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 | 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 25, 2020 | General Comments
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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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 | Apr 9, 2020 | Agricultural Trade
Regular readers of this blog would know that I write often. But the frequency over the past few weeks has reduced somewhat because of the increased demand for time in this unusual time of the COVID-19 pandemic. For the sake of consistency and ensuring that I cover key agricultural events, I will commit into a Thursday evening newsletter (of course, this doesn’t mean I won’t post when there are important agricultural events).
Although global agriculture has not been hard hit by the COVID-19 pandemic as other sectors of the economy, the fears and uncertainty about how long the world will grapple with the virus have led to several countries introducing restrictive measures on exports. Wheat and rice have been the casualties of these new measures. Either one looks at Kazakhstan, Cambodia or Vietnam, there are introductions of export bans on wheat and rice.
Leaving the COVID-19 pandemic aside for a moment; the world has sufficient wheat and rice supplies. In the 2019/20 production season, global wheat production was 763 million tonnes, up 5% y/y and the stocks were at 275 million tonnes, up 4% y/y. In the case of rice, the 2019/20 global harvest is 499 million tonnes, roughly unchanged from the previous season, with the stocks at 177 million tonnes (up 2% y/y).
This goes to show that the restriction on exports is not because of fears of the scarcity of the commodities, but rather the uncertainty of how long it will last. Countries are then making drastic policy decisions to prepare for the worst. But their quest for safety has negative consequences to the importing countries of the commodities.
Consider South Africa, a country that imports about 50% of its annual wheat consumption of 3.4 million tonnes and 100% of its annual rice consumption of 1.0 million tonnes. Any glitches in the global wheat and rice markets have a direct impact on the South African consumer, perhaps more so on rice relative to wheat. The recent announcements of a ban on rice exports in Vietnam, coupled with logistical challenges in India amid the lockdown resulted into a drastic increase in rice prices over the past few days – see Exhibit 1 below. Depending on whether prices are sustained at these elevated levels, the South African consumer could be a casualty of the trade policy changes implemented in Vietnam, Cambodia and logistics glitches in India, amongst other developments.
Exhibit 1: rice prices
Source: IGC, Agbiz Research
This is a case even though; South Africa imports very small quantities of rice from the aforementioned countries. About 70% of South Africa’s rice is usually imported from Thailand, with 20% from India ad the rest from Pakistan, China and Vietnam, amongst other countries. What I will be watching closely in the coming days are developments in Thailand, any drastic policy changes there could have notable implications on the South African rice market, and also neighbouring countries. The imports are usually evenly spread across the year, with a slight peak in volumes in the last quarter of each year. On average, about 10% of the imported rice into South Africa each year is re-exported to Swaziland, Botswana, Zimbabwe, Lesotho, Namibia and Zambia.
Aside from the Southern African region, other countries that are notable importers of rice in the African continent are Benin, Côte d’Ivoire, Nigeria and Senegal. These countries, along with South Africa, collectively account for 44% of Africa’s 2020 rice import forecast of 17.6 million tonnes, according to data from the International Grains Council.
In the case of wheat, I am not as cautious of the current conditions as I am in rice. The reason being South Africa’s relative difference in dependency on wheat imports compared to rice, and also due to the encouraging communication from the Black Sea countries. For example, on April 6, Ukraine Chair Parliamentary Committee on Agrarian and Land Policy noted that the country’s domestic food security is intact with supplies sufficient to meet local and export demand. Hence, they don’t envisage export bans of wheat.
As of April 3, South Africa had imported 42% of the volume of wheat the country intends to bring into our shores within the 2019/20 season. The total is set to be 1.8 million tonnes. The leading supplies thus far are Germany, Lithuania, Poland, Latvia, Ukraine, Russia and the Czech Republic. As with rice, it is key that one monitors developments in the wheat market in these countries.
Aside from the aforementioned commodities, South Africa’s food supplies are intact, as I explained a few weeks back here. The restriction in exports that we are seeing is not necessarily a rise of “food nationalism” but rather fear induced by the uncertainty about the timeframe of the COVID-19 pandemic.
Quick links on what I’ve recently read
The IMF economists have an early view of the economic impact of the COVID-19 pandemic in 5 Charts (see here)
The OECD Economics Department is evaluating the initial impactofCOVID-19 containment measures on economic activity (see here).
Impact of COVID-19: Changing trade policy in a global pandemic – Potential implications for South Africa’s rice supply chain: The Bureau for Food and Agricultural Policy (see here)
What music am I listening to?
Not many people know this, but I listen to a lot of hip-hop. And in-between the challenges of COVID-19, I’ve soaked myself this week into Nas – The Lost Tapes 2 (full album) (listen to it here)
What I’m currently listening to.
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by Wandile Sihlobo | Feb 5, 2020 | Agricultural Trade
Consumption of rice in South Africa is increasing, however, climate conditions in the country are not conducive to growing these grains. We fully depend on imports for all our annual requirements. In 2020, South Africa’s rice imports are set to increase by 10% y/y to 1.1 million tonnes. Thailand has consistently been a main supplier of rice to South Africa, accounting for an average 65% share of imports over the past five years.
Hence, concern started to build when estimates from the United States Department of Agriculture indicated that Thailand could harvest its second-lowest rice crop in a decade this year. The country’s harvest is estimated at 18.0 million tonnes. There, however, will still be a substantial volume of rice to export, roughly 7.6 million tonnes. While this looks decent, it is 31% lower than the volume of rice Thailand exported in 2018.
So, should South Africans be worried about this decline in Thailand’s rice production? I think we shouldn’t. The rice supplies in the global market remain awash. The 2019/20 global rice production could stabilize at 499.3 million tonnes, according to data from the International Grains Council.
The decline in Thailand rice production has somewhat been compensated by the expected large harvest in other leading rice-producing countries such as Indonesia, Bangladesh and the Philippines. What’s more, there will be 44.0 million tonnes of rice for export markets in the world. This is up 3% y/y, which further supports the notion that there will be enough rice supplies in the market to assist importing to countries such as ours – South Africa. Also, if one looks at rice prices, they’ve increased marginally since December 2019, with the exception of Thailand which has seen a drastic increase – see Exhibit 1 below.
Exhibit 1: Rice prices in selected countries
Source: International Grains Council
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