Agrilogics
  • The African continent is far from being self-sufficient in wheat production. The 2018/19 wheat imports are estimated at 51 million tonnes, which is almost double the volume produced in the same season.

  • The key highlight this morning is the prospect for good rainfall of roughly 20 to 90 millimetres over most summer crop growing areas of South Africa within the next two weeks.

  • The 2018/19 global maize harvest could be the second largest on record, up by 3% y/y at 1.07 billion tonnes. This is underpinned by expected large harvests in the US, Brazil, Argentina, Ukraine and China.

  • The first Russia-Africa Summit that was held last week concluded with an announcement that urged all participants to increase cooperation in security, science, environmental protection, trade and economic matters. On this last point, the declaration highlights that participants should “make efforts to substantially expand the trade between the Russian Federation and the African States and diversify it, including by increasing the share of agricultural products in import and export operations.”

     Russia is an important player in global agricultural markets, ranked as the 13th largest importer, valued at US$28.8 billion annually, on average, over the past five years. The countries that have benefited from Russia’s agricultural import needs are Belarus, China, Germany, Brazil, Ecuador, Italy, Turkey, Paraguay, Indonesia and France, amongst others. The African countries are down on the list of key agricultural exporters to Russia. In fact, while Russia’s agricultural trade balance is negative, the country has a trade surplus with the African continent. In 2018, Russia had an agricultural trade surplus of US$2.8 billion with the African continent, according to data from Trade Map.

     Over the past five years, wheat has been the dominant product in Russia’s agricultural exports to Africa. It accounted for an average of 79% of all exports into the continent over the past five years (Figure 1 of the attached file). The other products that Africa imports from Russia are sunflower oil, soybean oil, barley, maize, and linseed. Also, this is not widespread across the continent. Nearly half of Russia’s agricultural exports into Africa go to Egypt, and it is mainly wheat. Sudan, Nigeria, Algeria and Kenya are other key markets for Russia, which when collectively added to Egypt account for about 73% value of Russia’s agricultural exports to Africa.

     Here at home, South Africa, the picture is different. South Africa enjoys an agricultural trade surplus with Russia. The products that South Africa exports to Russia include citrus, apples, pears, wine, grapes, apricots, cherries, peaches and fruit juices. These are amongst the products that Russia generally imports from the world (Russia’s top ten agricultural imports are citrus, bananas, wine, soybean, cheese, beef, palm oil, apples, pears and tobacco).

    In 2018, Russia was South Africa’s 16th largest agricultural market. The call for increased agricultural trade between Africa and Russia sets a good basis for South Africa to explore the means of increasing its share within the Russian agricultural market. In terms of reciprocity, Russia is already a notable supplier of wheat to South Africa and could increase its share if it were to compete comparatively with wheat suppliers such as Ukraine and Lithuania, amongst others.

    Overall, the announcement of increased agricultural trade by the Russia-Africa Summit is positive for South Africa’s agricultural sector. The growth that South Africa envisages in this particular sector will be export-led, therefore, any talks that encourage trade should be viewed positively. In 2018, South Africa’s agricultural sector exported nearly half of its production in value terms which means the sector is export-orientated. South Africa’s agricultural sector already participates within Russia’s market, although ranked as the 29th country supplying agricultural products to Russia in 2018.

    The current engagements with Russia should seek to improve South Africa’s position by promoting more exports in that market. If Russia was to insist on reciprocity within the agricultural sector, wheat would be their targeted space. In there, South Africa imports roughly half of its annual consumption. An increase in Russia’s wheat would displace other suppliers rather than add pressure to the local market in the near term.

    SA farmland is dry

    In a normal season, by this period, farmers would be hard at work planting, especially in the central and eastern regions of South Africa. But this has not been the case because of dryness that has prevented farmers from planting. Soil moisture in South Africa’s farmland is rated very short (dry) in nearly all regions of the country with the exception of a few areas near the border of Eastern and Western Cape where soil moisture was rated marginally adequate on 25 October 2019, as illustrated in Figure 2 in the attached file.

    Over the weekend, some regions in the central parts of South Africa received light rainfall, which is a welcome development. But this was not sufficient to make meaningful improvement on soil moisture. The country needs a consistent and slow rainfall which will help to replenish soil moisture and thereafter support planting and growing of the crop.

