The high-frequency data about South Africa’s 2020/21 summer and winter crop season continue to paint a positive outlook. First, the summer crop growing areas are at early stages of planting.
Still, the recently released intentions to plant data by the Crop Estimates Committee (CEC) show that farmers intend to increase the area plantings for summer crops by 5% year-on-year (y/y) to 4.15 million hectares. This comprises yellow and white maize, sunflower seed, soybeans, groundnuts and dry beans. There is an expected increase in area plantings of most of these crops, except for sunflower seed, where the area plantings are anticipated to decline by 4% y/y to 480 500 hectares, which would be the smallest area in nine years. This likely decline in sunflower seed planting is mainly on the expected shift in some hectares to white maize, in part, due to attractive prices.
Some summer crop growing regions of the country have started receiving summer rains and could continue to see good precipitation into February 2021. This is also the period where the South African Weather Service anticipates that there will be above-normal rainfall in the country as part of the expected La Niña weather event. The near-term weather forecasts corroborate these expectations, with the next two weeks set to bring higher rainfall over the summer crop growing regions of the country. While there is a possibility that rains in some areas could temporarily slow planting, on a net basis, it will lead to increased soil moisture which will ultimately support the crops. This will be throughout the crucial growing stages of crops, which are from planting this month into February, which is when most summer crops will be pollinating. Exhibit 1 (in the attached file) illustrates plantings in major summer crops, which we will zoom into more details on in our analysis about potential harvest.
Maize
Starting with maize, if we apply a five-year average yield estimate of 5,30 tonnes per hectare to an intended area of 2,75 million hectares (up 5% y/y) as of the recent planting intention’s data, South Africa could have a harvest of 14,58 million tonnes in the 2020/21 season (15,42 million tonnes in 2019/20). This would be the fourth-largest maize harvest on record.
A realistic high road scenario could also be constructed by assuming a possible yield of 6,00 tonnes per hectare on the back of the expected higher than average rainfall. When South Africa received higher rainfall in the 2016/17 production season, the average yield was 6,40 tonnes per hectare. Therefore, a 6,00 tonnes per hectare yield assumption would not be far-fetched. Such a yield on an area of 2,75 million hectares would potentially lead to a 16,50 million tonnes harvest (compared with 15,42 million tonnes in 2019/20). This would be the second-largest maize harvest on record.
The CEC will release its first production forecast on 25 February 2021. It is only then that we will have a better sense of where the crop will be. Still, if the intended maize area plantings of 2,75 million hectares materialize, and the weather remains favourable as we expect it to, then South Africa’s maize harvest should be within the range of 14.00 and 16.50 million tonnes that we have provided above. This will be measured against an annual maize consumption of roughly 11,00 million tonnes, which means that South Africa will remain a net exporter of maize. The implications on maize prices, however, will most likely be evident around February 2021. The weaker domestic currency, growing demand for South Africa’s maize in the Southern Africa region and the Far East, coupled with generally higher global grains prices seem likely to continue to support maize prices in the coming months despite the early signs of another season of strong output.
Soybeans
If we assume an average five-year yield of about 1,82 tonnes per hectare and an area of 785 800 hectares that farmers intend to plant, then the overall harvest could amount to 1,43 million tonnes. This would be up by 13% y/y and be the second-largest harvest on record. Similar to maize, we think that a harvest of this size is plausible under the expected rainfall. This, however, would not necessarily result in prices cooling off from current highs. As of 30 October 2020, the spot price was R8 580 per tonne, which is up 46% y/y. This comes despite 2019/20 having seen the second-largest soybean harvest on record. The key price drivers are somewhat similar to those underpinning the maize market. Nevertheless, unlike maize, an increase in harvest in soybeans will still not change the fact that South Africa imports around half a million tonnes of soybean meal. The country will still be dependent on imports even at these harvest levels to meet the growing demand for soybean meal by the poultry sector.
Sunflower seed
If we use a five-year average sunflower seed yield of 1.35 tonnes per hectare with an intended area planting of 480 500 hectares, the harvest could be 648 675 tonnes. This will be down by 17% y/y, and 18% lower than the five-year average production.
