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 16, 2020 | Daily Notes
This morning’s blog post is co-authored with fellow agricultural economist, Tinashe Kapuya. Our aim is to briefly reflect on the recent 2020/21 global grain and oilseed production forecasts from the United States Department of Agriculture and further draw implication for South Africa.
Discussion
We have recently reflected on 2020/21 global grain and oilseed production estimates from the International Grain Council (IGC). These painted a positive picture of the supplies although there were a few minor downward revisions. We are now increasingly convinced that the recent unfavourable weather conditions in parts of Europe, Asia and even the US will not have a severe adverse effect on global production estimates. The United States Department of Agriculture (USDA) released its monthly update of World Agricultural Supply and Demand Estimates report on 11 September 2020, which painted a somewhat similar picture of abundant supplies as the IGC.
The 2020/21 global maize harvest was revised down marginally by 1% from last month to 1.16 billion tonnes, primarily on expectations of lower yields in the US, Ukraine, EU and Russia, amongst others. Nonetheless, the total projected output is still 4% higher than in the previous season. These slight reductions in monthly production estimates, coupled with the growing demand for maize, specifically in China, have in the past couple of days supported global maize prices. Also, it is worth noting that it is only in the northern hemisphere where production has advanced. The planting is only commencing this month in parts of the southern hemisphere. This means the production estimates for the latter are tentative and much will depend on the weather conditions for the coming month.
The implications of this for South Africa have been through price transmission, as the uptick in global maize prices adds, to some extent, support to domestic maize prices, even though South Africa is generally a net exporter of maize. The USDA has also maintained 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 next month. That said, 14.0 million tonnes harvest is plausible in an environment that might present above-normal rainfall, coupled with higher commodity prices to encourage increased planting. Moreover, the expected harvest 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.
In the case of wheat, the USDA is more optimistic than the IGC, having lifted its 2020/21 global production estimate by 1% from last month to 770 million tonnes (compared to 768 million tonnes of the IGC). This is primarily underpinned by prospects of a large harvest in Canada and India, amongst other countries. This new production estimate is now 1% higher than the 2019/20 season. The increase in the harvests of these countries will compensate for the expected slight crop declines in the US, EU, UK and Ukraine. The estimates of a slight uptick in global wheat production bode well for wheat-importing countries like South Africa, which could continue to enjoy relative contained prices in the medium term. As previously stated in our notes, over the past 10 years, South Africa has imported on average about 51% of its annual wheat consumption of about 3.1 million tonnes. The figure, could, however, decline somewhat in the 2020/21 season as the domestic wheat harvest is set to be the largest in a decade, estimated at 1.96 million tonnes.
The USDA is rather a bit more pessimistic than the IGC is on 2020/21 global rice production, which is estimated at 499 million tonnes, slightly lower than the previous month. This is 1% lower than the IGC estimate for the same season, while above the previous season’s harvest of 495 million tonnes. The USDA sees a notable decline in rice production mainly in Thailand, which also happens to be the key supplier of rice to South Africa. On average over the past five years, 65% of South Africa’s rice imports originated from Thailand. The other key supplier was India, whose 2020/21 harvest is set to increase marginally from the previous year. The IGC estimates South Africa’s 2020 rice imports at 1.1 million tonnes, up by 10% y/y.
In terms of soybeans, the USDA lowered its 2020/21 global production estimate only slightly by 0.2% from last month to 369 million tonnes. This downward revision was mainly in the US following an expectation of lower yields in states such as Iowa after the recent windstorms. With that said, this is still 10% higher than the previous season’s harvest. The prices, however, are not reflective of a year of an abundant harvest because of growing demand, specifically in China. This is a similar case as in maize. The price increases in soybean products such as soybean meal increase the cost of animal feed for importing countries such as South Africa. The country currently imports nearly half a million tonnes of soybean meal a year.
