South Africa’s agricultural sector, which is export-orientated, is one of the sectors we had feared would be disrupted by the pandemic. So far, however, there has been minimal disruptions as the agricultural and food sector had been generally operational across the globe. The coming months could be even better as many countries are slowly easing restrictions on economic activity and people movements after widespread lockdowns. In the first quarter of the year, which is a period before the coronavirus lockdowns were implemented across the globe, South Africa’s agricultural trade was vibrant. The country recorded an agricultural trade surplus of US$773 million as illustrated in Exhibit 1 in the attached file. This is up by 16% y/y, with exports having increased at a much higher rate than imports.
The exports were underpinned by grapes, maize, wine, wool, pears, apples, plums, lemons and macadamia nuts, amongst other agricultural products. We expect these products to continue underpinning South Africa’s agricultural exports in the second quarter of 2020, but with some decline in wine exports which had briefly been impacted by domestic lockdown regulations. Citrus will feature prominently from the second quarter data onwards as its exports for this year are expected to reach a record 143.3 million cartons (for the Southern Africa region, mainly from South Africa). The export activity of this particular product has also continued with minimal interruptions during the lockdown period. Similar to citrus, maize will dominate this year; we estimate South Africa’s maize exports at 2.7 million tonnes, up 89% y/y because of higher domestic harvest. This is at a time where we expect increased maize needs in the Southern Africa region, a primary market for white maize.
From a destination point of view, the African continent and Europe continued to be the largest markets for South Africa’s agricultural exports in the first quarter of this year, respectively accounting for 44% and 29% in value terms. Asia was the third-largest market, taking up 19% of South Africa’s agricultural exports in the first quarter of 2020. The balance of 8% value was spread across other regions of the world.
In terms of imports, the leading products included wheat, palm oil, rice, poultry meat, sunflower oil and sugar. For the year, we believe rice, wheat and palm oil will dominate the agricultural import product list. South Africa’s 2020 rice imports could amount to 1.1 million tonnes, up by 10% from 2019, according to data from the International Grains Council. Meanwhile, South Africa’s 2019/20 wheat imports could increase by 29% y/y to 1.8 million tonnes. We could also see an increase in palm oil in the coming months.
In a nutshell, while the pandemic will result in a loss of incomes in various regions of the world, and in turn, a decline in demand for goods; the agriculture and food sector is one of the few that might not be as hard hit. As such, for the year, South Africa’s agricultural exports could increase from the US$9.9 billion of 2019. The key catalysts this year will be the increase in grains and horticulture output and to some extent the weakening domestic currency. Therefore, as in the previous year, trade will continue to be a key driver of South Africa’s agricultural sector, at least in 2020.
The outlook for the following years will, in part, depend on the magnitude of the economic shock of COVID-19. In an event of a massive shock and slow recovery, as some analysts expect, it is plausible that the demand for high-value agricultural products could somewhat be impacted in South Africa’s traditional markets. This also means that South Africa should, after the pandemic, continue its efforts of developing the export market for agricultural products, specifically to China and India.
WEEKLY HIGHLIGHTS
There are prospects for large global grains supplies
We continue to monitor the developments in the global grains market. Last week, in its monthly update, the International Grains Council (IGC) maintained the view that there are large grain supplies in the global market and that the 2020/21 season promises a larger harvest.
To start with maize, the 2020/21 global production estimate has been lifted marginally from last month to an all-time high of 1.2 billion tonnes. This is up 5% y/y. This is underpinned by an expected larger harvest in the US, Brazil, China and the EU. The planting of this crop has begun in the northern hemisphere and it has progressed with minimal interruptions albeit the additional coronavirus-related precautions on farms. In the southern hemisphere, maize planting will only begin around October for the 2020/21 season. The focus now is still on the 2019/20 crop which is currently being harvested.
As we will discuss in the next section of this note, South Africa expects the second-largest maize harvest on record, about 15.6 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 forecast for 2020/21 released by the IGC suggests that South Africa’s maize production could fall to 14.0 million tonnes in 2020/21. While it is 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, the IGC lifted its forecast from last month to a record 766 million tonnes. This is up 1% y/y and boosted by expected large production in Canada, Australia, Argentina, China, India and Kazakhstan, amongst others. This will mean that the 2020/21 global wheat stocks could increase by 6% y/y to 290 million tonnes, according to data from the IGC. 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 is underway 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.
