The agency estimated a 1% annual uptick in 2019/20 global maize production to 1.1 billion tonnes. The countries to be responsible for this improvement included the United States, Argentina, Canada, Brazil and India. The 2019/20 global soybean production was estimated at 356 million tonnes, down by 2% from the previous season, but still higher than the average long-term production. The United States, Brazil, Argentina and Paraguay were amongst the countries expected to produce a large share of the anticipated harvest. But this picture is likely to change in this month’s update, which will be released on 11 June 2019, owing to slow progress in plantings in the United States. This is on the back of wet weather conditions in the country’s farm belt.
• To illustrate this slow planting progress; consider the week of 26 May 2019, where the United States farmers had planted 58% of the intended hectares for maize, compared to 90% in the corresponding period last year, or average five-year progress. As a result of wet weather conditions, the crop-growing conditions have also been poor. About 32% of the maize crop had emerged in the week of 26 May 2019, compared to 69% in the corresponding week last year or the five-year average. Soybeans have also been experiencing similar conditions, with only 29% of the intended area for 2019/20 hectares planted in the week of 26 May 2019, which is way behind last year’s pace of 74% in the same period, and five-year average progress of 66% in the same week. In the areas planted, the crop emergence has been poor, with only 11% of the crop out in the week of 26 May 2019, compared to 44% in the corresponding week in 2018, and a five-year average pace of 35%.
• Over the weekend, parts of the United States were still experiencing similar conditions of higher rainfall, which points to a possibility of further delays in plantings. What's more, there are now rising fears of potential yield losses as the optimal planting window has narrowed.1 Thus, reinforcing our view that global maize and soybean production estimates could be revised down when the USDA releases its production forecast update next week.
• The prices of both maize and soybean have rallied the past few weeks partly driven by the aforementioned weather concerns. On 30 May 2019, US maize and soybean prices were up by 17% and 6% from levels seen a month ago, trading at US$216 per tonne and US$340 per tonne, respectively. From a domestic perspective, these developments might have minimal implications in terms of supplies, particularly maize, as South Africa is set to remain a net exporter in 2019/20 marketing year. But, the increase in US maize prices has partially influenced the domestic market, as the country is interlinked to the global agricultural markets. On 30 May 2019, South Africa’s yellow and white maize prices were up by 11% and 10% from 30 April 2019, trading at R2 801 per tonne and R2 849 per tonne, respectively. In terms of soybeans, however, South Africa is a net importer of seeds and its by-products (soybean meal or oilcake).
Therefore, an increase in global prices does influence the price trend in the domestic market. On 30 May 2019, South African soybean prices were up by 6% from the previous month, trading at R5 010 per tonne, as shown in Figure 1.
• Looking ahead, there is some level of uncertainty regarding the 2019/20 global maize and soybean supplies, as it is not clear how much area will the United States farmers end up planting. Moreover, we are unable to tell at this point if South America will be able to make up for the potential hectares to be lost in the United States as plantings for the 2019/20 have not yet started. The focus in South American countries is still on the 2018/19 soybean and maize harvest. What is clear though, is that the United States could have a poor harvest, and that will most likely present an upward pressure on global maize and soybean prices. The impact of this could somewhat spillover to the South African market.
Recap on summer grains production
• As set out in our note on 28 May 2019, South Africa’s maize supplies for the 2018/19 production year are shaping up better than we had feared at the beginning of the year when dryness in the western parts of the country led to delayed plantings. Figures recently released by South Africa’s Crop Estimates Committee show that the 2018/19 maize harvest could amount to 10.9 million tonnes, which is a 2% increase from last month’s estimate. This was underpinned by an improvement in the white maize production expectation, which is now set to reach 5.5 million tonnes, up by 4% from last month’s estimate on the back of expected better yields in the Free State. The yellow maize harvest was lifted by 1% from last month to 5.4 million tonnes. Harvesting has started in the eastern parts of South Africa, particularly Mpumalanga and KwaZulu-Natal, where over 40% of the area planted under maize had been completed by the 24th of May 2019. The yields generally varied between below-average to average, although the eastern regions received better rainfall than the western areas of the country where harvesting has not started.
