countries such as SA.
Written for and first appeared on Business Day, September 1, 2020
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by Wandile Sihlobo | Sep 2, 2020 | Daily Notes
Agriculture is one of the sectors that will help create employment and economic activity in rural South Africa. I have argued in the previous blog entries that the South African government should instead recast its vision of agricultural development using Chapter Six of the National Development Plan as a point of departure. This specifically applies to the former homeland regions and underutilised land reform farms, as these are the areas that still carry the potential for agricultural expansions.
As I have previously mentioned elsewhere, this developmental ambition will require that South Africa confront various infrastructure and governance constraints that have hindered development and growth of agriculture over the past two decades. These include, but not limited to; (1) Market failures (high transaction costs, remote location); (2) Government failures (inefficiencies, poor service delivery and corruption); (3) Community failures (poor local institutions, vested interests of traditional leaders); and (5) Poor land governance (lack of secure tenure). This also includes trivial politics and divisions amongst various stakeholders that contribute to slow progress in this sector (see here).
Chapter Six of the of the National Development Plan highlights that the labour-intensive and high-value products such as those in horticulture should be prioritized (this message is still very relevant even today, eight years since its publication). But of course, in areas where horticulture can’t thrive, field crops and livestock and other activities such as agricultural tourism should be explored.
The additional insights that today’s blogpost brings comes from a paper written in 2019 by the Western Cape Department of Agriculture agricultural economists — Louw Pienaar; Mzwanele Lingani and Philip Swart. Their paper zoomed into the horticulture industry and highlighted the fruitfulness of high (value) growth and labour-intensive horticultural crops. This ties in with the broader agricultural development message I have been writing about elsewhere (and, briefly, in the first three paragraphs of this post).
Here is a synopsis borrowed from the Pienaar, Lingani and Swart paper, which is relevant to the message I want to highlight today:
Exhibit 1 below illustrates multiple attributes amongst the leading horticultural crops grown in South Africa with regards to their relative size in gross value of production (size of the bubble), their five-year annual growth in value from 2013 to 2018 (y-axis) and the employment potential in the form of the number of jobs needed per hectare planted (x-axis).
From an employment perspective, each hectare of blueberries planted results in the direct employment of 2.64 fulltime equivalent workers, on average. This is the highest employment intensity amongst the major fruits grown in South Africa. Other industries with high employment potential were table grapes (2.2), flowers (2.1) and cherries (1.9), whilst pome (apples & pears) and stone fruit (apricots, plums, prunes, peaches & nectarines) created 1.1 jobs per hectare planted. At the lower end of the spectrum, crops such as nuts, sub-tropical fruit and citrus have employment multipliers of around 0.5.
In terms of economic growth, the blueberry industry has significantly outperformed other fruit industries by growing its gross value of production from an estimated value of R15.8 million in 2008 to R1.25 billion in 2018. This phenomenal growth has led to the creation of more than 4 000 jobs and has created economic opportunities for exporters, input suppliers and various sector providing goods and services to support these farming activities.
Meanwhile, other good performers over the same period were table grapes and nuts have been performing well, expanding in value by 24% and 21% respectively per annum. Pome and stone fruit had moderate growth over this period with 6% per annum, whilst the wine grape industry came under severe pressure lately with annual growth of 0.8%.
Exhibit 1: Comparison of growth and jobs in crop industries
Source: Louw Pienaar; Mzwanele Lingani and Philip Swart (2019)
Acknowledgement: The last three paragraphs and the chart are drawn from Louw Pienaar; Mzwanele Lingani and Philip Swart (2019). The full paper is available here.
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