Persistent dryness in key grains and oilseeds producing regions presents risks to the global harvest- South Africa

 The sentiment about the 2020/21 global grains and oilseeds production prospects is changing from a once optimistic one to potential downward revisions of the harvest.

There are doubts about the potential size of South America and the Black Sea region’s harvest because of dryness which is threatening crops. In Brazil and Argentina, which collectively account for 14% and 50% of global maize and soybeans production, respectively, there are reports of persistent dryness which has caused delays in plantings. Meanwhile, Russia in the Black Sea region, as well as the US, which collectively accounts for 17% of global wheat production, also report potential damages in the crop because of dryness.


 The scale of the potential impact on 2020/21 global maize, soybeans and wheat harvest is unclear thus far. Nonetheless, there could be downward revision from the optimistic estimates that both the International Grains Council (IGC) and the United States Department of Agriculture (USDA) reported last month and earlier this month. Under such a scenario, grains and oilseeds prices, which have already lifted somewhat following the reports of unfavourable weather conditions, could remain at fairly higher levels. On 22 October 2020, US maize, wheat (Hard Red Winter Wheat) and soybean prices were up by 31% y/y, 32% y/y, and 24% y/y, respectively, trading at US$228 per tonne, US283 per tonne, and US$466 per tonne. The weather effects are, of course, not the only driver of prices. The growing demand from China which is rebuilding its pig herd, as well as Egypt for wheat and the likes of Taiwan, amongst other countries, have also boosted commodities prices. The challenge currently is that the reprieve on price increases might not materialize in the near term if there is a sizable downward revision in the 2020/21 global grains and oilseeds production forecast.


At the beginning of this month, the USDA estimated 2020/21 global wheat production at 773 million tonnes, which is up by 1% from the previous season. Russia, Australia, Kazakhstan and India were amongst the countries anticipated to provide a boost to the harvest. Hence, the reports of persistent dryness in Russia and the US present a risk of a potential downward revision of this estimate. It will be two weeks until the USDA releases its update of the monthly World Agricultural Supply and Demand Estimates report, which will provide more insights on the potential size of the harvest on 10 November 2020. This will specifically be an important date for wheat-importing countries like South Africa who will be affected by price implications the production estimates will present. As we have highlighted in the previous notes, South Africa imports roughly 50% of its annual wheat consumption of 3.2 million tonnes.


 Moreover, the USDA had the 2020/21 global maize production at 1.16 billion tonnes, which is up 4% y/y. While the northern hemisphere countries are at harvesting stage and there is some level of confidence about the potential sizes of the crop there, the southern hemisphere is still at the planting stage which commenced this month. Therefore, the reports of dryness in parts of Brazil and Argentina could have implications on the crop in these countries. This is an area that will need to be watched closely in the coming months, starting from the USDA’s report which is due for release in two weeks. Importantly, these countries account for 14% of global maize harvest as previously stated. South Africa’s exposure to the global maize market is largely through price transmissions, not the commodity deliveries per se as it’s the case in wheat. Already, South Africa’s maize prices have increased notably in the recent weeks, in part because of spillover from higher global maize prices, combined with domestic factors such as the weaker currency, and growing demand from the Far East.


For soybeans, the 2020/21 season started with optimism, which was clear in the estimates released by the USDA earlier this month, which placed the harvest at 368 million tonnes. This is up by 9% y/y. Given that Brazil and Argentina account for half of this estimate, any potential downward revision on their harvest prospects will have implications on this current global production estimate, and subsequently prices. Similar to maize, the northern hemisphere countries are at harvest stages of soybeans, the focus for crop-growing conditions will then for the next couple of weeks be on the southern hemisphere. These weather challenges are also at a time where there is a growing demand for soybeans by China, which is rebuilding its pig industry. This was illustrated in recent purchases of soybeans that China has been making.

In summary, the optimistic sentiment about the 2020/21 grains and oilseeds harvest which persisted a few months ago is now coming into question because of persistent pockets of dryness in key producing countries. As to whether this will result in a sizable downward revision in the harvest estimates is unclear, the date to look out to is 10 November 2020 when the updates of the estimates will be released by the USDA.     


 SA winter crops in good shape, and attention shifting towards 2020/21 summer crops

While farmers in the summer crop growing areas of South Africa are preparing the soil for the 2020/21 production season, the winter crop is maturing and the harvest could begin at the end of November for wheat. The Western Cape is a pillar of South Africa’s wheat production, accounting for 48% of the expected 2.02 million tonnes of wheat in 2020/21 season (up 32% y/y), and also majority of other winter crops such as barley, canola and oats.  Wheat, and other winter crops, are in good conditions, with yields expected to be mostly above average. This is a view from our observation, feedback from farmers in the province, and also the Crop Estimates Committee’s (CEC) insights, whose wheat yields for the year is at 3.97 tonnes per hectare, compared to a five-year average of 3.28 tonnes per hectare.