• With the maize harvest currently expected at 10.9 million tonnes in the 2018/19 production season (which corresponds with 2019/20 marketing year) added to an available opening stock of 2.8 million tonnes when the 2019/20 marketing year started on 01 May 2019, the country should have sufficient maize supplies to cover its annual consumption of about 10.8 million tonnes. Moreover, South Africa is likely to remain a net exporter of maize in the 2019/20 marketing year, as previously noted. The exports, however, could decline by half from the 2018/19 marketing year to about 1.1 million tonnes. These exports will likely be destined to countries in the Southern Africa region.
• The impact of the upward revision of the domestic maize production has been muted in the market, as the unfavourable weather conditions in the United States continued to underpin the market, and thus presenting an upward pressure on prices. Aside from maize, all other crop estimates were left unchanged from last month
The data calendar for this week is relatively packed. In the evening today we will have the United States Crop Progress report, which will give us an indication of the progress in plantings over the past few days, and help shape our view of the United States 2019/20 maize and soybean production prospects. On Tuesday, Stats SA will release South Africa’s GDP data for the first quarter of 2019. South Africa’s weekly grain trade data for the week of 31 May 2019 will be released on Thursday by SAGIS, and on the same day we are likely to receive South Africa’s agricultural machinery sales data for May 2019 from the South African Agricultural Machinery Association.
• Although this year started off on negative footing with dryness in some summer crop growing provinces, we expect South Africa’s agricultural GDP to have grown by about 6% on a quarter-on-quarter seasonally-adjusted annualised rate due to an improved output in the horticulture industry, and also winter grains. We think the impact of a lower summer crop harvest will be more apparent in the upcoming quarters’ data, and could, in the end, lead to a contraction in South Africa’s agricultural economy this year.
Agricultural machinery sales data
• We expect South Africa’s tractor sales to have declined by 9% y/y in May 2019 to 455 units. The anticipated decline is largely due to the fact that some farmers have already purchased tractors in the past couple of months. In fact, March 2019 tractors sales were the highest this year, with about 600 units. This comes after robust tractor sales in 2018. Moreover, the expected softer sales could also be due to the fact that there has been minimal activity in the fields, with the exception of winter crops plantings.
• The combine harvester sales are likely to have stabilised at 16 units, which is the same volume as in May 2018 due to a slow start of the summer crop harvest process, and the fact that the crop will be lower on the back of poor yields.
Weekly grain trade data
• South Africa’s weekly grain trade data is due for release on Thursday, 06 June 2019. This will mainly be maize and wheat. In terms of maize, this week’s data will show activity for the fifth week in the 2019/20 marketing year which started on 01 May 2019. The first four weeks’ exports amounted to 53 852 tonnes. We expect South Africa to remain a net exporter of maize in the 2019/20 marketing year, although the volume will most likely fall by half from the previous year to about 1.1 million tonnes. This is under the assumption that domestic maize production could amount to 10.9 million tonnes. At the same time, we expect imports of about 450 000 tonnes, all yellow maize, mainly for the coastal provinces of the country. This is up from an estimated 171 500 tonnes in the 2018/19 marketing year. In the week of 24 May 2019, the first batch of imports for the 2019/20 marketing year that arrived from Argentina, amounted to 23 121 tonnes.
• In terms of wheat, South Africa remains a net importer, although the recovery in the country’s 2018/19 domestic wheat production will lead to a decline in imports this season. South Africa’s 2018/19 wheat imports could fall by 36% from the previous season to about 1.4 million tonnes. So far, the country has imported about 49% of the seasonal forecast. The leading suppliers have been Germany, Russia, United States, Latvia, and Argentina, amongst others.