    We are generally positive that such rainfall is likely. The weather forecast for the next two weeks – Figure 4 in the attached file – shows prospects of rainfall across the summer rainfall (or crop-growing) areas of South Africa. More importantly, the South African Weather Service forecasts above-normal rainfall in the central and eastern regions of South Africa between November 2019 and January 2020. As encouraging as this is, it comes with some level of uncertainty and hence it will be important to monitor the weather conditions over the coming weeks as that will influence farmers decisions to plant.

    From a data front

    We start off on Monday, with the US Department of Agriculture’s US crop conditions data for the week of 27 October 2019. This data should give us a sense of the US crop-growing conditions, and thereafter the potential size of the harvest.

    On Tuesday, the Quarterly Labour Force Survey data for the third quarter of 2019 will be released. To recap, Quarterly Labour Force Survey data for the second quarter of this year showed that South Africa’s primary agricultural employment fell by 0.2% from the corresponding period last year to 842 000. The subsectors that faced a notable reduction were mainly field crops, the game industry and forestry. In the case of field crops, the reduction in employment was unsurprising following a reduction in activity in the fields on the back of a poor harvest in the 2018/19 season, all of which is underpinned by unfavourable weather conditions earlier in the season. From a regional perspective, a notable decline in employment was recorded in the Northern Cape, Free State and Limpopo, whilst other provinces saw a marginal uptick.

     On Wednesday, the South African Grain Information Service (SAGIS) will release the grain producer deliveries data for the week of 25 October 2019. This covers both summer and winter crops. What we will particularly be interested in, however, are data for winter crops. This provides an indication of the progress in harvest activity which recently started in parts of the Western Cape wheat-producing regions. In the week of 18 October 2019, about 93 563 tonnes of the expected 1.8 million tonnes of wheat in the 2019/20 season had been delivered to commercial silos.

    On Thursday, we will get the weekly grain trade data (wheat and maize) for the week of 25 October 2019. In brief, maize exports for the 2019/20 marketing year have thus far amounted to 532 045 tonnes. Looking ahead, we expect South Africa to remain a net exporter of maize this marketing year, although the volume will most likely fall by half from 2018/19 to about 1.1 million tonnes. At the same time, we expect maize 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. The country has thus far imported 320 617 tonnes of yellow maize. About 88% from Argentina, with 12% from Brazil.

     In terms of wheat, South Africa’s 2019/20 wheat imports could increase by 14% y/y to 1.6 million tonnes because of expected lower domestic harvest on the back of unfavourable weather conditions in the Western Cape. The third import consignment of the 2019/20 marketing year was 67 476 tonnes. This placed total imports for the 2019/20 season at 135 270 tonnes, which equates to 12% of the seasonal import forecast. This week we will receive data for activity in the week of 25 October 2019.

     Also, on Thursday, Stats SA will release the Producer Price Index (PPI) data for September 2019. In August, South Africa’s food producer price inflation slowed to 5.4% y/y, from 6.1% y/y in the previous month.

  •  The fears about the potential disruptions that the novel coronavirus (COVID-19) could cause global supply chains have raised questions of whether South Africa could experience food shortages in the near-to-medium term. From a national perspective, we doubt this would be the case, at least for most food products. South Africa is an agriculturally endowed country, generally a net exporter of agricultural and food products, as illustrated in Exhibit 1 (in the attached file). What’s more, there are prospects for an abundant harvest of staple grains and fruit this year, which will increase the local supplies.

     

    There are, nonetheless, essential imported food products that South Africa is dependent on such as; rice, wheat, and palm oil. Key palm oil suppliers are Indonesia and Malaysia. The typical suppliers of rice are Asia and the Far East, namely Thailand, India, Pakistan, China and Vietnam, some of which are hard hit by the pandemic. In the case of wheat, the suppliers are usually Germany, Russia, Lithuania, USA and the Czech Republic, some of which are also hard hit by the pandemic. Some of the countries which have reported cases of COVID-19 have not taken drastic measures of limiting business activity (apart from Italy and China) to reduce the spread of the virus. This means the importation of some agriculture products mentioned above into South Africa could continue unabated, barring any unforeseen eventuality. Aside from the major products, South Africa also imports poultry products and sunflower oil; but these are products that can be replaced by local supplies, should there be disruptions in global supply chains.

     

     In the unlikely event of potential shortages, it will be due to glitches in the logistics of shipping imports rather than a decline in global essential grains supplies. For example, the 2019/20 global wheat production could amount to 764 million tonnes, up by 5% y/y, according to data from the United States Department of Agriculture. Moreover, the estimated 2019/20 global rice production is 499 million tonnes, which is roughly unchanged from the previous season.  The global palm oil market is also well supplied, with about 8.0 million tonnes, according to data from SUNSEEDMAN.

