The role of the South African and Zambian maize industries in the Southern and East African regions will remain significant in the 2020/21 marketing year which ends in April 2021. Within the Southern Africa region, the recent data released by Zimbabwe’s ministry of lands and agriculture placed its 2019/20 maize harvest at 907 628 tonnes which is up by 17% from the previous season.
Nevertheless, this is below Zimbabwe’s 10-year average maize production of 1.1 million tonnes and annual domestic consumption needs of between 1.9 and 2.0 million tonnes. The 2019/20 production season corresponds with the 2020/21 marketing year, which means Zimbabwe will still need to import about a million tonnes of maize to fulfil the domestic needs within this marketing year. Meanwhile, in the East Africa region, the International Grains Council forecasts Kenya’s 2019/20 maize harvest at 3.4 million tonnes. This is roughly unchanged from the previous season, although there had been good rains over the past few weeks in the grain-producing regions of the country.1 With Kenya’s annual maize consumption at about 4.7 million tonnes, the aforementioned production estimate means the country could require to import about 1.3 million tonnes within the 2020/21 marketing year.
Unlike other seasons, where some African countries would look outside the continent for maize supplies in seasons of deficiency, South Africa and Zambia could emerge as key maize suppliers. Both countries are expecting their second-largest maize harvests on record within the 2019/20 production season. In the case of South Africa, the expected harvest is 15.6 million tonnes, against domestic consumption of roughly 11.0 million tonnes.2 In the case of Zambia, the 2019/20 maize harvest is estimated at 3.4 million tonnes against domestic maize consumption of 2.2 million tonnes. This means South Africa could have at least 2.7 million tonnes of maize for export markets within the 2020/21 season, which is up 89% y/y, while , Zambia could have a million tonnes of maize for exports, up from 100 000 tonnes in the previous year. This would be the third year on record where Zambia could export a million tonnes of maize.3 Other key maize-producing and consuming countries within the Southern and East African regions such as Malawi and Tanzania will most likely have balanced supplies for their domestic markets and very limited room for export markets. Hence, our focus is only on Kenya and Zimbabwe. Also, worth noting is that South Africa and Zambia are amongst the most prominent suppliers of maize to Zimbabwe and Kenya, featured amongst the top five maize suppliers to both countries in 2019, according to data from Trade Map. Biosecurity policy is always an important consideration within the African markets.
To this end, South Africa had in the past experienced phytosanitary barriers because of its use of genetically modified maize seeds, which accounts for roughly 80% of its output. But this time around things will be different. Zimbabwe lifted the ban on genetically modified maize imports from 31 January 2020 as the country attempted, then, to improve local supplies following a poor harvest in 2018/19 season.4 With the harvest of 2019/20 season also likely to be relatively low (as discussed above), this policy decision will help ease maize imports into Zimbabwe in the coming months. In the case of Kenya, however, there is still a ban on the importation of genetically modified maize.5 This might limit South Africa’s participation within Kenya, while Zambia, which produced non-genetically modified maize might be a prominent player within the Kenyan market. South Africa’s importance will likely be within the Zimbabwean market. Ultimately, both South Africa and Zambia will be key sources of maize for the Southern and East Africa region in the 2020/21 season. For South African maize producers, other important export markets beyond the African continent, are the deep-sea markets such as Japan, Taiwan, Vietnam and South Korea. These markets were not prominent in the 2019/20 marketing year, where yellow maize export volumes were relatively lower than the previous years. But the 2020/21 marketing year could see them returning. This, however, could be possible provided there are minimal disruptions on the supply chains amid the COVID-19 pandemic.
Weekly highlights SA agricultural machinery sales up notably in May 2020 South Africa’s agriculture and allied industries have thus far not been as hard hit by the coronavirus pandemic as other sectors of the economy.
The case in points is the tractor and combine harvester sales, which were up 19% and 15%, respectively, year on year in May 2020, with 432 units and 31 units sold. Fundamentally, the classification of the agricultural sector and its value chains to operate during the lockdown period as part of essential services was a key catalyst to sustaining the sales last month.
Agbiz Research By comparison, the automobile industry, which has been affected by lockdown regulations amid the pandemic saw new vehicle sales decline by 68% y/y in May 2020 (which was under level-4 lockdown regulations) following a sharp 98% y/y contraction in April when there were strict level-5 lockdown regulations.
