For agricultural policymakers in South Africa and the continent at large, the recent developments in Zimbabwe are such one experiment. On Friday, we learned that the Zimbabwean government has banned sales of maize by farmers to anyone other than the government’s Grain Marketing Board.1 This will be at a prescribed price, which we do not know at this point. This move follows a poor harvest after another season of unfavourable weather conditions, which has left Zimbabwe as a net-importer of maize. As we have pointed out in our previous notes, Zimbabwe will need to import about a million tonnes of maize in order to fulfil its annual needs.
• On the one hand, the latest move by the government to intervene in the maize market shows a concern for the consumers’ wellbeing as food price inflation quickens, having reached a rate of 126.43% y/y in May 2019.2 On the other hand, these actions could disadvantage the farmers who had hoped that higher maize prices could compensate for yield losses. This will specifically be the case if the Zimbabwean government sets its ‘maize floor price’ below the global maize prices. Historically, there have been instances where the Zimbabwean government set a floor price at levels higher than the global prices. This would have been an advantage for farmers, but delayed payments offset the benefits.
• The other point to keep in mind is that the Zimbabwean government, through its Grain Marketing Board has recently issued a tender to buy 750 000 tonnes of maize in order to fulfil its domestic needs. This will be the largest import volume since 2016 when the country imported 1.4 million tonnes of maize. Under this scenario, the Zimbabwean government will have to pay the world price. Hence, we wonder if there will be price discrimination between local farmers and global maize supplies. We doubt this will be the case, our suspicion is that the government is trying to manage its currency liquidity and food price inflation. Having not applied this method, the informal market would price maize at levels above the global traded prices.
Possible implications
• In the short term, the government’s action to control the maize market could ease price pressures for consumers. In the long run, however, this could disadvantage maize production in Zimbabwe, as farmers would be reluctant to expand production in an environment where government policy is uncertain. Moreover, Zimbabwe will likely remain a net importer of maize, as investments are unlikely to flow in the sector. This would have other implications, such as the agricultural labour market where two-thirds of Zimbabweans are employed. All of this would potentially undermine the short-term food price inflation gains that would have accrued to the consumer due to government control.
• Over the coming months, we will closely observe this experiment to pick up lessons for policymakers in the agricultural sector. What we have observed in the recent past in other African countries was the blockage of maize exports in times of droughts, supposedly to control domestic food price inflation, but farmers ended up worse off.
Winter crops in good condition in the Western Cape, but we worry about longterm weather prospects
• This past weekend brought good showers in parts of the Western Cape, which is beneficial to winter crops – wheat, barley and canola. This seems to be a good period for the province as the forecast for the next eight days, shows prospects of continuous rainfall, which will further improve soil moisture and crop conditions. We place a lot of emphasis on this particular province because it is a leading producer of all winter crops, and also the fact that plantings occur earlier than other in provinces.
• We are, however, concerned about the long-term weather prospects. On 28 June 2019, the South African Weather Service indicated that “there is still no clear indication on rainfall expectations for the winter rainfall areas during late-winter (July-August-September).” This will still be a growing period for the crop, and thus, potential dryness could affect the yields.
• The other winter crop producing regions of the country, which commenced with plantings in June 2019, are mainly under irrigation. Therefore, the crops should experience a generally good season as dams across the country are at healthy levels, measured at over 55% full in the week of 24 June 2019.
• Overall, while long-term weather prospects are concerning, the near-term development reinforce our view of a good production season in 2019/20 and also a view that farmers might be able to achieve the intended area of 513 450 hectares of wheat, 118 500 hectares of barley, and 80 000 hectares of canola across South Africa .Parts of the Western Cape had good showers this weekend, which is beneficial for winter crops.
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Recap on summer grain production
• As set out in our note on 26 June 2019, South Africa’s Crop Estimates Committee left its 2018/19 maize harvest estimate roughly unchanged from last month, at 10.9 million tonnes. About 5.5 million tonnes is white maize, with 5.4 million tonnes being yellow maize
While it is comforting to see that there were no downward revisions, the expected harvest is 13% lower than last season’s harvest due to a slight reduction in area planted and poor yields on the back of dryness during the season. The harvest process is now underway in most parts of the country and the yields have thus far confirmed our inclination -- generally varied between below-average to average. • With the maize harvest currently expected at 10.9 million tonnes in the 2018/19 production season (which corresponds with 2019/20 marketing year) added to an available opening stock of 2.8 million tonnes when the 2019/20 marketing year started on 01 May 2019, South Africa should have sufficient maize supplies to cover its annual consumption of about 10.8 million tonnes. Moreover, South Africa is likely to remain a net exporter of
maize in the 2019/20 marketing year. The exports, however, could decline by half from the 2018/19 marketing year to about 1.1 million tonnes.