     

    Therefore, the readiness of the domestic food supply chains will perhaps be the ones to be tested in the coming weeks and months if panic-buying arising from fears of the spread of COVID-19 were to peak to levels seen in the UK and USA, amongst other countries. So far, however, there is relative calm in local food markets at retail levels, except for the rising demand for sanitizers.  As set out in our note last week, the implications of COVID-19 on food price inflation remains unclear in the near term. We continue to monitor the consumer buying behaviour for signals of rising demand. Suffice to say, South Africa has ample food supplies for 2020, and therefore, there is no need for panic buying. Hence, we have placed our forecast for food price inflation this year at about 4% y/y compared to 3.1% y/y in 2019. The uptick in food price inflation compared to the previous year is associated with a potential increase in meat prices, rather than the COVID-19 pandemic.

     

     Where negative pressures of the virus are likely to hit are on farmers and agribusinesses through the potential slowdown of export demand, and a likely subsequent decline in agricultural commodity prices. As we consistently pointed out in the previous notes, South Africa’s agricultural sector is export-orientated and heavily reliant on global markets. Nearly half of the value of what the country produces, is exported. Asia and Europe, which accounted for half of the US$10 billion of South Africa’s agricultural exports in 2019, are the hardest hit areas by COVID-19 thus far. There is likely to be disruptions in supply chains in these regions as governments strive to limit the spread of the virus.

    WEEKLY HIGHLIGHTS

     A mixed bag of grains

     Last week the United States Department of Agriculture (USDA) released a monthly update of its World Agricultural Supply and Demand Estimates report. The commodities we typically study in this report are wheat, maize and soybeans, for various reasons, however.

    Wheat

     As South Africa is a generally net importer of wheat; hence we must monitor global wheat supplies and other market developments. As previously stated, 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 5% y/y, as previously stated. 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 there are sufficient supplies for importing countries such as South Africa in the global market. The main challenge for trade in the near-term, however, is likely to be COVID-19 due to potential disruptions in supply chains. With that said, we haven’t noticed any major hiccups thus far.

    Maize

      What’s more, 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 has lifted its estimate for South Africa’s 2019/20 maize production by 10% from last month to 16.0 million tonnes. This is up by 35% from the previous season. This data comprises both commercial and non-commercial production and therefore not comparable to South Africa’s Crop Estimates Committee’s number of 14.6 million tonnes released last month, which accounts for only commercial production. Nonetheless, this doesn’t change the view we expressed last month, which is; if it materialises, this could be the second-largest summer maize harvest on record after the 2016/17 season (which was 16.8 million tonnes for total maize).

    Aside from a favourable food price inflation outlook, this data essentially means that South Africa would remain a net exporter in the 2020/21 marketing year which starts in May 2020 (the 2020/21 marketing year corresponds with 2019/20 production season). This is at a time where Southern African maize import needs could outpace the previous year, with Zimbabwe in need of maize supplies to an extent that the country lifted a ban on the importation of genetically modified maize, which eases access for South African maize exporters.

     Moreover, a maize harvest of 16.0 million tonnes would enable South Africa to export maize beyond the continent to other typical markets such as Japan, Taiwan, Vietnam and South Korea who are not prominent in the current marketing year. With that said, the coronavirus remains a key threat to global agricultural trade and may disrupt South Africa’s agricultural exports in various markets.

    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.

    Soybeans 

    As stated in our note last week, South Africa imports, on average, 550 000 tonnes of soybeans 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 342 million tonnes, down 5% y/y. As a result, the 2019/20 global soybean stocks are down 8% y/y, estimated at 102 million tonnes. China, which is heavily affected by COVID-19 is the leading importer of soybeans, accounting for 58% of the global soybean import forecast for 2019/20 season. The disruptions caused by the virus there could have implications on soybean imports activity.

    Concluding remarks 

    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 consumers), assuming minimal disruptions from the coronavirus. The same is true for maize but the benefit will be from the anticipated improvement in domestic supplies. Meanwhile, soybeans could be the opposit

    DATA RELEASES THIS WEEK 

    On Wednesday, Stats SA will release the Consumer Price Index data for February 2020. To recap, South Africa’s food price inflation was at 3.7% y/y in January 2020, while the previous month was 3.8% y/y. This deceleration, however, was not across the food basket. Only price inflation of bread and cereals; fish; and vegetables decelerated. But this was enough to overshadow the increases in meat; milk, eggs and cheese; oil and fats; fruit; sugar, sweets and desserts.

