by Wandile Sihlobo | Oct 15, 2020 | Agricultural Production
One feature that has characterised global agricultural markets over the past few weeks is rising prices. The growing demand from China as the country rebuilds its pig herd, which was decimated by African swine fever, combined with dry weather conditions that adversely affected crops in Europe, have been the major price drivers.
The higher agricultural commodity prices are now visible in the FAO Global Food Price Index, which was up 5% year on year in September at 97.9 points. The grains subindex, which has underpinned the overall Global Food Price Index, was up 14%.
What’s more, with grain prices still at higher levels, we could see the Global Food Price Index remaining elevated in the coming months. On October 8, US maize, wheat and soya bean prices were up 25%, 32% and 21% year on year to $210, $274 and $439 a tonne respectively.
These price increases are largely a function of growing demand and the aforementioned weather concerns in parts of Europe, and not due to any major disruptions to global supply. The recent monthly update of the closely watched US department of agriculture (USDA) world agricultural supply and demand estimates report allays any potential market fears.
For example, the USDA forecasts 2020/2021 global wheat production at a record 773-million tonnes, up 1% year on year on the back of expected large harvests in Russia, Canada, Australia and Kazakhstan, among others.
Importantly, the increased global wheat volume bodes well for wheat-importing countries, such as SA. This also means the main wheat-producing countries have no reason to restrict exports in the coming months as they attempted to do at the start of the year amid fears over the effect of the Covid-19 pandemic. Nonetheless, prices will likely remain at higher levels as weather conditions in the northern hemisphere continue to threaten winter wheat sowing.
In more good news, the 2020/2021 global rice production is estimated at 501-million tonnes, up 1% year on year on the back of expected large harvests in key Asian producing countries.
Similar to wheat, SA takes a keen interest in the global rice production conditions as the country is a net importer of the commodity. The International Grains Council forecasts SA’s 2020 rice imports at 1.1-million tonnes, up 10% year on year. Global rice prices are, however, at levels higher than 2019, in part because of strong global demand across all grains driven by consumer stockpiling during lockdowns.
In the same vein, 2020/2021 global maize production is estimated at 1.16-billion tonnes, a 4% year-on-year increase, with Brazil, the US and Russia among the countries underpinning this large harvest.
In terms of oilseeds, the USDA forecasts 2020/2021 global soya bean production at 368-million tonnes, a 9% annual increase, boosted by improved yields across major soya bean producers in the Americas.
As with other agricultural commodities, the expected large soya bean harvest has not been reflected in prices, which are notably higher than the previous year, driven by growing demand from China.
Essentially, the higher global agricultural commodity prices we have witnessed in the previous months could remain with us for some time, at least as long as the demand from China remains solid. Already the global price increases have filtered into the SA market through higher domestic grain prices. This comes despite the country harvesting its second-largest maize harvest and third-largest soya bean harvest in history, and expecting the largest wheat harvest in a decade.
While this is positive for farmers as it improves their finances, the opposite is true for grain users such as livestock farmers and millers, and ultimately consumers. As things stand, the higher domestic grain prices are an upside risk to SA’s food price inflation, particularly into next year. But that said, I do not expect food price inflation for the year to exceed 5% year on year.
Written for and first appeared on Business Day, October 14, 2020.
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by Wandile Sihlobo | Sep 27, 2020 | Daily Notes
My aim in this morning’s blog post is to provide an update of South Africa’s grain trade data for the week of 18 September 2020. I will also share highlights from the International Grain Council monthly global grains update report.
SA grain trade data
South Africa exported 34 663 tonnes of maize in the week of 18 September 2020. About 37% to South Korea, and the rest to Southern Africa markets (primarily Eswatini, Mozambique, Zimbabwe, Botswana and Lesotho). This placed South Africa’s 2020/21 total maize exports at 1.46 million tonnes, which equates to 54% of the seasonal export forecast (2.70 million tonnes). Yellow maize exports accounted for 75% of the volume already exported, with 25% being white maize. The leading markets thus far are Japan, Taiwan, Vietnam and South Korea for yellow maize, and the Southern African countries (Zimbabwe, Botswana, Mozambique, Lesotho, Eswatini and Namibia), mainly for white maize.
In terms of wheat, South Africa is in a different position, a net importer as the country is not endowed with conducive climate to produce the crop. As such, South Africa imported 46 145 tonnes in the week of 18 September 2020, all from Russia. This placed South Africa’s 2019/20 wheat imports at 1.77 million tonnes, which equates to 98% 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.
Global grains production prospects for 2020/21
The International Grains Council (IGC) monthly report which came out on 24 September 2020, maintained a fairly optimistic picture, with the 2020/21 global grains harvest estimated at 2.23 billion tonnes, a 2% annual increase. This is mainly on the back of expected large maize, wheat, sorghum, rice and soybean harvests. This suggests that the crop damage caused by unfavourable weather conditions in various regions of the US and the EU has been compensated by crop increases in other countries.
