Although the past few months have been a struggle to secure grain supplies for Southern and East Africa, other parts of the world are in better shape and could help offset the shortfall.
No indicator spells this out as clearly as the Food and Agricultural Organization of the United Nations’ (FAO) Global Grains Price Index which averaged 158 points in September 2019, down by 4% year-on-year.
Last month, the International Grains Council (IGC) kept its 2019/20 global grains production estimate at 2.2 billion tonnes, which is 1% higher than the previous season. This is boosted by increased wheat and rice production, which have overshadowed the decline in the maize and soybean harvest. At the start of the 2019/20 production season, an increase in production seemed like a pipe dream because of excessively wet weather conditions and delayed plantings in the US. In addition, when planting finally happened, there were fears of potentially poor yields. While these tough production conditions are what has resulted in a decline in global maize and soybean production, now estimated at 1.1 billion tonnes and 342 million tonnes, down by 3% and 6% from the 2018/19 season, respectively, the magnitude of a decline is not as huge as initially feared.
The improved weather conditions over the past few months and also the use of higher-yielding and short-period growing varieties of seeds are amongst the factors that lessened the impact of late plantings and wet conditions on US maize and soybean producing areas.
Wheat production, which fell notably in 2018/19 season, recovered by 4% year-on-year to 764 million tonnes in 2019/20 season – the largest harvest ever. There is a notable improvement in production in all the major wheat-producing countries, with the exception of Kazakhstan, whose harvest is set to fall by 18% from the 2018/19 season. This increased wheat supply, and the decline in prices thereafter, drew back some users who had switched to maize in the previous season because of higher prices. The 2019/20 global wheat consumption is now estimated at 757 million tonnes, up by 3% year-on-year, according to data from IGC.
Despite the increase in consumption, global wheat prices are still under pressure, down by 15% year-on-year on 03 October 2019, trading at US$206 per tonne. A more comprehensive picture of the overall global grain price dynamics is illustrated by the aforementioned Global Grains Price Index.
The African continent, as a net importer of wheat, will benefit from the current lower prices. IGC forecasts Africa’s 2019/20 wheat imports at 51 million tonnes, up by 5% from the previous season. The leading importers include Algeria, Egypt, Morocco, Nigeria, Tunisia, Kenya, Ethiopia, Sudan and South Africa.
From a South African perspective, the increase in global wheat production comes at a time when it's much needed. South Africa’s 2019/20 wheat imports could amount to 1.6 million tonnes, up by 14% from the 2018/19 season which ended last week because of the expected poor domestic wheat harvest. While this is beneficial for South African consumers in the near term, it also means that South African farmers might not be compensated for lower production by an increase in prices. As we have previously stated, South Africa is a net importer of wheat, which means prices are already at import parity levels, and its movements there will largely be directed by developments in the global wheat market rather than domestic factors.
Regarding the entire Southern and East Africa region, Kenya, Mozambique and Zimbabwe are the countries that are expected to import notable volumes of grains in the 2019/20 marketing year. Estimated maize imports for these countries collectively will be at least 2 million tonnes. Imports thus far have largely been from Tanzania and South Africa. There are reports of ships that have left Mexico heading to Mozambique, but at this point, it is unclear how much maize will be there. In addition, wheat imports for the above-mentioned three countries could amount to 3 million tonnes.
The upside is that the grains shortfall in Southern and East Africa occurs in a season where there are generally large global supplies to cushion the countries in need. It will, however, be tough to source white maize imports. Outside of the African continent, Mexico is the only key producer. Meanwhile, wheat will largely be available in the global market.
South Africa’s agricultural machinery sales continue to disappoint
The poor summer crop harvest of the 2018/19 production season which weighed on farmers’ finances have in turn continued to negatively influence agricultural machinery sales. In September 2019, tractors sales were down by 30% year-on-year, with 431 units sold.
As highlighted in our previous notes, we cannot attribute the poor tractor sales performance solely on the lower harvest on the back of unfavourable weather conditions. This is a year that follows 2018 where sales were relatively robust, which implies that the rate of replacement will likely be down in 2019. To illustrate this point; South Africa’s total tractor sales for 2018 amounted to 6 680 units, up by 4% from the previous year. Read more on the attached file.
Some winter crop growing areas of the Western Cape are not in good shape
We continue to observe developments in the winter crop growing areas of the Western Cape. There hasn’t been any notable rainfall thus far to improve crop growing conditions. The current weather forecasts, which are illustrated in Figure 3, show that the next two weeks could present more of the same – dryness. This means that regions such as Overberg, which are already experiencing crop damage might not find a reprieve any time soon. Moreover, regions such as Swartland where the winter crops were still in relatively good shape could also experience losses within the next two weeks if dryness persists. The Western Cape is a major producer of winter crops, accounting for 61% of area plantings in winter wheat and nearly all canola, which means that prolonged dryness and heat there could have an impact on the national crop size.
Other major winter crop producing provinces such as the Northern Cape, Free State and Limpopo, amongst others, are mainly under irrigation and can, therefore, withstand harsh conditions as dams are at levels over 50% on average as of 30 September 2019. Farmers’ reports out of the Free State suggest that the wheat crop in the province generally appear very good. The same is true for the Northern Cape.
South Africa’s Crop Estimates Committee (CEC) currently forecasts the 2019/20 wheat, barley and canola production at 1.81 million tonnes, 389 260 tonnes and 88 800 tonnes, which is 3%, 8% and 15% down from the previous season.
·Looking ahead, we see a risk that the CEC might revise down further its winter crop production estimates when the next update comes out on 24 October 2019 given that weather conditions are expected to remain harsh over the next two weeks.
From a data front
On Monday, the US Department of Agriculture will release its weekly update of the US crop conditions data. This will give us a sense of the US crop-growing conditions, and thereafter the potential size of the harvest.
On Wednesday, SAGIS will release the grain producer deliveries data. While the data will present producer deliveries data for the week of 03 October 2019, it essentially gives us an indication of the volume of summer grains and oilseeds that have been delivered to commercial silos after the harvest process of the 2018/19 summer crops.
On Thursday, we will get the weekly grain trade data (wheat and maize) for the week of 03 October 2019. In brief, maize exports for the 2019/20 marketing year have thus far amounted to 477 457 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 the previous year to about 1.1 million tonnes, as previously noted. At the same time, we expect 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 251 708 tonnes of yellow maize, all from Argentina.
In terms of wheat, South Africa remained a net importer, although the recovery in the country’s 2018/19 domestic wheat production led to a decline in the volume of imports in the marketing year that ended on 30 September 2019. South Africa’s 2018/19 wheat imports fell by 36% from the previous season to about 1.4 million tonnes. Looking ahead, South Africa’s wheat imports could increase to 1.6 million tonnes because of expected lower harvest on the back of unfavourable weather conditions in the Western Cape.
Also, on Thursday, the USDA will release a monthly update of its World Agricultural Supply and Demand Estimates report. This will present the USDA’s view of the major grains and oilseeds harvest in the 2019/20 production season.