     

    Also, on Wednesday, the South African Grain Information Service (SAGIS) will release the weekly grain producer deliveries data for the week of 13 March 2020. This covers both summer and winter crops. With summer crops still at growing stages, the focus remains on winter wheat data, whose harvest was completed in January 2020. In the week of 06 March 2020, about 4 052 tonnes of wheat were delivered to commercial silos. This placed total wheat deliveries at about 1.42 tonnes, which equates to 95% of the expected harvest in the 2019/20 season.

     

     On Thursday, SAGIS will release the weekly grain trade data (wheat and maize), also for the week of 13 March 2020. In brief, maize exports for the 2019/20 marketing year have thus far amounted to 1.15 million tonnes, which equates to 87% of the export forecast for this season (1.32 million tonnes).

     

     At the same time, we expect maize imports of about 525 000 tonnes, all yellow maize, mainly 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 477 671 tonnes of yellow maize.

     

     Also, on Thursday, the United States Department of Agriculture will release the weekly export sales data. This is important data to monitor as it will give an indication of the US agriculture exports to China, and help us monitor the progress on commitments made in phase one trade deal.

  • Subsequent to a decline from 54 to 48 points in the third quarter of 2018, the Agbiz/IDC Agribusiness Confidence Index weakened further to 42 in the last quarter of the year. 

  • While rainfall late in December 2018 and early January 2019 have enabled South African farmers to start planting in the western parts of the Free State and North West, the harvest is likely to be poor, particularly for (white) maize as the optimal planting window has long passed, and even the late rains remain erratic.

  • Agbiz CEO Dr John Purchase on Tuesday shared the agricultural sector’s five-year business plan at the Business Unity South Africa Business Economic Indaba, held in Midrand.

  • The inherent uncertainty around weather conditions remains a major risk to global wheat production in the foreseeable future. Whether one looks at Europe, North America or Southern Africa, there are increasing reports of drier weather conditions. If dryness persists for a prolonged period, it could threaten wheat yields and, in turn, lead to a downward revision of the optimistic outlook of 2020/21 global wheat production of a record 768 million tonnes that the United States Department of Agriculture (USDA) currently forecasts. Over the past week, Romania, Russia and Ukraine are amongst countries which saw their 2020/21 wheat production forecasts revised down because of expected poor yields in some spring wheat-growing regions. What's more, the UK, France, Belgium, Netherlands and parts of Germany are also amongst the European regions currently experiencing inadequate moisture.

     

     The same is true for the US where analysts now have some doubts that the USDA wheat yields forecasts will materialise if there aren’t sufficient rains in the coming days or weeks. We now look to the USDA’s crop conditions report which will release the results of crop conditions for the week of 24th of May 2020 on Tuesday. In the week of 17th May 2020, about 52% of the US winter wheat was rated good or excellent, which is slightly behind the 66% rating in the corresponding day in the previous year.  To a certain extent, this shows the impact of dryness in some regions of the US wheat industry.

     

    For a broader update of the 2020/21 global wheat production estimates, we look to the USDA’s World Agricultural Supply and Demand Estimates report which will be released on the 11th of June 2020. In the meantime, various crop forecasts from governments and analysts suggest that the USDA might have to revise down the optimistic estimate of a record 768 million tonnes in the next release. The magnitude of such revisions, however, will largely depend on the weather conditions in the coming weeks.

     

    In Southern Africa, there aren’t many major wheat producers, with South Africa being the only major producer in the region. The winter wheat planting activity in the country commenced at the start of April and will continue until the end of this month or first week of June, which is when the optimal planting window closes. By the week of the 24th of May 2020, nearly two-thirds of the estimated 495 000 hectares for the 2020/21 season had been planted. Various regions of the major wheat-producing province, Western Cape, have experienced persistent dryness which somewhat slowed the planting activity. Moreover, the aforementioned intended planting area for the 2020/21 wheat season is down by 8% from the previous season.

     

    South Africa’s Crop Estimates Committee will release its first winter wheat production forecast on the 27th of August 2020. It is only on that day that we will have a sense of how big the 2020/21 wheat crop could be. The preliminary estimates from the International Grains Council (IGC) paint an optimistic picture of 22% y/y increase in South Africa’s 2020/21 wheat production to 1.8 million tonnes. While it is still early to make a concrete judgement, we doubt if this will materialise under the expected area plantings and dryness. Perhaps, the IGC took a leaf from the South African Weather Service in drafting the underlying assumptions for this estimate.