• These developments had minimal impact on commodities prices. What has been driving South African maize prices over the past couple of weeks are rather outside developments – most notably, the slow plantings in the U.S. farm-belt due to excessively wet weather conditions. Although U.S. farmers have now made progress regarding planting, albeit well behind normal schedule, there are indications of possible poor maize yields this year. This could present upward pressures on prices in the coming months. The other development that is key to watch, as it could have an implication on South African maize prices, is the looming Southern and East African maize needs. Our calculations suggest that Zimbabwe, Kenya and Mozambique could need at least about 2.5 million tonnes of maize.
• Aside from maize, the sunflower seed production estimate was left unchanged from last month at 611 140 tonnes, in line with our expectations The currently expected harvest is down by 29% from the 2017/18 season. If we work with these numbers, South Africa could be a net importer of sunflower seed in the 2019/20 marketing year. Theimports could amount to 80 000 tonnes, up from 1 324 tonnes in the previous year. Meanwhile, the soybean production estimate was revised down by 6% from May to 1.2 million tonnes. This is 21% lower than the 2017/18 harvest.
South Africa’s Crop Estimates Committee forecasts 2018/19 maize harvest at 10.9 million tonnes. South Africa will have sufficient maize supplies
this year, and will remain a net exporter.
The poor U.S. maize conditions, and growing demand for maize in Southern and East Africa will be key drivers of local maize prices over the next couple of months.
South Africa’s agricultural data calendar is quite light this week. On Wednesday SAGIS will release the grain producer deliveries data and weekly grain trade data on Thursday. On the global front, the agricultural datapoint that will be important to keep an eye on is the U.S. Crop
Progress report, which will be released by the U.S. Department of Agriculture in the evening today. This particular report will give us a sense of the crop conditions there, as the past few weeks have been dominated by rainfall which affected growing conditions.
Weekly grain producer deliveries data
• We will closely monitor the producer deliveries data over the coming months as it is a good indication of the harvest progress. The South African farmers have delivered to commercial silos about 3.4 million tonnes of maize between the beginning of May 2019 and 21 June 2019. About 71% of this is yellow maize, with 29% being white maize. This variation can partly be explained by the fact that the eastern parts of South Africa, which is predominantly yellow maize, planted early in the season, and therefore started early with the harvest process. On
Wednesday, we will get an indication of the activity for the week of 28 June 2019.
• In terms of soybeans, which is also largely grown in the eastern parts of South Africa, about 1.07 million tonnes had been delivered to commercial silos between 23 February and 21 June 2019. Over the same period, about 340 171 tonnes of sunflower seed had been delivered to
commercial silos. The slow progress is partially due to the fact that sunflower seed was planted behind schedule due to dryness in the western parts of the country.
Weekly grain trade data
• South Africa’s weekly grain trade data is due for release on Thursday. This will mainly be maize and wheat. In terms of maize, this week’s data will show activity for the week of 28
June 2019, which is the ninth week since the start of the 2019/20 marketing year. The first eight weeks’ exports amounted to 140 929 tonnes.
• As indicated in the aforementioned section of this note, we expect South Africa to remain a net exporter of maize in the 2019/20 marketing year, although the volume will most likely fall by half from the previous year to about 1.1 million tonnes. This is under the assumption that domestic maize production could amount to 10.9 million tonnes. 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 66 308 tonnes of yellow maize, all from Argentina.
• In terms of wheat, South Africa remains a net importer, although the recovery in the country’s 2018/19 domestic wheat production will lead to a decline in imports this season. South Africa’s 2018/19 wheat imports could fall by 36% from the previous season to about 1.4 million tonnes. So far, the country has imported about 59% of the seasonal forecast. The leading suppliers have been Germany, Russia, Lithuania, Canada, Czech Republic, the U.S. and Latvia, amongst others.