South Africa’s agricultural production outlook remains positive thanks to anticipated good rains and higher commodity prices that have lifted farmer optimism to increase plantings. Nevertheless, we continue to monitor how the liquidity constraints faced by the Land Bank and agribusinesses linked to the Bank will impact the production activity. This is something we outlined in the previous notes. Importantly, these are still “intentions” to plant and not actual activity on the ground. There is still room for adjustments, although we expect these adjustments to be minimal. We will only know the hectarage with certainty on the 25th of February 2021 when the CEC releases the first production estimates.
Winter crops
Second, the rainfall of the past couple of weeks in the Western Cape and generally improved moisture levels in other winter crop growing areas of the country has led to the further upward revision of the harvest estimate. The CEC lifted wheat, barley, canola and oats planting by 5%, 1%, 9% and 6%, respectively from September 2020 to 2.13 million tonnes, 526 706 tonnes, 137 356 tonnes and 47 400 tonnes. These will be the largest harvests on record for barley, canola and oats, while for wheat it will be the largest harvest in 19 years.
Similar to other commodities, the increase in production will have minimal impact on prices, specifically wheat, of which South Africa is a net importer. And thus, wheat prices largely depend on developments in the global market, along with domestic currency movements. Having said that, while South Africa will remain a net importer, the volume will fall notably compared to the previous year. The most recent estimates from the South African Grain and Oilseeds Supply and Demand Estimates Committee suggest that wheat imports could fall by 18% y/y to 1.54 million tonnes, which bodes well for agricultural trade balance. Meanwhile, the recovery in barley production will see South Africa being a net exporter. Canola and oats will mainly be for domestic consumption.
WEEKLY HIGHLIGHTS
South Africa’s food price inflation slows
South Africa’s food price inflation slowed to 4.2% y/y in September 2020 from 4.3% in the previous month (Exhibit 3 in the attached file). This was primarily on the back of a deceleration in oils and fats; fruit; and vegetable products price inflation, which overshadowed the uptick in other products prices such as meat; fish; milk, eggs and cheese; and sugar, sweets and desserts.
While we expect South Africa’s food price inflation to remain subdued for the rest of the year, the rising grain prices continue to present additional upside risks. Hence, we now estimate South Africa’s food price inflation could average around 4.5% y/y in 2020 (compared to our initial expectations of 4.0% y/y) and from 3.1% y/y in 2019. Already, in the first eight months of the year, food price inflation has averaged around 4.4% y/y and the food producer price inflation consistently showed an uptick in August and September of the year (Exhibit 3 in the attached file). Going forward, South Africa’s food price inflation will remain reasonably contained into 2021, possibly not exceeding 5% y/y, as we expect good agricultural production on the back of a La Niña weather event to contain grain prices particularly from end of February 2021, while supporting all subsectors of the agricultural sector.
DATA RELEASES THIS WEEK
On the global front, we start the week with the US weekly crop progress report which will be released later today by the United States Department of Agriculture (USDA). The report will primarily show the harvest progress in the US maize, soybeans and sunflower seed fields. The previous report of 26 October 2020 showed that the harvest activity was gaining momentum, with 83%, 72% and 50% of soybeans, maize, and sunflower seed respectively, already harvested. This harvest progress surpassed the activity during a corresponding period in 2019 and an average five-year harvest activity of all the aforementioned crops.
On Thursday, the USDA will release the US weekly export sales data, which also help in tracking the agricultural trade activity between the US and China. In the recent weeks, China has been buying large volumes of both maize and soybeans, and the demand is expected to hold as the country rebuilds its pig herd which was devastated by African swine fever.
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 30 October 2020. This data covers both summer and winter crops. But the focus is still on summer crops where the harvesting process has recently been completed. This, however, will shift towards winter crops from the end of this month, which is when the harvest for wheat and barley will be gaining momentum.
On Thursday, SAGIS will release the weekly grain trade data also for the week of 30 October 2020. In the previous week of 23 October 2020, South Africa’s 2020/21 total maize exports were at 1.61 million tonnes, which equates to 64% of the seasonal export forecast (2.50 million tonnes). In terms of wheat, South Africa is a net importer, and in the week of 23 October 2020, the fourth consignment for the 2020/21 marketing year had arrived, putting the total imports at 233 236 tonnes. This equates to 15% of the seasonal import forecast of 1.54 million tonnes (down by 18% y/y because of the aforementioned improved domestic harvest, as previously stated).
