by Wandile Sihlobo | May 14, 2020 | Agricultural Production
This week, the United States Department of Agriculture (USDA) released the World Agricultural Supply and Demand Estimates data – arguably among the most anticipated data releases in global agricultural markets. The agency reinforced the message painted by the International Grains Council (IGC) last month, that there are large supplies in the global market.
This message also allays the fears of countries that had placed export bans fearing for a global shortage of grain commodities.
To start with maize, the USDA forecasts the 2020/21 global production to nearly 1.2 billion tonnes, up 6% y/y (see Exhibit 1). Similar to the point made by IGC, this will mainly be underpinned by an expected expansion in area plantings and higher yields in the US, Mexico, Canada, Brazil and the EU. The planting of this crop has begun in the northern hemisphere and progressed with minimal interruptions, albeit with the additional coronavirus-related precautions on farms. Moreover, input supply chains appear to be functioning well across the globe. In the southern hemisphere, planting will only begin around October for the 2020/21 season.
Exhibit 1: Global maize supply and consumption (million tonnes)
Source: USDA
In terms of wheat, the USDA forecasts a 1% y/y increase in 2020/21 production to a new high of 768 million tonnes (see Exhibit 2). The improvement is expected in Australia, India and Russia boosted by an increase in area planted and expected higher yields. This will compensate for a potential production reduction in the EU, Ukraine, the US and North Africa. This will mean that the 2020/21 global wheat stocks could increase by 5% y/y to 310 million tonnes.
The wheat importing countries such as South Africa stand to benefit with such an outlook, assuming there are no further restrictions on exports imposed as the data shows that there should be no global supply worries.
Exhibit 2: Global rice supply and consumption (million tonnes)
Source: USDA
South Africa’s 2020/21 wheat production season recently commenced 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, about 50% of annual consumption. Fortunately, the lockdown regulations have had minimal interruptions on wheat plantings, and now the “level 4” regulations mean that the sector is largely operational, albeit observing all health protocols.
In the case of rice, the USDA forecasts a 2% y/y increase to a record 502 million tonnes (see Exhibit 3). This is boosted by a potential increase in area planted in Asia, Africa and the Americas. Under this production estimate, the USDA forecasts a 2% y/y increase in global rice stocks in the 2020/21 season to 184 million tonnes, which would add bearish pressure to prices and, in turn, be beneficial to net importing countries such as South Africa.
Exhibit 3: Global rice supply and consumption (million tonnes)
Source: USDA
While the road ahead is remarkably uncertain because of the COVID-19 pandemic, export restrictions on agricultural products should not be a policy option that countries pursue. Fortunately, Russia and Kazakhstan have recently indicated that they intend to abolish their recently imposed export quotas on wheat. This comes as it is increasingly becoming clear that there are prospects for large supplies in the market. There are currently large carryover supplies in the market from the 2019/20 season, and the 2020/21 production season promises to be even more bountiful. Over the coming month, we will closely monitor the production developments and weather conditions in key grain-producing countries.
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by Wandile Sihlobo | Mar 18, 2020 | Agricultural Production
The data released this morning by Statistics South Africa shows that the country’s food price inflation accelerated to 4.2% y/y in February 2020, from 3.7% y/y in the previous month. This uptick was mainly underpinned by relative price rises of meat; milk, eggs and cheese; oils and fats; and vegetables.
Nevertheless, this doesn’t change our view that what will matter the most for the direction of food price inflation this year are developments in the grains, meat markets and fruit. These three food categories account for nearly two-thirds of South Africa’s food price inflation basket.
Firstly, the outlook for South Africa’s grain production is positive. Maize production could increase by 35% y/y to 16.0 million tonnes, according to the latest forecasts from the USDA. This could be the second-largest maize harvest on record after the 2016/17 season (which was 16.8 million tonnes for total maize). What’s more, global wheat production, which South Africa is a net importer of, is set to be up 5% y/y to 764.0 million tonnes. This means grain-related product prices could be under pressure in the coming months. The only key risk which we continue to monitor is COVID-19, specifically on wheat shipments. So far, however, we haven’t noticed glitches.