4 Time, “Zimbabwe Quietly Lifts Ban on Genetically Modified Corn Imports in Bid to Avert Famine”, January 31, 2020. Units sold Tractors units (units = number sold) 6-month moving average 3 Another important factor behind the uptick in the May 2020 agricultural machinery sales is that farmers bought the existing stock at relatively affordable prices, ahead of the inevitable price increases which will prevail as a result of the weaker rand. Moreover, South Africa’s winter crop planting season which was in full swing in May, specifically in the wheat, barley, canola and oat producing regions, namely the Western Cape, Northern Cape, Free State and Limpopo, also added to an increase in tractor sales. In the case of combine harvester sales, a supporting factor is also that South Africa is expecting its second-largest grain and oilseeds harvest on record in the 2019/2020 production season.
The harvesting process for this crop started to gather momentum in May and is now in full swing across the country. Nevertheless, we think this could be a temporary blip and that South Africa’s agricultural machinery sales could remain subdued in future, irrespective of the robust agricultural output expected for the 2019/2020 production year. The drag on the industry will likely emanate from weak exogenous macroeconomic fundamentals. First, the weaker domestic currency will lead to higher prices for imported agricultural machinery, which will reduce farmers’ ability to acquire tractors and combine harvesters.
Second, the recent further downgrade of South Africa’s sovereign credit rating to the subinvestment grade could negatively influence the financing of agricultural equipment. As we have previously pointed out, in ordinary times the South African Reserve Bank would have responded to the downgrade by raising interest rates in anticipation of possible exchange rate depreciation and associated inflation risks, which would have increased the cost of capital. However, now the situation is different. The pandemic has disrupted global supply chains, which has led to deteriorating economic conditions. Several central banks, including South Africa, have responded by reducing interest rates to ease financial conditions. Whereas the implied prime rate after the recent policy rate cuts would suggest easier financing conditions, commercial banks are likely to be more risk-averse in the current unprecedented environment. In a nutshell, the classification of agriculture and its value chain as essential services during the lockdown period has enabled the agricultural machinery industry to operate and record better sales numbers. Nevertheless, the weak macroeconomic conditions could weigh on the agricultural machinery industry’s performance in the coming months.
Data releases this week From a global perspective, on Monday 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, according to the International Grains Council’s (IGC) recent estimates. The IGC placed the US 2020/21 maize production forecast at 393 million tonnes, up by 13% y/y. There has already been enormous progress in planting activity across the US. On 31 May 2020, about 93% of the intended area for maize in the 2020/21 season had already been planted. This compares to 64% in the corresponding week the previous year and a five-year average of 89%. In the same day, about 75% of the intended area for soybeans had already been planted, compared to 36% on the 31 May 2019 and a five-year average of 68%. 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. Hence there is a huge difference in this season’s planting progress and the 2019/20 season. The IGC forecasts the US 2020/21 soybean production at 113 million tonnes, which is up 16% y/y. On Thursday, the USDA will release its monthly World Agricultural Supply and Demand Estimates report. The commodities we typically follow in this report are wheat, maize, rice and soybeans, and the focus will be on initial estimates for the 2020/21 production season.
The weak macroeconomic conditions could weigh on SA’s agricultural machinery industry’s performance in the coming months. 4 The International Grains Council (IGC) has recently released its second estimates pointing to a notable increase in all major grains and oilseeds production in 2020/21 production season as discussed in our note on 01 June 2020. We will be watching this week to see if the USDA numbers will concur with the IGC or if there will be any deviations, and what factors will be driving such. What's more, we are also consistently observing the weather conditions across key grain-producing countries, as this is one major risk that will determine whether the optimistic view painted thus far by the IGC materialises. Also, on Thursday, 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 05 June 2020. This covers both summer and winter crops. But the focus is on summer crops which are currently being harvested. The winter crops are still at planting stages for 2020/21 season. In the fifth week of the 2020/21 maize marketing year, which was on the 29 May 2020, about 1.14 million tonnes of maize had already been delivered to commercial silos. About 59% was yellow maize, with 41% being white maize.
This, however, is a small fraction of the expected harvest of 15.6 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 29 May 2020, about 1.1 million tonnes had been delivered to commercial silos. This equates to 82% of the expected harvest in the 2019/20 season. Also, on 29 May 2020, about 337 031 tonnes of sunflower seed, which accounts for 44% 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 fifth week of the 2020/21 marketing year, about 141 198 tonnes of maize had already been exported, all to the neighbouring countries and South Korea. This 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 89% y/y. In terms of wheat, South Africa is a net importer. In the week of the 29 May 2020, the country’s 2019/20 wheat imports amounted to 1.3 million tonnes, which equates to 72% of the seasonal import forecast.
