by Wandile Sihlobo | Feb 4, 2020 | Africa Focus, Agricultural Production
The South African Crop Estimates Committee has revised down further its estimate for the country’s 2019/20 wheat harvest to 1.5 million tonnes. This is 20% lower than the previous season.
The downward revision is mainly on the back of poor harvest in parts of the Free State, Limpopo, Northern Cape and Western Cape. All is because of lower yields on the back of unfavourably dry weather conditions over the past few months, not the decline in area plantings. The area planted to wheat in 2019/20 production season is 7% higher than the previous season, at 540 000 hectares.
This will result in an increase in wheat imports within the 2019/20 marketing year in order to supplement the domestic consumption needs. We think South Africa’s 2019/20 wheat imports could increase by 33% y/y to 1.8 million tonnes.
Fortunately, there are large supplies in the global market. The International Grains Council forecasts the 2019/20 global wheat harvest at 761 million tonnes, up by 3% y/y. This has also kept global prices at softer levels, which should be beneficial to importing nations such as South Africa. In the week of the 31st of January 2020, global wheat price (U.S. Hard Red Winter Wheat) was down 4% y/y, trading around US$232 per tonne.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Jan 28, 2020 | Africa Focus
We rarely talk about Africa’s wheat production due to its size relative to other regions of the world. Africa produces only 3% of the world’s wheat, compared to the European Union region which produces 20% of the world’s wheat and Back Sea region which produces 17%. These low levels of wheat production in the continent are partly the result of unfavourable climatic conditions in most countries.
The 2019/20 wheat production conditions are hard to ignore, albeit the continent having lower production levels. Africa has experienced an increase in wheat production for two consecutive seasons, however, the wheat production could fall by 10% y/y in the 2019/20 season which would result in 26 million tonnes being produced.
The countries underpinning this expected decline in harvest are South Africa, Libya and Morocco. In all these countries the crop has been impacted by drier weather conditions during the crop growth stages which, in turn, weighed on yields potential.
Fortunately, other regions of the world had fairly good seasons and therefore boosted global wheat production. The International Grains Council forecasts the 2019/20 global wheat harvest at 761 million tonnes, up by 3% y/y. This has also kept global prices at softer levels. In the week of January 24, 2020, global wheat prices were down 3% y/y, trading around US$236 per tonne.
African consumers will subsequently be able to source wheat supplies from other parts of the world to fulfil the current shortfall, thereby increasing the amount of wheat the continent imports in the 2019/20 season by possibly 4% y/y to 51 million tonnes. The leading importers will be Algeria, Egypt, Libya, Morocco, Tunisia, Ethiopia, Kenya, Nigeria, South Africa and Sudan.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Jan 21, 2020 | Agricultural Production
There are a number of institutions that produce global agricultural supply and demand estimates, with the notable ones being the United States Department of Agriculture (USDA) and the International Grains Council (IGC). The former has recently released its monthly update comprising of various commodities. For the purpose of this post, however, I am only going to focus on wheat, maize and soybeans. These are also commodities that matter a lot for South Africa as the country is a net importer of wheat and soybean products.
Wheat
In its January 2020 update of the World Agricultural Supply and Demand Estimates report, the USDA placed 2019/20 global wheat production estimate at 764 million tonnes, which is 5% higher than the previous season. As a consequence of this, the stocks could increase by 4% y/y to 288 million tonnes. This will essentially keep global wheat prices at relatively lower levels, which is beneficial for consumers in importing countries such as South Africa.
Maize
In the case of maize, however, the USDA forecasts 2019/20 global maize production at 1.1 billion tonnes. This is 2% less than the previous season because of a poor harvest in parts of the US and Argentina, amongst other countries. These are still comfortable levels in covering the world’s maize needs. The reduction in production, while consumption is relatively strong, means that the stocks could fall by 7% y/y in 2019/20 season to 297 million tonnes. This has led to a general uptick in maize prices. Fortunately for South Africa, the spillover will be minimal in the near-term as the country is a net exporter of maize.
Soybeans
The 2019/20 global soybean production is set to decline by 6% y/y to 338 million tonnes, mainly on the back of anticipated poor yields in the US and Argentina. However, the stocks will not be affected notably because of somewhat lower demand, specifically in Asia following the African swine fever which negatively affected the pig industry. This means that soybean prices might not increase notably in the near term, which would be beneficial for importing countries. South Africa is one such country; a net importer of soybeans and a notable importer of soybean oilcake.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Nov 26, 2019 | Agricultural Production
South Africa’s Crop Estimates Committee has lowered its estimates for the country’s 2019/20 wheat production by 5% from October 2019 to 1.6 million tonnes. This equates to a 16% decline from the 2018/19 season.
We are not surprised at all by this development as we stated in the previous blog post that Western Cape’s winter wheat crop, which has largely been harvested, wasn’t in good shape as initially anticipated. The decline in South Africa’s overall wheat harvest estimate is underpinned by lower yields in this particular province. The Northern Cape, Free State, Eastern Cape and North West aren’t in particularly in good shape either.
With South Africa being a net importer of wheat, this downward revision of production prospects might not have notable implications on wheat prices. The domestic wheat prices are largely influenced by international wheat market conditions (aside from local currency movements).
Currently, there are large wheat supplies in the global market. In its November 2019 update, the United States Department of Agriculture estimated the 2019/20 global wheat production at 766 million tonnes, which is 5% higher than the previous season. As a consequence of this, the stocks could increase by 4% y/y to 288 million tonnes.