Overall, the USDA’s monthly report reinforces the view that the IGC had already painted, which is that there will be large supplies of grain and oilseed in the global market in 2020/21. The price increases of the past couple of weeks are not caused necessarily by fears of a decline in supply, rather the shifts in demand in markets such as China. These developments have implications for South Africa as briefly explained above, although the country is a net exporter of major grains such as maize and barley. For commodities where South Africa is a net importer, the implications are even more significant. Therefore, we continue to keep a close eye on these global developments.
Wandile Sihlobo is Chief Economist of the Agricultural Business Chamber of South Africa (Agbiz) and the author of Finding Common Ground: Land, Equity, and Agriculture. Dr Tinashe Kapuya is head of Value Chain analytics division at the Bureau for Food and Agricultural Policy (BFAP).
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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 | Aug 13, 2020 | Agricultural Production
This essay first appeared on Business Day, August 13, 2020
Tempus fugit (time flies) is an apt phrase to describe developments in the global agricultural market. It feels like just the other day when I wrote an update note on global grain conditions following the release of the monthly world agricultural supply and demand estimates report from the US department of agriculture. On August 12, the department released its update for August, which made minor yet mixed adjustments from the previous month’s estimates.
Maize
In a positive development for these uncertain times, the 2020/2021 global maize production estimate was lifted 1% to 1.17-billion tonnes from the July estimate, which is also 5% higher than 2019/2020 production. The upward revisions were mainly on the US and Ukraine’s maize production estimates. In the case of Ukraine there is a consensus in the market that the heatwave that raised concerns in the past few months might have caused lower-than-expected damage, hence the level of optimism about the harvest.
However, there are doubts about the size of the US maize harvest as traders believe the unfavourable weather conditions of the past few weeks might have caused damage to the crop. This is something we will keep an eye on, and the US department of agriculture numbers for October should account for such potential damage. Be that as it may, my sense looking at all the recent data releases — from the US and the International Grains Council (IGC) — is that the world will have abundant maize supplies in the 2020/2021 season.
This, of course, is a northern hemisphere story. The southern hemisphere’s maize plantings will only start around October, but the medium-term weather forecasts point to a potentially good season, which is also supportive of the optimistic view coming out of the US.
Moreover, the US has lifted its estimate for 2020/2021 global soybean production by 2% from July’s estimate to 370-million tonnes — a 10% annual uptick.
This is supported by prospects of a large crop in the US and South America. Brazil has made large shipments to China in recent months, which should incentivise farmers to increase plantings in the 2020/2021 season to serve ever-growing Chinese demand. This projection is supported by solid growth in feed demand as China recovers from African swine fever and expands its poultry industry.
Wheat
On the negative side, in terms of wheat, the US department of agriculture has trimmed its estimate for 2020/2021 global production by 0.4% from July to 766-million tonnes. The downward revision was mainly to the EU’s estimate, which is unsurprising as that region has experienced dryness in the past couple of weeks. Nevertheless, this is 0.3% higher than the previous season’s record global wheat production. This also underscores the aforementioned optimism around global grain supplies.
This is comforting news for countries, such as SA, that are dependent on imports. SA imports roughly half its annual wheat consumption. Increased production means global prices could soften or remain flat, which is beneficial to local consumers. Most importantly, this also means the key wheat-producing countries won’t need to restrict exports during the pandemic, as they attempted to do at the start of the year.
Rice
The 2020/2021 global rice production estimate was also cut by 1% from July’s estimate to 500-million tonnes, primarily on the back of expected lower yields in parts of the US, Thailand and Vietnam. The current estimate, however, is still something to celebrate; it is up 1% from the 2019/2020 season and promises to boost rice stock levels.
Similar to wheat, South Africans take a keen interest in the global rice production conditions as the country is a net importer to augment domestic consumption. The IGC currently estimates SA’s 2020 rice imports to be 1.10-million tonnes, up 10% year on year. Hence a forecast year of relatively large global rice supplies bodes well for importers such as SA.