Secondly, meat price inflation was subdued in 2019 because of the ban on red meat exports on the back of a foot-and-mouth disease outbreak at the start of that year. We are seeing a repeat of a similar situation this year following another foot-and-mouth disease outbreak at the end of 2019. This means South Africa’s meat prices could again remain at relatively lower levels for the greater part of this year. But the lower base effect of 2019 will mean that meat will not suppress the overall food price inflation in 2020 as much as in the previous year.
Thirdly, there are prospects of good fruit harvests this year, with the citrus industry recent noting a 13% y/y increase in available supplies for export markets (see here). Amid the COVID-19, especially within the EU and Asia region, which are important markets for South African fruit exports; any glitches in supply chains would result in an increased supply for the local market, thereby lowering prices. This would be good for a consumer, but the inverse can be said for farmers.
Against this backdrop, we are convinced that South Africa’s food price inflation should hover around 4.0% in 2020 (food price inflation averaged 3.1% y/y in 2019). Under this scenario, the upside pressure will largely come from meat; and importantly, it will mainly be base effects in the case of red meat, and a possible slight uptick in poultry products prices on the back of a recent import tariff adjustment.
In my Business Day column this morning, I discuss the question of food supplies in the country (see here). In brief, we expect South Africa’s food supplies to hold despite COVID-19. The implications of the panic buying that the virus has induced on food price inflation remains unclear in the near-term. Suffice to say that prospects are positive on food supplies in the country, where the pain could be felt in the near-term is amongst the farming businesses. This is because of the negative impact COVID-19 has on global supply chains and thereafter global demand.
We continue to monitor the situation and will update as more data and information become available.
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by Wandile Sihlobo | Feb 27, 2020 | Agricultural Production
This promises to be a good year for South Africa’s grain sector, at least from a production front. The data released yesterday by the Crop Estimates Committee (CEC) show that South Africa’s 2019/20 summer grains production could increase by 26% y/y to 16.8 million tonnes. While this is still the first estimate for this season, with eight more to follow, if it materialises, this could be the second-largest summer grains harvest on record after the 2016/17 crop. The major gains are on maize, soybeans and sunflower seed.
The 2019/20 maize, soybeans and sunflower seed harvest are forecast at 14.6 million tonnes, 1.2 million tonnes, and 699 130 million tonnes. This is respectively up by 29%, 6% and 3% from the previous season. The increase is mainly supported by an expansion in area planted in the case of maize and expected improvements in yields on the back of favourable weather conditions.
The maize production estimate is well above ours of 13.7 million tonnes, while the soybean and sunflower seed estimates are below ours of 1.5 million tonnes and 761 070 tonnes. The variation can largely be explained by adjustments in area plantings, which for maize was revised up and soybean and sunflower plantings slashed from the preliminary estimates released on the 29th of January 2020.
The weather conditions have generally been favourable over the past few weeks with a fair amount of rainfall which improved soil moisture across many regions of the country. As a result, the crop is in good condition, and thus, we are convinced that the CEC estimates are plausible.
In the case of maize, the data essentially means that South Africa would remain a net exporter in the 2020/21 marketing year which starts in May 2020 (this corresponds with 2019/20 production season). This is at a time where Southern African maize import needs could outpace the previous year, with Zimbabwe in need of maize supplies to an extent that the country lifted a ban on the importation of genetically modified maize, which eases access for South African maize exporters.
What’s more, a maize harvest of 14.6 million tonnes would enable South Africa to export maize beyond the continent to other typical markets such as Japan, Taiwan, Vietnam and South Korea who are not prominent in the current marketing year. Unlike maize, however, South Africa could remain a net importer of soybean products, specifically oil cake, and a net importer of sunflower oil, irrespective of the potential improvement in the harvest. This is caused by the growing domestic demand for these particular oilseed products.
Written for Agbiz.
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by Wandile Sihlobo | Feb 20, 2020 | Agricultural Trade
This note is a bit delayed. I had to attend a conference this morning. Here is a Twitter feed for those keen to see what went down.
Back to business!