This will essentially keep global wheat prices at relatively lower levels, which is beneficial for consumers in importing countries such as South Africa. (We currently forecast South Africa’s 2019/20 wheat imports at 1.6 million tonnes, up 14% y/y because of the aforementioned poor harvest this year).
With that said, the relatively weaker domestic currency has somewhat provided support to South Africa’s wheat prices which currently trade at R4 370 per tonne, up 4% y/y. All else being equal, we could see a sideways movement of South African wheat prices around its current levels over the next couple of months.
Written for Agbiz.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Nov 25, 2019 | Agricultural Production
Over the past few months, South Africa’s Crop Estimates Committee (CEC) has consistently slashed down its estimate of 2019/20 winter wheat harvest from the view painted at the start of the season. The current estimate is now at 1.7 million tonnes (from 1.9 million tonnes at the start of the season), and likely to be revised down further when the CEC releases this month’s update tomorrow (November 26).
The downward revision could stem from the Western Cape, who’s harvest is nearly completed and the yields disappointed in various regions of the province. This is because of drier weather conditions between the end of August to September and later rainfall over the past couple of weeks when the crop had already matured. The late rains have not only caused damage in some areas but have also negatively affected grading levels of the crop.
These developments, however, have not been clearly reflected in South African wheat prices and are unlikely to in the foreseeable future. South Africa is a net importer of wheat and therefore its price levels are influenced by international wheat market conditions.
Currently, there are large wheat supplies in the global market. In its November 2019 update, the United States Department of Agriculture estimated 2019/20 global wheat production at 766 million tonnes, which is 5% higher than the previous season. As a consequence of this, the stocks could increase by 4% y/y to 288 million tonnes.
This will essentially keep global wheat prices at relatively lower levels, which is beneficial for consumers in importing countries such as South Africa. Unfortunately, the same cannot be said for farmers. (We currently forecast South Africa’s 2019/20 wheat imports at 1.6 million tonnes, up 14% y/y).
Written for Agbiz.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
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.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Oct 10, 2019 | Africa Focus
Although the past few months have been a struggle to secure grain supplies for Southern and East Africa, other parts of the world are in better shape and could help offset the shortfall. No indicator spells this out as clearly as the Food and Agricultural Organization of the United Nations’ (FAO) Global Grains Price Index which averaged 158 points in September 2019, down by 4% year-on-year because of large global supplies.
The International Grains Council (IGC) forecasts 2019/20 global grains production at 2.2 billion tonnes, which is 1% higher than the previous season. This is boosted by increased wheat and rice production, which have overshadowed the decline in the maize and soybean harvest.
At the start of the 2019/20 production season, an increase in grain production seemed like a pipe dream because of excessively wet weather conditions and delayed plantings in the US. In addition, when planting finally happened, there were fears of potentially poor yields. While these tough production conditions are what has resulted in a decline in global maize and soybean production, now estimated at 1.1 billion tonnes and 342 million tonnes, down by 3% and 6% from the 2018/19 season, respectively, the magnitude of a decline is not as huge as initially feared.
The improved weather conditions over the past few months and also the use of higher-yielding and short-period growing varieties of seeds are amongst the factors that lessened the impact of late plantings and wet conditions on US maize and soybean producing areas.
Global wheat production, which fell notably in 2018/19 season, recovered by 4% year-on-year to 764 million tonnes in 2019/20 season – the largest harvest ever. There is a notable improvement in production in all the major wheat-producing countries, with the exception of Kazakhstan, whose harvest is set to fall by 18% from the 2018/19 season. This increased wheat supply, and the decline in prices thereafter, drew back some users who had switched to maize in the previous season because of higher prices. The 2019/20 global wheat consumption is now estimated at 757 million tonnes, up by 3% year-on-year, according to data from IGC.
Despite the increase in consumption, global wheat prices are still under pressure, down by 15% year-on-year on 03 October 2019, trading at US$206 per tonne. A more comprehensive picture of the overall global grain price dynamics is illustrated by the aforementioned Global Grains Price Index.
The African continent, as a net importer of wheat, will benefit from the current lower prices. IGC forecasts Africa’s 2019/20 wheat imports at 51 million tonnes, up by 5% from the previous season. The leading importers include Algeria, Egypt, Morocco, Nigeria, Tunisia, Kenya, Ethiopia, Sudan and South Africa.
From a South African perspective, the increase in global wheat production comes at a time when it’s much needed. South Africa’s 2019/20 wheat imports could amount to 1.6 million tonnes, up by 14% from the 2018/19 season (which ended in September 2019) because of the expected poor domestic wheat harvest.
While this is beneficial for South African consumers in the near term, it also means that South African farmers might not be compensated for lower production by an increase in prices.
South Africa is a net importer of wheat, which means prices are already at import parity levels, and its movements there will largely be directed by developments in the global wheat market rather than domestic factors.
Regarding the entire Southern and East Africa region, Kenya, Mozambique and Zimbabwe are the countries that are expected to import notable volumes of grains in the 2019/20 marketing year.
Estimated maize imports for these countries collectively will be at least 2 million tonnes. Imports thus far have largely been from Tanzania and South Africa. There are reports of ships that have left Mexico heading to Mozambique, but at this point, it is unclear how much maize will be there. In addition, wheat imports for the above-mentioned three countries could amount to 3 million tonnes.
The upside is that the grains shortfall in Southern and East Africa occurs in a season where there are generally large global supplies to cushion the countries in need. It will, however, be tough to source white maize imports. Outside of the African continent, Mexico is the only key producer. Meanwhile, wheat will largely be available in the global market.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
