We start the week with the United States (US) dominating the agriculture news, specifically the worries about the size of the damage the windstorms caused in Iowa maize and soybean fields earlier this month. The initial assessment from some local analysts suggests that crop yields will likely be lower than historical averages as a result of the damage caused. This means the season has shifted in a space of days from being one of the best in many years to a disaster for the farmers.
But should South African farmers and grain users care about this incident? I think they should, in as far as it influences the global supplies and prices. Iowa is the US leading maize producer and a major soybean and pig producer. This means crop damage in this State, depending on its scale, could shift the national harvest and prices. With that said, the price data hasn’t been alarming at all. At the end of last week (August 20, 2020), US maize price traded around US$167 per tonne, up by 1% y/y and slightly lower than levels seen in the previous few days. This price level supports the views of various grain analysts such as StoneX — who is on the ground — that estimates the damage in Iowa crop to be lower than many currently fear, and further state that at a national level, the damage will most likely be a blip.
We will receive more insights into the US crop conditions in the evening when the Department of Agriculture (USDA) releases its weekly crop progress report. This particular report will also provide further evidence of the scale of the damage in Iowa crop fields.
The impact of this at a global level, something that South Africa and other African countries should be watching, will be clear on Thursday when the International Grains Council (IGC) releases its monthly global grains supply and demand estimates. The IGC data will provide insight into whether the supply concerns that drove a recent price rally are set to continue, and also whether the aforementioned crop damage in Iowa is something we should worry about at a national (US) and global level.
My sense, in evaluating all the views of analysts on the ground, is that the damage will probably be deemed minimal at a bigger scheme of things. Therefore, the IGC data will reinforce the view that the world will still have surplus grains and oilseeds in the 2020/21 season. The price jumps will continue to occur from time-to-time, as China continues to make big purchases of agriculture products.
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This has been a relatively quiet week in the South African agricultural data calendar. The only notable data releases were the (1) weekly grain producer deliveries and (2) trade activity for the week of 14 August 2020.
First, the producer deliveries figures reaffirmed the view that South Africa’s grain harvest activity has been a bit delayed than normal because of the late start of the season, specifically for maize – a point I made in the previous post. Roughly 78% of the expected maize crop of 15.5 million tonnes had been delivered to commercial silos in the week of 14 August 2020, and fortunately, the quality of the crop is mainly good. Oilseeds harvest is virtually over, so nothing much to say at this point. Also, the winter crops are still at early growing stages, therefore, I will only start looking at the producer deliveries data for these crops around harvest period, which is towards the end of the year.
Second, South Africa exported 14 941 tonnes of maize in the week of 14 August 2020, all to the regional markets. This was the quietest week since May 2020, as exports have been running at a volume of over 50 000 tonnes since the end of that month. South Africa’s total maize exports are currently at 1.1 million tonnes, which equates to 41% of the seasonal export forecast (2.7 million tonnes). The leading markets thus far are the Southern African countries, mainly for white maize, and Japan, Taiwan, Vietnam and South Korea for yellow maize.
About 73% of all maize exports thus far is yellow maize, with 27% being white maize. We will likely see an uptick in white maize exports towards the end of the year into 2021, which is when Zimbabwe’s maize stock will be low and the country will increase its import activity. Another country that will have low domestic supplies then is Kenya, but I doubt if South Africa will be amongst their countries of interest because of the prohibitions of the importation of genetically modified maize.
In the case of wheat, South Africa is a net importer and brought in 9 798 tonnes from Poland in the week of 14 August 2020. This placed South Africa’s 2019/20 wheat imports at 1.6 million tonnes, which equates to 89% of the seasonal import forecast. 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 2019, which means South Africa will have to bring in an additional 200 000 tonnes of wheat within the next few weeks if we are to meet the import forecast of 1.8 million tonnes for the year.
Overall, these data didn’t introduce anything new that market participants haven’t factored in their thinking, I hope. The strong export demand for maize and slow harvest process is something we have discussed in the previous post and viewed it supportive of prices. The weekly trade activity on wheat is too insignificant to matter for price direction of the commodity. The only things that matter for this market are global wheat market developments and domestic currency movements.
For weekend reading, check out BFAP 2020 Baseline document, available here.
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