     

     On the 30th of April 2020, the local weather bureau estimated an increased chance of above-normal rainfall in the south-western regions of South Africa, which included the Western Cape between May and August 2020. So far, the forecast rainfall hasn’t materialised. Notwithstanding that the rainfall forecast for this week promises widespread showers over most regions of the Western Cape, which could be a welcome relief and conducive for the planting activity currently underway.

     

    In a nutshell, the weather remains a major risk that requires constant monitoring in the global wheat market. This means, while the fears about lower global wheat supplies have eased following the release of the 768 million tonnes production estimate for 2020/21 season, a lot will depend on weather conditions for the coming weeks. With that said, we still think there is no need for panic at this point or for major wheat-producing countries to re-consider the restrictive trade policy they had intended to implement at the start of the pandemic when they feared for wheat shortages. The current weather forecast only suggests that global production might not be as large as initially expected, but there aren’t signs of potential shortages.

     

    WEEKLY HIGHLIGHTS

     SA maize harvest process slightly delayed

     

    The late start of the 2019/20 maize production season because of dryness when farmers commenced planting, means that the harvest process will be slightly later than usual. This is clear from the maize producer deliveries data for the first three weeks of the 2020/21 marketing year (corresponds with the 2019/20 production season), which are down by 19% compared to the corresponding period last year, with about 277 178 tonnes delivered in the week of 15th of May 2020. This is the case, although the 2019/20 maize harvest is expected to be up by 35% y/y, estimated at 15.2 million tonnes, which is the second largest harvest on record . Essentially, the harvest process has started across all provinces, but still at very preliminary stages.

     

    Nevertheless, with the weather outlook for maize-producing regions of the South Africa showing clears skies for the next two weeks, the harvest activity could gain momentum around mid-June 2020. This means that in the coming months, the increase in harvest activity could add downward pressure on maize prices, which at the end of the past week traded at roughly the same levels as in the previous year (21 May 2019). White and yellow maize prices were at R2 674 per tonne and R2 682 per tonne, respectively, on 21 May 2020. The downward pressure on prices is likely, particularly as the country is expecting a bumper maize harvest. The one factor that could somewhat minimise the potential decline on maize prices and other agricultural commodity prices is the weaker domestic currency, which currently shows a strong correlation (see, The recent sharp price increases in South Africa’s white maize shouldn’t be a worry: a temporary market blip, published on 25 April 2020 for maize price and USD/ZAR correlation).

     DATA RELEASES THIS WEEK

     

     From a global perspective, on Tuesday the United States Department of Agriculture (USDA) will release the weekly crop progress data. This is important data to monitor grains and oilseeds planting activity across the US for the 2020/21 production season, which promises to be a good one, despite the glitches caused by the COVID-19 pandemic and drier weather conditions.

     

    There has already been enormous progress in planting activity across the US. On the 17th of May 2020, about 80% of the intended area for maize in 2020/21 season had already been planted. This compares to 44% in the corresponding week the previous year and a five-year average of 71%. In the same day, about 53% of the intended area for soybeans had already been planted, compared to 16% on the 17th of May 2019 and a five-year average of 38%. Also, worth noting is that the planting activity in the US in 2019 was far behind schedule because of excessive rains at the start of the season.

     

     On Friday, the USDA will release the weekly export sales data. This is important data to monitor as it will give an indication of the US agriculture exports to China, and help us monitor the progress on commitments made in phase one trade deal and impact of the COVID-19 pandemic on trade.

     

     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 22nd of May 2020. This covers both summer and winter crops. But the focus is on summer crops since the winter crops are still at planting stages. As indicated above, in the third week of the 2020/21 maize marketing year, which was on the 15th of May 2020, about 277 178 tonnes of maize had already been delivered to commercial silos. About 58% was yellow maize, with 42% being white maize. This, however, is a small fraction of the expected harvest of 15.2 million tonnes in the 2019/20 production season (which corresponds with 2020/21 marketing year).

     

    Unlike maize, where the harvest season is still at its very early stages, there has been progress in the soybean harvest. In the week of 15th of May 2020, about 842 428 tonnes had been delivered to commercial silos. This equates to 65% of the expected harvest of 1.3 million tonnes in the 2019/20 season. Also, on the 15th of May 2020, about 211 279 tonnes of sunflower seed, which accounts for 29% of the expected harvest in 2020/21 marketing year had already been delivered to commercial silos.