To zoom in, IGC forecasts 2020/21 global maize harvest at 1.16 billion tonnes, up by 4% y/y. This increased harvest is expected to originate primarily from the US, parts of sub-Saharan Africa, Russia, and Brazil amongst others. In the case of wheat, the 2020/21 harvest is projected to increase just marginally by 0.2% y/y to a fresh high of 763 million tonnes. This is boosted by expected large yields in Russia, Australia, Canada, and Kazakhstan, amongst other countries.
For rice, the IGC forecasts the 2020/21 global harvest at 504 million tonnes, which is down marginally from the previous month estimate, but up by 1% from the 2019/20 season. This is underpinned by an expected large harvest in Asia and the US. There is also optimism about soybeans, with the 2020/21 global harvest estimated at 373 million tonnes, roughly unchanged from the previous month and 10% higher than the 2019/20 season. The US, Brazil, Argentina, China, India and Paraguay are amongst the key drivers of the expected large harvest.
Essentially, the global grains market will be well supplied in the 2020/21 season. Still, the recent weather disruptions and changes in demand have led to price increases in recent weeks, which is not conducive for grain importing countries.
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by Wandile Sihlobo | Sep 22, 2020 | Daily Notes
The move to ‘level 1’ of the lockdown is a welcome step from a broader macroeconomic perspective, as this ensures that economic activity in the country continues to normalize gradually across more sectors of the economy. Within agriculture, the only segment that will likely benefit the most from this move is agritourism, which has been hard hit by the pandemic due to restrictions in international and local travel, along with the wider tourism industry.
The agritourism industry comprises, amongst others, hunting tourism, rural tourism, wine tourism, nature-based tourism, cultural heritage tourism, and adventure tourism. These activities provide additional income to farming businesses and create jobs in rural areas.
One of the most common forms of tourism in South Africa has mainly been wine tourism and hunting tourism. The former has been hard hit not only by the temporary ban on interprovincial and international travel during various stages of the lockdown but by the temporary prohibition on alcohol sales which has recently been lifted. Wine producers and farmers, specifically small farms, rely to a certain extent, on agritourism to diversify income and to boost the sales of their produce. Hence, the impact of the temporary ban on sales and limited movement of people was quite pronounced despite exports having been permitted for the greater part of the lockdown.
Rural Limpopo also stands to benefit from the increased wider opening of the economy through hunting and wildlife tourism (game-farms and game-lodges). While there is no clear measurement of the value of agritourism in South Africa, studies from the Western Cape Department of Agriculture suggest that accommodation, wine cellars, tours and tastings, restaurant, hiking, conferences and functions, weddings, picnics and fishing are amongst the key offerings in that province. Accommodation, hiking and hunting are likely to be some of the common offerings in other provinces in the country.
Although international tourists, who generally have a higher average spend when compared to local tourists, might remain limited, even with the move to level 1 of the lockdown, we suspect that there might be an uptick of locals exploring the country. This is partly because consumers’ confidence and appetite are likely to slowly return as the spread of the pandemic continues to slow. With respect to international tourists, studies from the Western Cape’s Department of Agriculture show that 29.8% of the international market’s average spend on wine tourism was between R501 to R1000 per day in 2017. The local tourists will most likely spend less than that, especially during the current tough economic times.
Nevertheless, we are already starting to observe anecdotal evidence on social media and other platforms such as various establishments offering special prices and local tourists showing updates of such offerings. While local tourists might not boost the rural economy to vibrant levels as before the pandemic, there will nonetheless be an improvement from weeks of limited business activity. The key challenge is that local tourists will likely be cautious about spending given the poor domestic economic outlook, which means that various businesses that generally derived great value from agritourism will remain under pressure, to a certain extent, over the near-to-medium term. We also suspect that establishments with hiking and hunting facilities will most likely gain from local tourists as individuals may prefer nature which offers social distancing.
Aside from the agritourism, the broader agricultural sector has been open from the onset was classified as essential and did not close during the strict lockdown period. As we have repeatedly pointed out, the wine, tobacco and floriculture are amongst the products whose sales were temporarily banned and therefore hard hit by the lockdown relative to other products and broader subsectors of agriculture. The vibrancy of the sector is evident from the recent GDP data which showed that agriculture’s gross value-added expanded by 15.1% q/q on a seasonally adjusted and annualised basis following an expansion of 27.8% q/q in the first quarter.
In a nutshell, the shift to level 1 of the lockdown will have limited impact on a sector that was already largely open – agriculture. But related industries such as agritourism and small farms that depend on agritourism stands to benefit. This will largely be in provinces such as the Western Cape, Limpopo and other provinces that have various rural offerings that we have listed above, which is accommodation, wine cellars, hunting, restaurants, wedding venues, fishing, and camping, amongst others.
Note: I prepared this text as part of Agbiz weekly Agri-market Viewpoint
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by Wandile Sihlobo | Sep 17, 2020 | Daily Notes
At the outset of the Covid-19 lockdown, agriculture and the food sector were classified as essential services to avoid disrupting the nation’s food supply. But there were always concerns about whether the agricultural value chains and logistics could work efficiently when most other sectors of the economy had ground to a halt.