It is Thursday – a grain trade day. The South African Grain Information Services (SAGIS) releases the country’s grain trade data for the week of 14th of February 2020 at midday. The data covers grain and wheat. To reiterate a point I made last week, although grain trade data are important for tracking the movement of commodities into and outside South Africa, they are rarely market moving. This is because of the week’s long lag in reporting. By the time we receive the numbers from SAGIS, the key grain market players are probably aware of the levels of sales.
Maize
South Africa is a net exporter of maize. In the week of 7th February 2020, South Africa’s 2019/20 marketing year maize exports amounted to 976 279 tonnes (both white and yellow maize). This equates to 74% of the export forecast for this season (compared to 71% the previous week), which is an estimated 1.32 million tonnes.
The leading markets include Botswana, Ethiopia, Mozambique, Namibia, Zimbabwe and Eswatini. Taiwan, Vietnam, Japan and South Korea, who are usually amongst the key buyers of South Africa’s maize have been oddly quiet in the 2019/20 marketing year. This could be because of favourable prices elsewhere.
But one could see them returning to the South African maize market in the 2020/21 marketing year which starts in May 2020. The new season for maize production is expected to improve by, at least, 11% y/y to 12.5 million tonnes (some analysts are forecasting 14.0 million tonnes). This would boost supplies available for exports, and subsequently, to exert downward pressure on domestic maize prices. This would thus improve its attractiveness to maize-importing nations.
Nonetheless, that’s all in the future. In the 2019/20 marketing year which ends in April 2020, we expect South Africa to import 525 000 tonnes of maize, all yellow maize, albeit being an exporter of over a million tonnes of maize in the same season. These imports will mainly be for the coastal provinces of the country. This is up from an estimated 171 622 tonnes in the 2018/19 marketing year. The country has thus far imported 463 859 tonnes of yellow maize. The key suppliers are Brazil and Argentina.
Wheat
As we’ve pointed out in the previous note, South Africa’s 2019/20 wheat imports could increase by 28% y/y to 1.8 million tonnes because of expected lower domestic harvest on the back of unfavourable weather conditions in the Western Cape. In the week of 7th February 2020, South Africa’s 2019/20 season amounted to 537 812 tonnes, which equates to 26% of the aforementioned seasonal import forecast.
Concluding remarks
Aside from the grain trade data, it’s a quiet day in South Africa’s agricultural market with no major data releases. Those in Gauteng province of South Africa gather today at Africa Agri Tech conference in Pretoria – an opportunity to listen to industry leaders and hear about on-farm technological developments.
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by Wandile Sihlobo | Feb 18, 2020 | Agricultural Production
Nowadays we take for granted how the world agricultural productivity has improved over the past couple of decades. Today’s farms produce more maize, wheat, soybeans, etc. per hectare than any other time in history. This has been made possible by, amongst other interventions, the use of improved seeds, fertilizers, and better farming skills in most regions of the world.
The growth in agricultural productivity and production have not only meant that there have been savings in area plantings (see here) as farmers produce all the world needs in a relatively small area because of higher yields than it would have been the case had yields not improved much since the 1920s; it also had implications for food security as commodities prices softened over time. There is no better chart to illustrate the agricultural commodities price trend over time than Exhibit 1 below.
This is adapted from a research article by agricultural economists Julian M. Alston and Philip G. Pardey, published in the Journal of Economic Perspectives in 2014.
Exhibit 1
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by Wandile Sihlobo | Feb 13, 2020 | Agricultural Production
The South African Grain Information Services releases the country’s grain trade data for the week of 7th of February 2020 by midday. The data covers maize and wheat. While these data are important for tracking the movement of grains into and outside South Africa, they are rarely market moving. This is because of the week’s long lag in reporting. By the time we get a glimpse of the numbers, the key grain market players are probably aware of the levels of sales.
South Africa is generally a net exporter of maize. The exports for the 2019/20 marketing year have thus far amounted to 935 980 tonnes (both white and yellow maize). This equates to 71% of the export forecast for this season, which is an estimated 1.32 million tonnes.
The leading markets include Botswana, Ethiopia, Mozambique, Namibia, Zimbabwe and Eswatini. Taiwan, Vietnam, Japan and South Korea, who are usually amongst the key buyers of South Africa’s maize have been oddly quiet in the 2019/20 marketing year. This could be because of favourable prices elsewhere.