     

      On Thursday, SAGIS will release the weekly grain trade data. In the third week of the 2020/21 marketing year, about 59 702 tonnes of maize had already been exported, all to the neighbouring countries. This too is a small fraction of the 2.7 million tonnes of South Africa’s 2020/21 maize exports we currently forecast, which is up by 90% y/y. This notable increase is supported by the expected large harvest, which is set to be the second largest in the history of South Africa, at 15.2 million tonnes. In terms of wheat, South Africa is a net importer. In the week of the 15th of May 2020, South Africa’s 2019/20 wheat imports amounted to 1.2 million tonnes, which equates to 66% of the seasonal import forecast.

  • Wandile Sihlobo, agricultural economist, at Agribusiness Research at the Agricultural Business Chamber (Agbiz) of South Africa, comments on South Africa’s agricultural exports.

  • Building on his new approach adopted in the 2018 SONA of instilling a changed vision of hope, unity, service and prosperity, the President has already put in place action plans to address the daunting challenges that confront South Africa and its people.

  • Know-how is the secret sauce of productivity and prosperity A fundamental question economists ask is why people in some parts of the world are able to produce so much more value than people in other places or in the same place at earlier times. A key part of the answer economists usually give is ‘technology’. But what is this?

  •  The Department of Agriculture, Land Reform and Rural Development (DALRRD), agribusinesses and various social partners have been hard at work for months crafting the Agricultural and Agro-processing Master Plan and separately blended finance instruments. These aim to ignite growth and expansion in South Africa's agricultural sector as part of the government's broader Economic Reconstruction and Recovery Plan. Both these initiatives are set to be launched in the coming months whilst the first phase of the blended finance instrument has already started, as evidenced by the launch of the joint Agri-Industrial Fund of R1 billion by the Industrial Development Corporation (IDC), in partnership with the DALRRD. These are constructive programmes with the potential to ignite growth and transformation in the sector. As such, industry bodies such as Agbiz allocate most of their time and resources to pursue these goals. Sadly, much of this good work takes place behind the scenes whilst other significant policy developments that might deter the progress grabs social partners' attention and the media.

     

     A case in point is the renewed debate about Section 25 of the Constitution and the Expropriation Bill. Last week, the Portfolio Committee on Public Works hosted public hearings on the Expropriation Bill whilst the committee tasked to "make explicit what is implicit" in Section 25 of the Constitution continued with their public hearings. The outcome will have implications on public sentiment. We hope that it will not detract from the two initiatives above to drive growth and expansion in South Africa's agriculture. The success of any of these programmes depends on the private sector and other social partners jointly implementing the government's proposals. As such, policy actions that might be perceived as not aligned with the broader stakeholders' interests present a risk and could lead to a lack of participation and stalling the Master Plan and the blended finance implementation.

     

    Admittedly, the discussion of the potential amendment of Section 25 of the Constitution has gone beyond the realm of agriculture as various stakeholders are engaged with the national debate led by Parliament. Yet, its outcomes will likely have direct implications on the success of the DALRRD work programme. Hence, it is prudent that Parliament decides on the Section 25 matter, mindful of the broader impact on the agricultural sector and other sectors of the economy when South Africa is at an economic reconstruction phase.

     

    We have long argued at Agbiz that land reform is an important policy imperative, and we are in full support of it. Yet, we do not believe that an amendment of the Constitution will lead to the country's desired outcome of prosperity. Likewise, Parliament must finalize the Expropriation Bill. It provides the procedural guarantees required to bring the government and an expropriated owner or bondholder onto an equal footing if expropriation occurs. Unlike the Section 25 amendment, Agbiz is broadly supportive of the need for legislation to regulate expropriation but opposes the provisions relating to 'nil' compensation. Expropriation should always be used as a last resort and cannot substitute for well-formulated and well-implemented programmes to effect transformation in the sector. There are various private-public partnerships (p-p-p) for land reform, some of which were highlighted in the Presidential Advisory Panel on Land Reform and Agriculture and also chapter six of the National Development Plan, which the government could utilize to accelerate land reform. Importantly, there is also an ample land supply that the government has not efficiently distributed or transferred to potential beneficiaries, with estimates placing such land at over 2 million hectares.

     

     We are also bombarded daily with news headlines of corruption and inefficiencies at local government levels, some of which threaten the same black farmers government intends to support. Hence, the p-p-p approaches have been the desired approach to us for land reform. The ongoing Master Plan is designed in the spirit of the joint-venture or p-p-p. A continuation of this approach to policy implementation would potentially yield positive results for expansion in agricultural production and, after that, job creation in the sector.

