Winter grains and oilseeds outlook- South Africa

An increase of 16%, 21% and 25% in the gross production value of wheat, barley and canola respectively, according to the BFAP Baseline Agricultural Outlook for the period 2019 to 2028.

South Africa's winter rainfall regions have faced weather related challenges in recent years, particularly in 2017 when a severe drought was experienced. However, with South Africa already importing close to half of its domestic wheat requirement in normal years, the impact of the drought on wheat prices was far less severe than was the case in summer crops such as maize.

Instead, prices tend to trade at or close to import parity, and are therefore influenced by world price levels, the level of the variable import tariff and exchange rate dynamics. The sharp depreciation in the exchange rate in 2016 did therefore increase wheat prices, as well as those of barley, which are linked to wheat, but markets were generally less volatile than those of summer grains over the same period. The lack of price response in a year where wheat yields declined sharply placed producer profitability under severe pressure.

Despite this combination of very low yields resulting from the drought and declining prices in the face of exchange rate appreciation in 2017, the area under wheat production increased marginally in 2018. While the 2017 drought also affected barley yields, the reduction was less severe than was the case for wheat. A more substantial expansion therefore occurred in barley area in 2018, which increased by 30% relative to 2017 levels. By contrast, canola area declined by almost 10% in 2018, following a year on year price decline of 13% in 2017, which was exacerbated by the drought induced yield declines. Following improved weather conditions, yield levels increased for all three crops in 2018. Combined with area expansion, this supported a 17% and 37% increase in wheat and barley production respectively. In the case of canola, yield gains more than off-set the reduction in area, with production expanding by 19% year on year. Consequently, despite lower prices for wheat, barley and canola, the gross value of production improved by 12%, 27% and 13% respectively from the lows of 2017.

Intentions to plant indicate that the wheat area could expand again by 2% in 2019, with barley remaining at similar levels to 2018. Producers intend to expand the area cultivated to canola by 5% year on year. Under the assumption of normal weather conditions, which would entail a return to trend yields, this could support wheat production growth of 6.5% in 2019, while barley and canola production could increase by 7% and 18% respectively.

Presently, a small increase in global wheat prices resulting from overly wet conditions in the US would have a limited price impact in South Africa's wheat market, as world prices remain below the reference level that triggers the variable import tariff. Unless global wheat prices increase sufficiently to exceed the reference price, which they are not expected to do, a reduction in the variable import tariff would off-set an increase in world price levels. Nonetheless, prices are expected to find support from a weaker exchange rate. Combined with production gains, this would support an increase of 16%, 21% and 25% in the gross production value of wheat, barley and canola respectively.




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