Grains boom?

Grains boom?

The global grains environment has changed somewhat from the optimistic picture of a few weeks ago. The increased dryness in parts of Europe and the US is weighing on global crop production, specifically maize and wheat, and this has raised the prospects for downward revision of yields estimates. The United States Department of Agriculture (USDA) was the first of major institutions at the start of this month to lower its estimates for US maize and wheat production. This was followed by the EU’s production estimates, primarily on the back of concerns about yield prospects.

To zoom into the details, the downward revision of US maize production resulted in a 2% decline in the 2020/21 global maize production from June estimates to 1.16 billion tonnes. Nevertheless, this is still 4% higher than the previous season, supported by expected large production in South America, Europe and parts of Asia.

The crop is currently at its growing stages in the northern hemisphere which means the weather is an important factor to monitor in the coming weeks and months since it will continue to influence crop conditions. In the southern hemisphere, however, the 2020/21 maize season’s planting will only begin around October.

The long-term weather forecasts, specifically for South Africa, generally look favourable which supports the view for a possible, good crop even in southern hemisphere countries that are yet to plant the 2020/21 crop. Here at home, the focus is currently on the 2019/20 maize crop which is still at harvest stages. For example, in the week of 17 July 2020, about 52% of the expected commercial harvest of 15.5 million tonnes had already been delivered to commercial silos across South Africa.

In terms of wheat, the USDA forecasts the 2020/21 global wheat harvest at 769 million tonnes, which is marginally lower than the previous month’s estimate because of the aforementioned weather challenges in parts of EU and the US. This, however, is still 1% higher than the previous season.

SA stands to benefit

Wheat-importing countries like South Africa stand to benefit from large global supplies. South Africa imports roughly 50% of its annual wheat consumption. In the 2019/20 marketing year, which ends on 30 September, imports are estimated at 1.8 million tonnes. About 85% of this has already landed in the South African shores. The import volume requirements for the 2020/21 marketing year which starts on the first of October 2020, will be clearer once we have a reliable estimate of the size of the harvest of the crop which is currently underway. It is this marketing year that consumers will benefit from both cost and availability perspective from the expected decent global wheat harvest.

Other major grains that are worth monitoring, but were not affected by the recent downward revisions on the back of weather concerns, are rice and soybeans. In the case of rice, the USDA has maintained its production forecast at a record 502 million tonnes, up 1% y/y on the back of an expected large crop in Asia. Under this production estimate, global rice stocks could also lift by 2% y/y to 185 million tonnes. This would add bearish pressure on prices and, in turn, be beneficial to import countries like South Africa, which is set to import 1.1 million tonnes in 2020 (up 10% y/y).

The 2020/21 global soybean production was also left roughly unchanged from last month at 363 million tonnes, which is up 8% y/y. This is on the back of an expected recovery in production in the US, Argentina, Brazil and Paraguay, amongst others.

Influence on prices

Positively for consumers, the influence of these large global grains supplies is starting to reflect on prices which have somewhat softened over the past couple of weeks compared to last year. This is evident on the FAO global grains index which averaged 86.6 points in June, down by 2% y/y.

In a nutshell, the dryness in parts of Europe and the US is increasingly becoming a concern and has led to a downward revision of crop prospects. But this was fortunately compensated by expected large harvests in other regions, hence on balance, the expected harvest is still higher than the 2019/20 production season with prices somewhat softening as a result of this expected harvest. With that said, the weather conditions for the coming months in Europe, the US and other major grains producing regions are crucial as that will influence the size of the crop the world end up with in 2020/21 production season.

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Rain brings grain

Rain brings grain

If you ask a South African grain analyst: “what are you observing at the moment?”, the answer would usually be “the weather”. Between October and February of each year, the weather conditions usually underpin the price movements in the South African grain markets. Hence, one would hear analysts say “we are on the weather market”. If its dry, prices would typically be up. And if weather conditions are favourable, the opposite would be true.

But this time around, the weather market will possibly extend to March. Rainfall was delayed by roughly a month in some areas of the country at the start of the season. This meant that crop plantings faced a somewhat similar delay. Therefore, crop development would also require such an extended period.

Over the past few weeks, South Africa received widespread rainfall which improved soil moisture and could be viewed as conducive for agricultural development. Exhibit 1 below illustrates topsoil moisture across the country in the week of the 11th of February 2020. This improvement in soil moisture has prompted analysts in the market and various organizations to lift their estimates of South Africa’s summer crop production, specifically maize. One such organization is the United States Department of Agriculture that currently forecasts South Africa’s 2019/20 maize production at 14.0 million tonnes, which is up 19% from the previous season. This is supported by expectations of higher yields and an improvement in area plantings.

In such periods one would expect maize prices to reflect current developments. In the present scenario, to decline from levels seen in 2019. But that is not the case. South Africa’s white and yellow maize prices were up 6% year-on-year and 3% year-on-year on the 13th of February 2020, trading around R2 897 per tonne and R2 679 per tonne, respectively. This disconnect from the “usual fundamental driver – the weather” is partly caused by the growing demand for South African maize in neighbouring Zimbabwe.

The current price levels, however, won’t be for long. As soon as harvest begins, all else being equal, prices could soften notably. This will be for the benefit of the South African consumer, and a testimony to the view that “rain is good”. It indeed brings grain.