     

     In sum, there is some level of unity in agriculture and agribusiness at the moment, and all stakeholders are working towards ensuring the success of the Master Plan implementation, anchored by blended finance and various regulatory support that DALRRD and multiple departments such as Water Affairs, DTIC, etc. would provide. However, the approach that will be taken in Parliament in as far as the discussions of Section 25 of the Constitution can sway the stakeholder's minds off these necessary economic reconstruction plans.

    Weekly highlights

    SA's 2020/21 summer grain and oilseeds harvest lifted from February estimates

     Last week, the South African Crop Estimates Committee (CEC) mildly lifted its forecast for 2020/21 summer grain and oilseeds production from the previous month by 1% to 18,7 million tonnes (this compared with 17,6 million tonnes in 2019/20 production season). The upward adjustments were on maize, soybeans and sorghum, whereas sunflower seed, dry bean and groundnut production estimates were revised. If we zoom into significant crops, the 2020/21 maize, soybean and sunflower seed harvests are forecast at 15,9 million tonnes (up 4% y/y, and second-largest harvest on record), 1,9 million tonnes (up 39% y/y, a record harvest), and 712 940 tonnes (down 12% y/y), as illustrated in Exhibit 1 (in the attached file).

     

    The maize production estimate is slightly below our estimated 16,7 million tonnes, and the Bureau for Food and Agricultural Policy's estimated 17,0 million tonnes. Considering the optimistic yield estimates we received from farmers and observations in places we have been in, we are inclined to think that there is still room for the CEC to lift further its maize production estimates in the coming months. Hence, we are not adjusting our view for now from an assessment of 16,7 million tonnes.

     

    The current maize production data essentially mean that South Africa would remain a net exporter in the 2021/22 marketing year, starting in May 2021 (corresponds with the 2020/21 production season). South Africa's annual maize consumption is roughly 11,4 million tonnes, which means there will likely be over 2,0 million tonnes of maize available for export markets, all else being equal.

     

    The expected large harvest could also add downward pressure on maize prices, although marginal as the global maize market remains supportive of prices. This is particularly the case as we forecast an excellent crop in South Africa and across the Southern and East Africa regions, a major importer in the previous year. For example, estimates from the United States Department of Agriculture show that Zambia's maize production could reach 3,4 million tonnes (up 69% y/y). In comparison, Malawi's maize harvest is estimated at 3,8 million tonnes (up 25% y/y), Mozambique's maize crop is estimated at 2,1 million tonnes (up 8% y/y), Kenya's maize is forecast at 4,0 million tonnes (up 5% y/y). There is optimism about the crop in other countries, including Zimbabwe.

    Over the past few months, the weaker domestic currency, growing demand for South Africa's maize in the Southern Africa region and the Far East, coupled with generally higher global grain prices, provided support to the domestic maize prices. But we believe that the domestic crop conditions will matter more for price movements in the future than has been the case over the past few months. On 25 March 2021, South Africa's yellow and white maize spot prices were down 18% y/y and 3% y/y, trading at R3 220 per tonnes and R3 123 per tonne, respectively.

     

     In the soybean case, the price drivers are somewhat similar to maize. Nevertheless, an increase in the soybean harvest will still not change much because South Africa imports around half a million tonnes of soybean meal (although this volume will fall notably this year on the back of the large domestic harvest). The country will most likely continue being dependent on imports, even at these harvest levels, to meet the growing demand for soybean meal by the poultry sector. Hence, global soybean market dynamics will continue to influence local prices. On 25 March 2021, the domestic soybean spot price was up 17% y/y, trading around R7 670 per tonne.

     

    In sum, the broadly large summer grain and oilseeds production estimate this season is on the back of increased area plantings for summer crops and favourable rainfall since the start of the season. We expect the maize production estimate to be adjusted somewhat in the coming month as farmers on the ground continue to express optimism about yield prospects. This will likely add downward pressure on maize prices, which bodes well for South Africa's consumer food price inflation for 2021.

     

                             

    SA consumer food price inflation decelerates further in February 2021

     

     After softening from 6,2% y/y in December 2020 to 5,6 % y/y in January 2021, South Africa's consumer food price inflation decelerated further to 5,4% y/y in February. The primary products underpinning this deceleration in price inflation are meat, fruit, vegetables, and bread and cereals. Importantly, this is in line with the price trends in agricultural commodity prices, which, while still elevated, are at lower levels than the corresponding period in 2020.

