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Revisiting Southern Africa’s grain story after Cyclone Idai

As Mozambique, Malawi, and Zimbabwe continue to rebuild after devastating Cyclone Idai last month, we deemed it appropriate to revisit the maize imports story we published at the start of this month as more information about domestic supplies becomes available in some of the aforementioned countries.

1 Last week, the government of Malawi placed its 2018/19 maize production estimate at 3.4 million tonnes, which is 13% higher than the market expectations, as better yields in some parts of the country have offset the impact of flooding in the southern regions. This, however, is 3% lower than the 2017/18 harvest. This means that, contrary to our expectation, Malawi could have sufficient maize supplies for the 2019/20 maize marketing year (this corresponds with the 2018/19 production year).
• Given that the country’s annual maize consumption is at about 3.0 million tonnes, there could be available supplies for the export market which would ease pressure in Southern Africa. But it remains to be seen if the government will not be tempted to place an export ban on maize in a quest to keep prices lower ahead of the general elections on 21 May 2019. This would not be an unusual move, although not desirable, as it creates inefficiencies in the market. The government of Malawi has in the past placed an export ban on maize in an attempt to contain potential price increases.
• In the case of Zimbabwe and Mozambique, there hasn’t been any update of official government figures of maize production since the cyclone, hence we are inclined to maintain our view that Zimbabwe and Mozambique will remain maize importers in 2019/20 marketing year. We think that Zimbabwe’s 2019/20 maize imports could reach at least 900 000 tonnes in order to meet the annual need of roughly 2.0 million tonnes a year. Meanwhile, Mozambique will most likely double the typical maize import volume of about 100 000 tonnes a year in the 2019/20 marketing year.
• Within Southern Africa, the clearest potential maize supplier is South Africa. We are hesitant about Zambia and Malawi’s ability to export maize to countries in need in the coming months because of their domestic policy objectives of maintaining export bans when the stocks are slightly tight, and the aforementioned possible political motive in the case of Malawi. Hence, aside from South Africa, the potential maize suppliers to Zimbabwe and Mozambique will most likely be Argentina, Mexico, Ukraine, Russia and the US. The reason for the need for non-regional maize supplies is because South Africa could only have 1.1 million tonnes of maize for the export market in the 2019/20 marketing year, and it will mainly be destined to Botswana, Namibia, Lesotho, and Eswatini.
• The interplay of the abovementioned factors, combined with the relatively weaker domestic currency, and lower harvest compared to the 2017/18 production season, has led to an uptick in domestic maize prices. On 11 April 2019, SAFEX yellow and white maize prices were up by 23% and 33% from the corresponding period last year, trading at R2 543 per tonne and R2 615 per tonne, respectively. While this will be beneficial to farmers, from a consumer perspective there will be upside pressures which will be reflected in the consumer price inflation in the coming months.

South Africa’s food price inflation
• While South Africa’s food price inflation has remained relatively subdued over the past few months, easing to 2.3% y/y in February 2019, despite the notable increases in grain-related food products (bread and cereals), which account for a 21% share of the food basket, we believe that there will be an uptick in the coming months. And thus, we maintain our average annual estimate for South Africa’s food price inflation at around 5% for 2019.
• One key factor which has kept headline food price inflation at lower levels in the past few months is softer meat prices, which account for more than a third of the food inflation basket, and were actually in deflation in February 2019. This was partly driven by expectations of an increase in domestic meat supplies as the outbreak of foot-and-mouth disease at the beginning of this year led to a ban on South Africa’s beef in key export markets.
• But this might change in the coming months as South Africa is currently engaging with a number of countries to re-open export markets for beef in Africa and the Middle East regions. This means the impact of the foot-and-mouth disease might not be as severe as initially expected.2 Also worth noting is that South Africa’s cattle and sheep slaughtering activity is slowing, although it is not clear if this trend will hold in the coming months, and this could add support to prices in the near term . Aside from red meat, poultry products prices could lift somewhat in the coming months, as there is likely to be an uptick in import tariffs. In terms of pork, prices could move sideways in the coming months, as there is no imminent threat from the recent African swine fever outbreak in North West.3
• On 17 April 2019, Stats SA will release the CPI data for March 2019. While this might not show a notable uptick in food price inflation, we expect April 2019 figures, which will be released next month, to start showing an increase. 

Weekly grain trade data
• South Africa’s weekly grain trade data is due for release on Thursday, 18 April 2019. This will mainly be maize and wheat. In terms of maize, we expect South Africa to be a net exporter in the 2018/19 marketing year, with about 2.3 million tonnes (white and yellow maize). About 2.0 million tonnes have thus far been exported, which equates to 87% of seasonal exports. The key buyers have been Vietnam, Japan, Italy, South Korea, Taiwan, and continental markets. Therefore, this week’s data which will reflect trade for the week of 12 April 2019, could show further exports.
• Looking ahead, South Africa is likely to remain a net exporter of maize in the 2019/20 marketing year which commences on 01 May 2019. The exports, however, could decline by half from the 2018/19 marketing year to about 1.1 million tonnes (Figure 2). This is under the assumption that maize production could amount to 10.6 million tonnes.
• In terms of wheat, South Africa is generally 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 33% of the seasonal forecast. The leading suppliers have been Russia, Germany, Latvia, Argentina, and Canada, amongst others. The data for the week of 11 April 2019, which is due for release on Thursday will most likely lead to an increase in imports.


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