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.
This means the weather will again be amongst the key drivers of domestic wheat, barley, and canola prices in the coming weeks, and will also influence farmers’ planting decisions.
• In terms of planting decisions, we are generally positive that there will be good activity in all major winter crops areas, as weather conditions have been favourable over the past couple of weeks (Figure 1). Parts of the Western Cape received fairly good rainfall over the past couple of weeks, which means that soil moisture is not as depleted as at the start of the 2018/19 production season when the country was shaking off the 2017 drought.
• Moreover, there are indications that the coming months could bring rainfall in the Western Cape. On 14 March 2019, the South African Weather Service indicated that the south-western parts of South Africa could receive above-normal rainfall conditions between May and July. This bodes well with the 2019/20 production season of winter crops.
• The Crop Estimates Committee will release the farmers’ intentions-to-plant data on 25 April 2019, and this will give us a better sense of the possible harvest this year. At this point, our sense is that wheat plantings could, at least, be about 530 000 hectares, which would be 5% higher than the 2018/19 plantings. In the 2018/19 production season, barley plantings of 119 000 hectares were the highest in 19 years. In the 2019/20 production season, the area is likely to remain fairly stable, or decline marginally if wheat plantings increase more than what we are currently anticipating. Canola is also another crop that we believe could show about 4% year-on-year improvement in plantings to roughly 80 000 hectares if weather conditions remain favourable as the current forecasts suggest. Aside from the weather, prices will also be an important factor for farmers to consider as some crops tend to compete for land use. Wheat prices have so far been fairly favourable from a producer perspective, mainly supported by the weaker domestic currency against the US dollar, as well as higher Chicago wheat prices, which are underpinned by tight global supplies.
Beef
• The fear of a notable decline in South African beef exports this year following an outbreak of foot-and-mouth disease in the Vhembe District of Limpopo1 could be eased. On 14 March 2019, the Department of Agriculture, Forestry and Fisheries and the Livestock Industry released a statement2 indicating that there are ongoing discussions with the Middle East, and the African continent’s markets to lift the ban placed on South African beef as a result of the aforementioned outbreak. There seems to be some progress, as trade in pork, and dairy products have been restored in some markets.
• To provide a picture of the significance of the South African beef export market, the industry generated roughly US$144 million in exports in 2017. In terms of volumes, medium-term trends show a sharp increase in overall beef exports, from 8 292 tonnes in 2001 to 31 888 tonnes in 2017 . Frozen beef exports trebled from 4 740 tonnes in 2001 to 13 808 tonnes in 2017. Meanwhile, fresh/chilled beef exports increased five-fold over the same period, from 8 292 tonnes to 18 080 tonnes. Within the top ten destinations for South African frozen beef export markets, there are continental markets (Lesotho, Mozambique, Angola, Mauritius, Swaziland and Egypt), the Far East region (Hong Kong, China and Vietnam), as well as the Middle East (United Arab Emirates). In terms of chilled/fresh beef, the continental markets (Swaziland, Mozambique, Lesotho, Namibia and Mauritius) featured prominently, followed by the Middle East (United Arab Emirates, Kuwait, Jordan and Qatar), as well as the Far East (China). Most of these markets were included in the list of countries that the South African government and industry are currently engaging with.
• The outcome of the ongoing engagement will have implications on the meat price inflation in the coming months. Our baseline view has been that South Africa’s meat price inflation could be subdued this year as a ban in exports could increase local supplies. We will closely monitor these developments in order to ascertain the impact on overall food price inflation for the year. So far, we still see South Africa’s food price inflation at a region of 5%.
Beef and sheep slaughtering activity
• In addition to the aforementioned points about South Africa’s meat price inflation path, beef and sheep slaughtering activity are important data to keep an eye on. Figures for January 2019 paint a mixed picture. On the one hand, farmers reduced the number of cattle slaughtered by 29% month-on-month (m/m), and 6% year-on-year (y/y), whereas sheep slaughtering activity fell by 41% m/m, but improved by 2% y/y. The sharp decline on a monthly basis are more of a correction, following a busy period with higher demand for meat over the festive season. But, the annual decline, particularly on beef, are somewhat concerning as it is unclear if farmers reduced slaughtering because of the temporary ban on exports or other events. Be that as it may, it is hard to make a call on one-month data point, we will monitor the activity over the coming months, as the decline in slaughtering would also imply that there might not be an increase in meat supply as we initially anticipated, and the same goes for the assumed price decline over the coming months.
If you want to view the figures click on the link on top.