     

     From now on, we still expect South Africa's consumer food price inflation to remain at slightly elevated levels in the first quarter of the year, partly, because of generally higher grain and imported vegetable oils and fats prices. But from the second quarter of the year, grain prices could soften further and filter through, with a lag, on the "bread and cereals" products prices. The anticipated decline in prices is on the back of the large forecast harvest of 16,7 million tonnes mentioned in the previous section of this note. This product category also has a higher weighting of 21% in the food basket, and changes in its price inflation will be noticeable. In terms of meat, we expect a sideways price movement for the coming months. The cattle slaughtering could slightly improve in 2021, and the base effects on poultry meat, which increased in 2020 partly as a result of an import tariff hike, could also bode well for food price inflation.

     

    Overall, it is still our view that South Africa's consumer food price inflation could remain relatively higher in the first quarter of 2021, primarily underpinned by bread and cereals products (the pass-through of current higher grain prices will persist for the first quarter). But from the second quarter, we could see food price inflation decelerating somewhat. We maintain our baseline view for South Africa's consumer food price inflation to average around 5,0% y/y in 2021. The only upside risk that we continue to monitor and assess inflation's impact is the rising petrol prices. South Africa's agricultural commodities and processed food are primarily transported by road, and the increased transport costs could impact the final product prices. For example, South Africa is transporting roughly 81% of maize, 76% of wheat, and 69% of soybeans. On average, 75% of national grains and oilseeds are transported by road. This is an area worth monitoring over the coming months.

    Data releases this week

     

     This is a quiet week on the agricultural calendar. On Wednesday, the South African Grain Information Service (SAGIS) will release the weekly grain producer deliveries data for 26 March. This data cover summer and winter crops, although the focus is still on winter crops whose harvest has recently been completed. On 19 March, 6 327 tonnes of winter wheat were delivered by farmers to commercial silos. This placed the 2020/21 wheat producer deliveries at 1,99 million tonnes, which equates to 94% of the expected harvest of 2,11 million tonnes. From April onwards, the focus will shift to summer crops as the harvest process will soon be gaining momentum. We already see momentum in 2021/22 soybean producer deliveries. On 19 March, about 31 395 tonnes were delivered to commercial silos. This placed the deliveries for the first three weeks of the new marketing year at 42 090 tonnes. Similarly, about 17 095 tonnes of sunflower seed have already been delivered in the 2021/22 season.

     

    On Thursday, SAGIS will release the weekly grain trade data for the week of 26 March. In the previous week of 19 March, South Africa's 2020/21 total maize exports were at 2,31 million tonnes, which equates to 86% of the seasonal export forecast of 2,69 million tonnes. In terms of wheat, South Africa is a net importer. On 19 March, imports amounted to 705 027 tonnes, which equates to 45% of the seasonal import forecast of 1,58 million tonnes.

     

     Globally, the notable data release will be the US weekly export sales data released by the United States Department of Agriculture on Thursday. Here, we will continue to monitor China's buying activity of US maize and soybeans.

  • Although we wrote about South Africa’s agricultural trade last month, the recently released data for December 2018 paint a clear picture of the full year’s agricultural trade performance that is worth highlighting.

  • The widespread rainfall over the past two weeks has improved summer grain and oilseed crop conditions across the country. The outlook for the next couple of weeks is positive, according to a recent report from the South African Weather Service.

  • AgBiz has welcomed the frank assessment by Minister Tito Mboweni, as well as the recognition that economic growth is fundamental to fiscal sustainability.

  • The suspension of South Africa’s wool imports by the Chinese authorities because of the foot-and-mouth disease outbreak earlier in the year is a key concern. Wool is an important commodity in the South African agricultural sector, ranked the sixth largest exportable commodity after oranges, grapes, wine and apples in 2018. In the same year, wool accounted for 4% of South Africa’s agricultural exports of US$10.6 billion.

  • The Kingdom of Saudi Arabia is an important player in global agricultural trade, ranked the world’s 20th largest importer of agricultural products in 2017.

  • In about a month’s time from now, South African farmers will start preparing soils for winter crops plantings in the Western Cape, as the 2019/20 production season approaches. Meanwhile, other winter crop growing areas such as the Northern Cape and Free State, amongst others, will commence with plantings around midyear.

  • We rarely explore developments in Mozambique’s agricultural sector as the country is not a key contributor to Southern Africa’s staple foods production such as maize, sorghum and wheat. But the devastation caused by Tropical Cyclone Idai meant that Mozambique should not be overlooked this year due to possible food needs over the coming months.

Agrilogics

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