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.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
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.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
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.
Follow me on Twitter (@WandileSihlobo).
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.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Feb 26, 2020 | Agricultural Production
South Africa’s Crop Estimates Committee releases its first estimate of the country’s 2019/20 summer crop harvest today. Market expectations are largely positive because of two factors. First, the area planted for major summer crops such as maize, soybeans and sunflower seeds is up 10% y/y, 4% y/y and 7% y/y, respectively. Second, although summer rains were delayed which subsequently led to a share of plantings occurring outside the optimal window in some regions of the country, weather conditions have improved notably since the beginning of January 2020. And as a result, the crop is in good shape in most regions of the country with anticipation of higher yields.
On the 27th of January 2020, we (Agricultural Business Chamber of South Africa (Agbiz)) tentatively placed our forecast for South Africa’s 2019/20 maize harvest at 12.50 million tonnes. We have now lifted this to 13.72 million tonnes, which is 22% higher than the 2018/19 season’s harvest. This is underpinned by an upward revision of yield estimate to 5.40 tonnes per hectare, from our earlier assumption of 5.00 tonnes per hectare, in an area of 2.54 million hectares.
If such a harvest materialises, South Africa would remain a net exporter of maize 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 importation of genetically modified maize, which eases access for South African maize exporters.
Other typical maize export markets for South Africa outside the African continent, include Japan, Taiwan, Vietnam and South Korea. While these particular countries have not featured prominently in the 2019/20 marketing year exports, which were largely dominated by African countries, we anticipate that they could return in the 2020/21 marketing year. We think the potential increased supplies could lead to possibly attractive or competitive prices in the coming months, which should be a catalyst for increased exports to countries outside the continent.
Moreover, we estimate that South Africa’s soybeans and sunflower seed 2019/20 season harvest could lift by 26% and 12% from the previous season, to 1.48 million tonnes and 761 070 tonnes, respectively. This too is underpinned by an expansion in area plantings and anticipation of higher yields. Our soybean yield estimate is 1.95 tonnes per hectare, with sunflower seed yield estimate at 1.38 tonnes per hectare. All these are within the historic range of seasons of good rainfall. 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 largely caused by the growing domestic demand for these particular oilseed products.
Overall, an improvement in the summer crop harvest bodes well with South Africa’s food price inflation for the year. As a result of our optimism on 2019/20 summer crop yields, food price inflation could remain benign in 2020, hovering around 4% y/y in our view.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
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
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Feb 12, 2020 | Agricultural Production
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.
Wheat
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).
Maize
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.
Soybean
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.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