Industry leaders quickly met, and with the help of the Bureau for Food and Agricultural Policy (BFAP) created a weekly value chain tracker covering all aspects of the sector. This proved an essential tool as challenges emanating from it were elevated to the legislators to be tackled swiftly and ensure the continuity of the sector.
Through the BFAP Covid-19 tracker, we also began to pick up challenges at the ports that led to delays in shipment and had various interactions with industry players. The delays were a great concern as SA’s agricultural sector is export-orientated. As the 2019/2020 production season was bountiful, we had greater volumes of field crops and horticultural produce to export than in previous years.
Continuous co-operation between industry players and the government reduced delays at the ports as the lockdown progressed. Another worry was the logistical challenges at receiving ports and general uncertainty about global trade due to disruptions caused by the pandemic to global supply chains and the debilitating effect lockdowns had on demand.
Yet against all odds, SA has managed to maintain vibrant trade, as illustrated by the agricultural trade surplus, which expanded 32% year on year in the second quarter of the year to $1.1bn, according to data from Trade Map. Exports were little changed compared with the same period in 2019, at $2.4bn, while imports declined notably to $1.3bn. The decline in imports can be attributed to slower domestic demand and large domestic crops.
The growth in agricultural exports was underpinned by citrus, wine, maize, apples, sugar cane, pears, avocados, grapes and macadamia nuts. These products will continue to support SA’s agricultural exports in the remaining two quarters of 2020. Citrus features prominently throughout the year and exports for 2020 are expected to reach a record 142.6-million cartons, up 12% year on year according to data from the Citrus Growers Association of Southern Africa. Similarly, we at the Agricultural Business Chamber estimate SA’s maize exports will reach 2.7-million tonnes this year, up 89% year on year due to a bumper domestic harvest.
The African and Asian continents were the largest markets for SA’s agricultural exports in the second quarter of the year, respectively accounting for 33% and 29% in value terms. Europe was the third-largest market, taking up 28%, and the balance of 10% by value was spread across the rest of the world. The main imports were wheat, palm oil, rice, poultry meat, sunflower oil and sugar. For the rest of the year, rice, wheat and palm oil will likely continue to dominate the imported agricultural product list.
Overall, though the pandemic will result in lower incomes in most world regions due to a decline in demand for goods, the agricultural sector is one of the few that might not be as hard hit. SA’s agricultural exports could increase in 2020 from 2019’s $9.9bn to more than $10bn. The catalyst will be the increase in grains and horticultural output, and the weakening domestic currency.
This all builds from great work various stakeholders in the agriculture, agribusiness, logistics and government sectors have done to ensure the continuous functioning of the sector throughout the lockdown period.
Written for and first appeared on Business Day, September 15, 2020
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by Wandile Sihlobo | Sep 15, 2020 | Daily Notes
Some analysts, myself included, did not anticipate that the 2019/20 harvest and agricultural performance would be as robust as we have witnessed. This is clear from one of the essays I wrote for Business Day on December 10, 2019, which was titled – Another grim year ahead for the despondent agricultural sector (see here).
At the time, there was a high probability of drought in midsummer and the fresh outbreak of the foot-and-mouth disease in Limpopo which had reintroduced all the risks of export bans of animal products and meat. This was overwhelming evidence to convince one that we were perhaps heading towards another fairly bad season. Some regions which were supposed to have planted by December 2019 hadn’t progressed much because of dryness.
This depressing picture only changed from January 2020 when most regions of the country suddenly received good rainfall which enabled plantings. Thereafter, good growing conditions which led to the recent bumper harvests. This delay in plantings is evident through the maize harvest and producer deliveries, which was delayed by nearly a month this year because of the late start of the season on the back of dryness.
So, why am I bringing this up?
My intention is not to introduce doubt to the current favourable rainfall forecasts for the 2020/21 production season, but rather to reflect on the scars of the previous year. While most regions received late rains and proceeded well, parts of the Eastern Cape did not get sufficient rains to improve dam levels. This was muted until recently, with now increasing reports of a potential “day zero” in Port Elizabeth and surrounding areas.
While the average provincial dam level is 51% as of September 14, 2020 data; which is marginally higher than 2019, a closer look at various dams in the province is frightening. The water levels are too low (see here).
In various conversations I had with farmers in the province yesterday, I learned that the critical areas, at least from an agricultural perspective, are around the Amathola mountain watershed and on the Keiskamma dam where water levels are very low; and of course, Port Elizabeth. The aforementioned dam levels data corroborates this view. Also, I am told that Gamtoos farmers have very little water.
With this worrying picture, I am hoping that the forecast of La Niña rains could be a relief to the province (see here). The recent indications from the South African Weather Service suggested that we could receive the first rains towards the end of this month, specifically the eastern and southern regions of South Africa. So, aside from the government interventions that are needed in the province; one looks up with a hope of rains to ease conditions to the Eastern Cape.
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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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