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South Africa summer grains and oilseeds production data review

The key focus in the South African summer grains and oilseed market last week was the national Crop Estimates Committee’s preliminary planting estimates data, particularly maize.

The data showed that the area planted to maize is 2.3 million hectares. About 1.3 million hectares is white maize, with 1.0 million hectares being yellow maize. This came as a surprise as we had a projection of 1.98 million hectares. We suspect that the late plantings might have been more than anticipated following early January rainfall. While this is a welcome development, it is important to stress that these are initial estimates, there could be a revision next month and our view still leans towards a possible downward adjustment.
The important question at the moment is, what size of maize crop will South Africa have in the 2018/19 production season? The estimates in the market currently vary between 10.4 and 12.0 million tonnes, which is plausible if one assumes the aforementioned area and average yields, although that is dependent on good rainfall which is still proving to be a challenge at the present moment in the western areas of the South African maize belt. In fact, data from RMD Financial Services show that the Free State and Mpumalanga have thus far received lower rainfall
compared to the past two production seasons, 2016/17 and 2017/18, measuring September to January.2
To reiterate a point made during the week, given that South Africa’s maize consumption is about 10.8 million tonnes a year, a harvest of at least 10.4 million tonnes or even as low as 8.0 million tonnes would still ensure sufficient supplies for the country, as there could be fairly large stocks of about 3.4 million tonnes at the beginning of the 2019/20 marketing year in May 2019. This is under the assumption that there could be minimal exports, which is yet to be seen as our neighbouring countries could experience a shortage.
The other crop that came as a surprise was sunflower seed area plantings, at about 444 000 hectares down by 26% from the area planted in 2017/18 production year. Unlike the case of maize where we expected a decline in area planting, we had anticipated an uptick on sunflower seed following increased planting activity earlier this month. We foresee a possible upward adjustment when the Committee releases its revised estimates in February. Soybean plantings are estimated at 743 600 hectares, down by 6% from the previous season.

 Overall, the preliminary planting data, coupled with lower Chicago grain prices and the relatively stronger domestic currency against the US dollar led to marginal losses in SAFEX grains and oilseeds prices in the week of 01 February 2019. 

 In terms of the Chicago grain prices, the losses were partially linked to improvement in South America’s crop conditions, particularly Argentina. The general improvement in global maize and wheat production forecasts for the 2018/19 production season from December 2018 estimates by the International Grains Council (IGC) also added pressure to the market.
IGC lifted its estimate for 2018/19 global wheat production by 8 million tonnes from last month to 737 million tonnes, but this is still 4% lower than the previous season due to an expected lower harvest in parts of the EU and the Black Sea region. From a domestic perspective, these developments are important because South Africa remains a net importer of wheat, with 2018/19 imports estimated at 1.4 million tonnes.
 Furthermore, IGC lifted its 2018/19 global maize production by 3 million tonnes from the December 2018 estimate to 1.076 billion tonnes, which is 3% higher than the previous season. This is on the back of an expected large harvest in the US, Brazil, Argentina, Ukraine and China. But, as we stated in our note on 28 January 2018, the global maize stocks will remain tight due to a rise in consumption, particularly animal feed as traditional buyers of wheat are shifting to maize due to price competitiveness. The global maize stocks could fall by 11% y/y to 271 million tonnes. This will, in the medium term, keep Chicago maize prices sideways.
From a global soybean perspective, while South America crop conditions are important to monitor, in the near term the focus remains on the US-China trade talks. These talks are important partly because of the US soybean market exposure to China. Between 2013 and 2017, the US exported on average about 48 million tonnes of soybean per annum. About two-thirds of this was destined for China. The other notable markets for US soybeans are Mexico, Indonesia, Japan and the Netherlands. Within the Chinese soybean market, the key US competitors are Brazil,
Argentina and Uruguay.

SA weather perspective
In production seasons where grains and oilseeds plantings have occurred during optimal periods, the weather would
be a key focus between October and February. This is from planting into the pollination stages of development. But
this time around, the planting process was quite late in some areas which means the need for rainfall will extend
beyond the typical February pollination period.
 Therefore, the weather will remain a key factor in the market which could influence price movements of SAFEX grains
and oilseeds. Fortunately, on Friday the South African Weather Service indicated a likelihood of above-normal rainfall
conditions over the summer rainfall regions during early autumn (Feb-Mar-Apr). However, this might not be
widespread across all grains and oilseed-growing regions. The shaded areas in Figure 5 are the most likely regions
to receive above-normal rainfall in the coming months. It seems as if the North West, which critically needs moisture
could remain fairly dry for some time, which does not bode well for the crops.
 While parts of the Eastern Cape are not expected to receive above-normal rainfall in the coming months, areas such
as Matatiele all the way up to Ugie region received over 50 millimetres of rainfall in the past few days. Figure 6 below
was taken yesterday afternoon, 03 February 2019, in a maize field in Matatiele after heavy rainfall in the area.

Agriculture has featured prominently in policy debates as one of the sectors that can potentially yield employment-
creating growth in rural areas in South Africa. This is under the assumption that there could be potential expansion in area planted to the horticulture and field crop subsectors.
The focus areas for potential expansion, which we have also argued for are KwaZulu-Natal, the Eastern Cape and
Limpopo which still have roughly 1.6 million to 1.8 million hectares of underutilised land.
 But expansion in human settlement in most rural areas of the aforementioned provinces might hinder potential
expansion of agriculture.
 In terms of grains and oilseeds, the recent preliminary planting data provided an encouraging picture of higher than
expected plantings, but it is important to stress that these are initial estimates, there could be a revision next month
and our view still leans towards a possible downward adjustment.
In production seasons where grains and oilseeds plantings have occurred during optimal periods, the weather would
be a key focus between October and February. But this time around, the planting process was quite late in some
areas which means the need for rainfall will extend beyond the typical February pollination period.
 On 01 February 2019, the South African Weather Service indicated a likelihood of above-normal rainfall conditions
over the summer rainfall regions during early autumn (Feb-Mar-Apr).


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