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.

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