But one could see them returning to the South African maize market in the 2020/21 marketing year which starts in May 2020. The new season for maize production is expected to improve by at least 11% y/y to 12.5 million tonnes (some analysts are forecasting 14.0 million tonnes). This would boost supplies available for exports, and subsequently, to exert downward pressure on domestic maize prices. This would thus improve its attractiveness to maize-importing nations.
But that’s all in the future. In the 2019/20 marketing year which ends in April 2020, we expect South Africa to imports 525 000 tonnes of maize, all yellow maize, albeit being an exporter of over a million tonnes of maize in the same season. These imports will mainly be for the coastal provinces of the country. This is up from an estimated 171 622 tonnes in the 2018/19 marketing year. The country has thus far imported 452 229 tonnes of yellow maize.
In terms of wheat, as we’ve pointed out in the previous note, South Africa’s 2019/20 wheat imports could increase by 28% y/y to 1.8 million tonnes because of expected lower domestic harvest on the back of unfavourable weather conditions in the Western Cape. In the week of 31 January 2020, South Africa’s 2019/20 season amounted to 537 882 tonnes, which equates to 26% of the aforementioned seasonal import forecast.
That’s all on weekly grain trade development which will be out at midday. Later in the day, South Africa’s President, Mr Cyril Ramaphosa, delivers the State of Nation Address. This will be a most-watched event by analysts and South Africans at large.
PERSONAL NEWS:
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by Wandile Sihlobo | Oct 23, 2019 | Agricultural Production
South Africa’s food price inflation is relatively contained and I am beginning to think that the 3.6% y/y average we expected for 2019 might be an overestimate. The average for the nine months data we have thus far is about 2.9% y/y, which means to average at 3.6% y/y in 2019, the next three months will have to show a notable uptick.
There are two food categories that could potentially present an uptick: bread and cereals (maize) and meat.
Bread and cereals (maize) price inflation
While maize prices have come off the higher levels we saw at the beginning of 2019 when there were fears of possible poor harvest, the current price levels — roughly R2 800 per tonne — are still double-digit higher than October 2018. Also, the expected uptick in regional maize demand, specifically from Zimbabwe and Mozambique, could add upward pressure on South African maize prices in the coming months.
The one factor that is worth monitoring, but one should not necessarily factor it into their judgement and calculation, for now, is the weather ahead of the 2019/20 maize plantings. It is currently dry out there (I’ve discussed this here (video)) and the planting might be delayed as the dates for the optimal maize planting is from 15 October to 15 November in the central and eastern regions of South Africa. So far there is not much activity in the field. With that said, this will only start to worry us if we get into mid-November with no adequate rainfall (I hope that doesn’t happen).
Wheat, which is also important for the bread and cereals food category, shouldn’t concern us this season. Yes, South Africa’s wheat harvest could be lower than we initially anticipated at the start of the season, but what is important for price movement is the global wheat harvest. On this end, 2019/20 global wheat production could amount to 765 million tonnes, which is 5% higher than the previous season, according to data from the United States Department of Agriculture. As a consequence of this, global wheat stocks could increase by 4% y/y to 287 million tonnes. This will essentially keep global wheat prices at comfortable levels, which is beneficial for consumers in importing countries such as South Africa
Meat price inflation
I am closely observing pork, poultry, beef and other meat prices. In the case of pork, the increases we saw over the past few months are in line with the developments in the global pork market where prices have been supported by increasing demand in Asia. The Asian demand comes after the region’s pig industry, specifically in China and Vietnam, declined notably because of the spread of African swine fever.
Domestic beef prices have also recovered following a period of suppressed prices when there was a ban on South African exports because of a foot-and-mouth disease outbreak at the start of 2019. South African beef exports have since resumed, and with that came an uptick in demand which supported prices. Poultry prices could also lift somewhat in the coming months as there are prospects of import tariff adjustments.
Concluding remarks
Overall, it will be interesting to see what the next couple of months will look like on the food price inflation side. The story of the weather that I mentioned earlier, will not only be important for grains per se but the overall health of the agricultural sector, and thereafter broader food basket price inflation.
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