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 23, 2020 | Agricultural Trade
We have previously warned of the restrictions placed by countries on agricultural commodity exports, specifically rice and wheat. The concern was that restrictions in the world’s larger supplier markets would inevitably result in drastic price increases of the aforementioned commodities, of which South Africa is a net importer of.
South Africa imports all of its rice and half of its wheat requirements. The restrictions on exports were announced in the Black Sea and Asia regions, although the world has large supplies of rice and wheat. The United States Department of Agriculture forecasts 2019/20 global wheat production at 764 million tonnes, up 4% y/y. And the 2019/20 rice production is estimated at 496 million tonnes, down by 1% y/y.
This past week, however, Romania, which is the world’s seventh-largest wheat exporter, retracted its statement on the ban of wheat exports. Over the past five years, Romania’s wheat exports averaged 5.6 million tonnes. While not directly a big supplier of wheat to South Africa, the easing of exports is a positive move towards boosting the global wheat supplies for export markets. The International Grains Council estimates that the world has 176 million tonnes of wheat for exports within the 2019/20 season, which is a 5% increase from the previous season.
Under circumstances of increased wheat production and supplies for exports, one would ordinarily assume that wheat prices would be somewhat lower than levels seen this time last year. But this is not the case.
Global wheat prices traded around US$238 per tonne (US HRW) on 22 April 2020, which is up 13% y/y. The increase can, in part, be attributed to the restrictions on exports announced by various countries over the past couple of weeks amid fears about the timeframe of the COVID-19 pandemic. If we could see similar statements as Romania or assurance that there won’t be an export restriction on wheat from major wheat-producing countries, there could be some ease in the global wheat market about supplies throughout the season.
This is a message that was widely shared in the G20 Extraordinary Agriculture Ministers Meeting, earlier this week, noting a need to “guard against any unjustified restrictive measures that could lead to excessive food price volatility in international markets and threaten the food security and nutrition of large proportions of the world population.”
In the case of South Africa, 2019/20 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 in late 2019. As of 17 April 2020, South Africa had imported 804 335 tonnes of wheat, which equates to 45% of the volume the country intends to bring into its shores within the 2019/20 season. The leading suppliers so far are Germany, Lithuania, Poland, Latvia, Ukraine and Russia.
There is no doubt that over the coming weeks and months, there could be supply chain disruptions because of the pandemic. However, the hope is that trade policy in key producing counties doesn’t add to an already challenging environment for importing countries. We are counting on various countries upholding the G20 message.
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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.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
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:
Amazon already has a link to pre-order my upcoming book – FINDING COMMON GROUND: Land, Equity and Agriculture – you can pre-order here.
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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.
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