In the case of rice, the IGC has maintained its production forecast at a record 507 million tonnes, up 2% y/y. With the main rice-producing regions still some time away in Asian countries, the outlook for rice production in 2020/21 is tentative. Nevertheless, under the current production estimate, global rice stocks could lift by 3% y/y to 182 million tonnes. This would add bearish pressure on prices and, in turn, be beneficial to import countries like South Africa.
While the road ahead is remarkably uncertain because of the COVID-19 pandemic, the weather remains a major risk that requires constant monitoring in the global grains market. This means, while the fears about lower global grains supplies have eased following the IGC’s optimistic 2020/21 global grains production forecast, a lot will depend on weather conditions for the coming weeks. As highlighted last week, we still think there is no need for panic at this point or major grains-producing countries to re-consider the restrictive trade policy they had intended to implement at the start of the pandemic when they feared for grain shortages. 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.
SA can expect bigger summer grains and oilseeds crop
As highlighted last week, South Africa’s 2019/20 fourth summer crop production estimates did not introduce major adjustments from the previous estimates. Essentially, the maize production estimate was lifted by 2% from last month to 15.6 million tonnes (6.5 million tonnes are yellow maize, with 9.1 million tonnes being white maize). The current maize harvest is up 38% from the 2018/19 harvest and is the second-largest harvest on record. With the crop already matured and at harvest process, we doubt there will be notable adjustments in output levels in the upcoming five more reviews for this season.
This is the case not only for maize but all summer crops. Sunflower seed is another major oilseed that saw its production forecast lifted by 5% from last month to 765 960 tonnes because of relatively higher yields in regions of the Free State and North West. This crop is now 13% higher than the 2018/19 harvest. Meanwhile, the soybean production estimate was left unchanged at 1.3 million tonnes, which is up 10% y/y, as illustrated in Exhibit 2 in the attached file. The increase in this season’s summer crop harvest is mainly supported by an expansion in area planted in the case of maize and favourable weather conditions which led to higher yields.
Also, worth noting is that the soybeans and sunflower seed harvest have progressed notably, with 79% and 36% of the expected crop having been delivered to commercial silos in the week of 22 May 2020. Whereas in the case of maize, the harvest process is still at initial stages, which is later than usual, in part, because of the late start of the 2019/20 maize production season on the back of dryness when farmers commenced planting. This too is clear from the maize producer deliveries data for the first three weeks of the 2020/21 marketing year (corresponds with the 2019/20 production season), which are down by 20% compared to the corresponding period last year, with about 623 833 tonnes delivered in the week of 22 May 2020.
In the case of maize, the data essentially means that South Africa would remain a net exporter of at least 2.7 million tonnes in the 2020/21 marketing year which started in May 2020 and ends in 2021. This is at a time when Southern and East African maize import needs could outpace those of the previous year because of poor harvests on the back of drought and locust invasion. South Africa could also export maize beyond the African continent to other deep-sea markets such as Japan, Taiwan, Vietnam and South Korea who were not prominent in the 2019/20 marketing year. This, however, could be possible provided there are minimal disruptions on the supply chains amid the COVID-19 pandemic.
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, as indicated in the aforementioned section of this note.
There has already been enormous progress in planting activity across the US. On the 26th of May 2020, about 88% of the intended area for maize in the 2020/21 season had already been planted. This compares to 55% in the corresponding week the previous year and a five-year average of 82%. In the same day, about 65% of the intended area for soybeans had already been planted, compared to 26% on the 24th of May 2019 and a five-year average of 55%. 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.
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 29th of May 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.
On Thursday, SAGIS will release the weekly grain trade data. In the fourth week of the 2020/21 marketing year, about 74 150 tonnes of maize had already been exported, all to the neighbouring countries. 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 22nd of May 2020, the country’s 2019/20 wheat imports amounted to 1.3 million tonnes, which equates to 72% of the seasonal import forecast.