It also signals that there won’t be a need for protectionist policies by major producers, even in the case of the rice trade — earlier in the year, Vietnam and Cambodia were among the countries that were jittery and attempted to place protectionist trade policies on rice, which were later reversed.
In a nutshell, the US department of agriculture revisions in August 2020 were mixed with downward revisions in some crops and upward in others. But the big picture is that all expected harvests will be larger than the 2019/2020 season, which means the world will be awash with grains. This should keep global food price inflation in check in the medium term.
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by Wandile Sihlobo | Jul 4, 2020 | Agricultural Production
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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by Wandile Sihlobo | Jun 4, 2020 | Agricultural Production
I’ve recently cautioned that dryness in parts of Europe and North America could lead to poor grain yields, which would mean that anticipated record harvests in 2020/21 might fail to materialise. But data released by the International Grains Council (IGC) last week proved the opposite of what I had expected. The IGC maintained its view that there are large grain supplies in the global market and that the 2020/21 season promises an even larger harvest (with the previous month’s high estimates being revised upwards).
To start with maize, for the 2020/21 season global production has been lifted marginally from the April 2020 estimate to an all-time high of 1.2 billion tonnes, this is up by 5% y/y. As noted in my previous write-up, this is underpinned by expected larger harvests in the US, Brazil, China and the EU. The planting of this crop has begun in the northern hemisphere and it has progressed with minimal interruptions, albeit with the additional coronavirus-related precautions on farms.
In the southern hemisphere, maize planting for the 2020/21 production season will only begin around October. The focus is currently on the 2019/20 crop which is currently being harvested. South Africa expects the second-largest maize harvest on record, of about 15.6 million tonnes. Therefore, any dynamics on the global maize market will have minimal implications on South Africa as the country remains a net exporter. The preliminary forecast for the 2020/21 production season (next season) released by the IGC suggests that South Africa’s maize production could fall to 14.0 million tonnes. While it is too early to put much weight on such a futuristic forecast by agricultural standards, it is worth noting that the figure is well above South Africa’s long-term average maize production of 12.5 million tonnes, so the country will remain a net exporter of maize.
In terms of wheat, the IGC lifted its forecast from April 2020 to a record 766 million tonnes. This is up 1% y/y and it is attributed to expected large production in Canada, Australia, Argentina, China, India and Kazakhstan, amongst others. This will mean that the 2020/21 global wheat stocks could increase by 6% y/y to 290 million tonnes. The wheat importing countries such as South Africa stand to benefit from such an outlook. Of course, assuming there will be no further restrictions on exports imposed by exporting countries as the data shows that there should not be global supply worries.
South Africa’s production of wheat for the 2020/21 production season is underway and the outlook is not encouraging. Plantings are set to fall by 8% y/y to 495 000 hectares, mainly in the Free State. This means that South Africa will continue to have a large dependence on imports, which account for about 50% of annual consumption.
In the case of rice, the IGC has maintained its production forecast at a record 507 million tonnes, up by 2% y/y. With the main Asian rice-producing regions still some time away from harvesting, the outlook for rice production in 2020/21 is tentative. Nevertheless, under the current production forecast, global rice stocks could expand by 3% y/y to 182 million tonnes. This would add bearish pressure on prices and, in turn, be beneficial to wheat importing countries like South Africa.
While the IGC maintained a positive outlook despite the reported incidence of dryness which is threatening wheat; I still think the grain markets are not completely out of the woods. The weather remains a major risk factor that requires constant monitoring in the global grain markets. Having said that, I still think there is no need for panic at this juncture nor for major grain-producing countries to re-impose restrictive trade policies that some had implemented at the start of the pandemic due to supply concerns. The global grain markets are awash with carryover stocks from the 2019/20 production season, and optimism about the 2020/21 production season will become much clearer in the coming weeks.
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