Last week brought further evidence that there is no need for protectionist policies in the global grains market as there are abundant supplies.
Russia, Vietnam and Cambodia are amongst countries that recently announced export quotas and bans on rice and wheat. This led to an increase in global prices of these commodities because of large share contribution of these countries on exports – Vietnam and Cambodia collectively account for 18% of global rice exports, while Russia accounts for 10% of global wheat exports.
The data recently released by the International Grains Council (IGC) shows that the 2020/21 season will add to already higher global grains supplies.
To start with a crop that at least has not been part of trade policy restrictions, but key to global food supply and animal feed, maize, the 2020/21 global production could increase by 4% y/y to a new record of 1.2 billion tonnes. This will mainly be underpinned by an expected expansion in area plantings and higher yields in the US, Mexico, Canada, Brazil and the EU. The planting of this crop has begun in the northern hemisphere and progressed with minimal interruptions albeit the additional coronavirus-related precautions in farms. Moreover, input supply chains appear to be functioning well across the globe.
In the southern hemisphere, planting will only begin around October for the 2020/21 season. The focus now is still on the 2019/20 crop which is approaching the harvest period. South Africa expects the second biggest harvest on record, about 15.2 million tonnes. Therefore, any dynamics on the global maize market will have minimal implications on South Africa as the country remains a net exporter.
The preliminary forecasts for 2020/21 released by IGC suggest that South Africa’s maize production could fall to 13.7 million tonnes in 2020/21. While it is admittedly too early to put much weight on this particular estimate, it is worth noting that the figure is well above South Africa’s long-term average maize production of 12.5 million tonnes, and would still mean the country will remain a net exporter of maize.
In terms of wheat, which has been part of the recent restrictions, IGC forecasts a 0.3% y/y increase to a new high of 764 million tonnes. The improvement is expected in Australia, India and Russia boosted by an increase in area planted and expected higher yields. This will compensate for a potential production reduction in the EU, Ukraine, the USA and North Africa. This will mean that the 2020/21 global wheat stocks could increase by 3% y/y to 289 million tonnes. The wheat importing countries such as South Africa stands to be on the beneficiary side of such an outlook, assuming there are no further restrictions on exports that will be imposed as the data shows that there should not be global supply worries.
South Africa’s 2020/21 wheat production season has recently started and the outlook is not encouraging. Plantings are set to fall by 8% y/y to 495 000 hectares, mainly in the Free State. This means that South Africa will continue to have a large dependence on imports, about 50% of annual consumption. Fortunately, the lockdown regulations have had minimal interruptions on wheat plantings, and now the “level 4” regulations mean that the sector is largely operational, while observing all health protocols.
In the case of rice, IGC forecasts a 2% y/y to a record 507 million tonnes. This is boosted by a potential increase in area plantings in Asia, Africa and the Americas. With input supply chains functional and weather outlook favourable, we are inclined to believe that such production forecasts are plausible and again shows that there shouldn’t be restrictions on exports in various key exporting nations. Under this production estimate, IGC forecasts a 3% y/y increase in global rice stocks, which would add bearish pressure on prices and, in turn, be beneficial to import countries such as South Africa.
While the road ahead is remarkably uncertain because of the COVID-19 pandemic, the export restrictions on agricultural products should not be a policy that countries pursue. There are currently large supplies in the market from the 2019/20 season, and the 2020/21 production season promises to be even much better.
The area that will require constant monitoring is logistics. This is specifically the case for the shipping industry which has started to take a knock from the lockdowns resulting from the pandemic. But so far, there haven’t been glitches on this and one can expect conditions to improve as several countries, including South Africa, are slowly reopening the economy.