 The CEC will release an update of the production forecast on 28 October. We don’t expect any major changes on the aforementioned production estimate of 2.02 million tonnes. The weather conditions have generally been favourable since the last assessment, not only in the Western Cape but across all wheat-producing provinces, such as the Northern Cape, Free State, Limpopo, North West and Eastern Cape are amongst the contributors.

 As outlined in our note on 05 October, the aforementioned expected 32% y/y improvement in domestic wheat production will positively lead to a decline in imports. We estimate that South Africa’s 2020/21 wheat imports could fall by 12% y/y to levels around 1.60 million tonnes, which bodes well for the country’s agricultural trade balance. This estimate is roughly in line with the South African Grain & Oilseeds Supply & Demand Estimates Committee, which currently forecasts imports for the current marketing year at 1.64 million tonnes. Meanwhile, the USDA’s estimate is in line with ours at 1.60 million tonnes.

Given that there is already some level of confidence of the wheat production prospects (and overall winter crops), the focus on Wednesday when the CEC releases its monthly data will likely be on the summer crops numbers, which will reveal farmers intentions to plant. This is crucial data in formulating a view about the 2020/21 summer grains harvest, specifically in major grains like maize, soybeans and sunflower seed. Moreover, the intentions to plant data could have implications for grains prices if there is a major deviation from what the market currently expects. For example, Reuters analysts’ survey shows an expected 1% y/y increase in maize area plantings to 2.64 million hectares.  If this materializes, it would be the largest area planting in six seasons. With the current attractive maize prices, which are up by more than 20% from this time last year, and expected La Niña, which could bring rains, it is plausible that farmers could increase maize plantings.

The only major overhanging risk, which we highlighted last week and not yet sure how it will impact the production decisions in the 2020/21 season is the financing issue emanating from liquidity constraints at the Land Bank and various agribusinesses that worked closely with the Bank on financing matters. This is also a matter that we look forward to in this week’s Medium-Term Budget Policy Statement. We hope to hear if there are any signs of government action or commitments in assisting the Bank, cognizant of the fiscal constraints South Africa is in.




The agricultural data calendar is fairly busy this week. On the global front, we start the week with the US weekly crop progress data which will be released later today by the USDA. The previous report of 19 October 2020 showed that US maize and soybean crop were rated in a better condition compared to the corresponding period in 2019. Moreover, the harvest activity was gaining momentum, with 75% and 60% of soybeans and maize, respectively, already harvested. On Thursday, the USDA will release the US weekly export sales data, which also help in tracking the agricultural trade activity between the US and China. In the recent weeks, China has been buying large volumes of both maize and soybeans, and the demand is expected to hold as the country rebuilds its pig herd which was devastated by the African swine fever.

On the domestic front, on Wednesday, the South African Grain Information Service (SAGIS) will release the weekly grain producer deliveries data for the week of 23 October 2020. This data covers both summer and winter crops. But the focus is still on summer crops where the harvesting process has recently been completed. This, however, will shift towards winter crops from the end of November, which is when the harvest for wheat and barley will be gaining momentum.


Also, on Wednesday, Statistics South Africa will release the Consumer Price Index (CPI) data for September 2020. For a recap, South Africa’s food price inflation slowed to 4.3% y/y in August 2020 from 4.6% in the previous month. This was primarily on the back of a deceleration in meat and fish products price inflation, which overshadowed the uptick in other products prices such as oils, fats and fruit.


 On Thursday, SAGIS will release the weekly grain trade data also for the week of 23 October 2020. In the previous week of 16 October 2020, South Africa’s 2020/21 total maize exports were at 1.56 million tonnes, which equates to 62% of the seasonal export forecast (2.50 million tonnes). In terms of wheat, South Africa is a net importer, and in the week of 16 October 2020, the third consignment for the 2020/21 marketing year had arrived, putting the total imports at 197 354 tonnes. This equates to 12% of the seasonal import forecast of 1.64 million tonnes (down by12% y/y because of the aforementioned improved domestic harvest).


Also, on Thursday, Statistics South Africa will release the Producer Price Index (PPI) data for September 2020. South Africa’s food producer’s price inflation accelerated to 4.2% y/y in August 2020, from 3.7% y/y in the previous month.