Exhibit 1: South Africa’s soil moisture
Source: World Weather Inc

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Grains boom?

A mixed bag of grains

We had important data out overnight – the World Agricultural Supply and Demand Estimates report, produced by the United States Department of Agriculture (USDA). The commodities I typically pay close attention to in this report are wheat, maize and soybeans, for various reasons, however.


South Africa is a generally net importer of wheat, so its key that one has a sense of global wheat supplies and other market developments. In the 2019/20 season, South Africa’s wheat imports could increase by 33% y/y to 1.8 million tonnes. This is 13% higher than the five-year average import volume, exacerbated by the decline in domestic wheat production on the back of unfavourable weather conditions in parts of the Western Cape late 2019.

Fortunately, there are large supplies in the global market. The USDA forecasts 2019/20 global wheat production at 764 million tonnes, up 4% y/y. What’s more, the 2019/20 global wheat stocks are estimated at 288 million tonnes, which is also 4% higher than the previous season. This means global wheat prices could remain somewhat subdued this year, which will be beneficial for importing countries such as South Africa. The existing wheat import tariff in South Africa could, however, slightly reduce these gains that domestic buyers would have enjoyed. Meanwhile, somewhat cushioning local farmers (this is a discussion for another day).


South Africa is a net exporter of maize, so one looks into the USDA data for two reasons; (1) to get a sense of their estimate for South Africa’s maize production at a particular season, (2) and for a view of global maize supplies, which partially influences domestic maize prices. With that said, the correlations between the global and South African maize prices tend to be weak in years of maize abundance in the domestic market.

The USDA forecasts South Africa’s 2019/20 maize production at 14.0 million tonnes, which is up 19% from the previous season. This data comprises both commercial and non-commercial production. Hence, it is slightly higher than the estimates we have recently released (our commercial maize production estimate for the 2019/20 season is 12.5 million tonnes, which is the lower end of market expectations).

If such harvest materializes, South Africa could have over 1.5 million tonnes of maize for the export market. This will benefit maize-importing countries such as Zimbabwe, Mozambique, Japan, Taiwan, and SACU market, amongst others. These are all typical markets for South African maize.

Globally though, maize production is set to fall by 1% y/y to 1.1 billion tonnes in 2019/20. This will subsequently lead to a 7% y/y decline in stocks to 297 million tonnes. While this will be supportive of global maize prices, its influence on the South African maize market is likely to remain minimal.


South Africa imports, on average, 550 000 tonnes of soybean oilcake (meal) a year. About 97% from Argentina. Hence, we are compelled to pay close attention to global soybean market dynamics. The USDA forecasts 2019/20 global soybean production at 339 million tonnes, down 5% y/y. As a result, the 2019/20 global soybean stocks are down 11% y/y, estimated at 99 million tonnes. With China now back in the market, this means soybeans and its product prices could be slightly elevated in the coming months, which is not good for importing countries such as South Africa.

Concluding remark

Overall, this is a “mixed bag of grain market dynamics”; global wheat prices could be favourable in the near term for importing countries (and South African consumer). The same is true for maize but the benefit will be from the anticipated improvement in domestic supplies. Meanwhile, soybeans could be the opposite.

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South Africa and Zambia’s Maize Supplies are in Good Shape

South Africa and Zambia’s Maize Supplies are in Good Shape

The United States Department of Agriculture has just released its World Agricultural Supply and Demand Estimates report, which covers most major grains and oilseeds estimates for the 2018/19 production season. The broader global theme remains roughly unchanged from last month. There is less wheat in the world due to drought in parts of the European Union and Black Sea region. Meanwhile, maize, soybeans and rice production estimates are relatively higher than last season due to expectations of large yields in the US, Asia and South America, amongst others – I know I am skipping a lot of important details, will come back to this next week.

From the South African side, the agency left its estimates for 2017/18 season, which is a crop that is currently being harvested, unchanged from last month at 13.8 million tonnes. While higher than the average production of 12.5 million tonnes, this is well below the previous season’s record harvest of 17.6 million tonnes due to a decline in area planted and expectations of average yields in some areas.

The key message from these numbers is that South Africa’s maize market will be well supplied in the 2018/19 marketing year, which ends in April 2019. Total maize supplies could reach 16.7 million tonnes, well above the local demand of 10.8 million tonnes per annum. The maize supplies figure combines opening stocks and expected production. This essentially means that during the 2018/19 marketing year, South Africa’s maize exports could, at the least, amount to 2.5 million tonnes – slightly lower than the volume exported in 2017/18.

Furthermore, the agency placed Zambia’s maize production at 2.4 million tonnes, down by 34 percent from last year’s record crop, and down 20 percent from the 5-year average. This decline is on the back of a reduction in area planted, as well as expected lower yields due to unfavourable weather conditions earlier in the season. Drought prevailed in Zambia’s maize production areas from December 2017 through January 2018. The extent of January’s drought also occurred during the critical pollination stage which adversely affected yields.

Although the expected production is 14 percent lower than the country’s annual maize consumption, Zambia’s maize supplies are still in good shape, thanks to large stocks of over a million tonnes from last year.

This generally means that maize prices in South Africa and Zambia could remain at fairly lower levels in the near term. The key risk is the expected El Niño — chance of another drought in the coming summer season — but we will get more reliable estimates about this in the coming month or so.

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