Forecasts of bumper grains harvest suggest subdued food price inflation this year

Forecasts of bumper grains harvest suggest subdued food price inflation this year

The high-frequency data on both domestic and global markets reinforced our view that grain prices could be under pressure this year and that, in turn, could lead to subdued food price inflation. In June 2020, the International Grains Council (IGC) lifted its estimate for 2020/21 global maize production from last monthly estimate to 1.2 billion tonnes, which is the largest harvest on record, and up 5% from the previous season. The downward swing in global maize prices saw a 21% y/y decline by 25 June 2020, with prices trading around US$162 per ton. Low global maize prices are likely going to remain the theme for the rest of the year.

The season is underway in the northern hemisphere, with the crop in most countries reportedly in good condition. Meanwhile, in the southern hemisphere, the 2020/21 production season will start around October 2020. The focus is still on the 2019/20 season, with the harvest process in full swing in all major southern hemisphere maize producing countries such as South Africa, Brazil and Argentina. What’s more, all these countries are forecast to obtain large harvests which will improve supplies, ahead of another expected good 2020/21 season starting in October, as previously noted. In the case of South Africa, the maize harvest is estimated at 15.5 million tonnes, which is the second-largest harvest on record and well above the annual domestic consumption of about 11 million tonnes. This not only means domestic maize prices could be under pressure in the coming months, but also that exports could also increase which is positive in boosting the agricultural trade balance.

In terms of wheat, the IGC lifted its 2020/21 production estimate further from 766 million tonnes last month to a new record of 768 million tonnes. This is underpinned by the anticipated largest harvest in Russia, Canada, Australia, Argentina, China and India, amongst others. While some European countries reported dryness last month, the weather conditions have now improved somewhat, specifically in the Black Sea region, which is conducive for the crop. As a consequence of the expected improvement in production, the 2020/21 global wheat stocks could increase by 6% y/y to 290 million tonnes. This means that global wheat production could be under pressure in the coming months. On 25 June 2020, the global wheat price was down 8% y/y, at US$212 per tonne (I’m using here the US Hard Red Winter wheat).

Wheat importing countries such as South Africa stand to benefit from such an optimistic outlook, more so, because South Africa’s 2020/21 season might lead to yet another small crop because of a potential reduction in area planted. Plantings are set to fall by 8% y/y to 495 000 hectares, mainly due to a decline in an area in the Free State. This means that South Africa will continue to have a large dependence on imports, about 50% of annual consumption.

In the case of rice, the 2020/21 global production was revised down marginally from 507 million tonnes last month to 505 million tonnes, which is still a record harvest. This is boosted by an expected large crop in India, Vietnam, Thailand, Indonesia and Bangladesh, amongst others. The anticipated large production could subsequently lead to a 2% y/y increase in global rice stocks to 180 million tonnes. Similar to the aforementioned commodities, rice prices could also ease in the coming month. Global rice prices harvest already come off higher levels observed in April where there were prospects of trade restrictions and a higher degree of uncertainty about the 2020/21 season harvest. South Africa, as a rice importing country, stands to benefit from this positive outlook. The IGC currently forecasts South Africa’s 2020 rice imports at 1.1 million tonnes, up by 10% y/y.

Soybean is another important crop for global food security, as a key input in animal feed. The IGC forecasts 2020/21 global soybeans production at a new peak of 364 million tonnes, which is up 8% y/y. This is supported by expected large harvests in the US, Argentina and Brazil, amongst others. This expected uptick in production could lead to a 3% y/y increase in stocks to 45 million tonnes. This means, the global soybeans prices could also be under pressure in the coming months, but this could be eased by a rapid push to rebuild the Chinese pig industry, which has been devastated by the African Swine Fever. We doubt that might be the case though. From a South African perspective, the country stands to benefit as it imports around half a million tonnes of soybean oilcake (meal). On average, 97% of soybean meal originated from Argentina over the past 10-years.

These positive global grain and oilseed prospects support our view that food price inflation could be subdued this year, hovering around 4% y/y (from an average of 3.1% y/y in 2019). The key upside risk within the food price inflation basket will mainly be meat, in part, because of base effects and a possible uptick in poultry prices following the recent increase in import tariffs. Overall, however, grains, and also fruit prices could offset the potential increases in inflation and keep the headline number at lower levels.

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Brief observations from global grains production data

Brief observations from global grains production data

There are a number of institutions that produce global agricultural supply and demand estimates, with the notable ones being the United States Department of Agriculture (USDA) and the International Grains Council (IGC). The former has recently released its monthly update comprising of various commodities. For the purpose of this post, however, I am only going to focus on wheat, maize and soybeans. These are also commodities that matter a lot for South Africa as the country is a net importer of wheat and soybean products.


In its January 2020 update of the World Agricultural Supply and Demand Estimates report, the USDA placed 2019/20 global wheat production estimate at 764 million tonnes, which is 5% higher than the previous season. As a consequence of this, the stocks could increase by 4% y/y to 288 million tonnes. This will essentially keep global wheat prices at relatively lower levels, which is beneficial for consumers in importing countries such as South Africa.


In the case of maize, however, the USDA forecasts 2019/20 global maize production at 1.1 billion tonnes. This is 2% less than the previous season because of a poor harvest in parts of the US and Argentina, amongst other countries. These are still comfortable levels in covering the world’s maize needs. The reduction in production, while consumption is relatively strong, means that the stocks could fall by 7% y/y in 2019/20 season to 297 million tonnes. This has led to a general uptick in maize prices. Fortunately for South Africa, the spillover will be minimal in the near-term as the country is a net exporter of maize.


The 2019/20 global soybean production is set to decline by 6% y/y to 338 million tonnes, mainly on the back of anticipated poor yields in the US and Argentina. However, the stocks will not be affected notably because of somewhat lower demand, specifically in Asia following the African swine fever which negatively affected the pig industry. This means that soybean prices might not increase notably in the near term, which would be beneficial for importing countries. South Africa is one such country; a net importer of soybeans and a notable importer of soybean oilcake.

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