However, the 2023/24 global wheat production prospects need a closer look as we continue to see reports of poor yields in the EU, Russia, Canada, Ukraine, Australia, the UK and Kazakhstan. The drier weather conditions over the past few months are the primary reason for the decline in yields in these countries. Consequently, the latest report from the International Grains Council places the 2023/24 global wheat production at 783 million tonnes, down 3% from the previous season. Still, this would be the second-largest global wheat harvest on record. In line with these downward revisions in production estimates and increased consumption, the 2023/24 global wheat stocks could fall 7% y/y to 263 million tonnes. These adjustments imply that the decline in global wheat prices we have witnessed in recent months could slow, and prices could start to move sideways over the coming months.
Such an outlook is not entirely favourable for wheat-importing countries. Still, we doubt that prices would surge to levels we witnessed a year ago following the invasion of Ukraine by Russia, which disrupted the flow of wheat supplies from the Black Sea region. In addition, while the Black Sea Grain Deal has not been renewed yet, the price reaction has not been as dramatic as some might have feared. Most wheat origins are trading below US$335 per tonne, compared to levels over US$400 per tonne a year ago.
South Africa is one of the largest wheat importers in the African continent. In the 2023/24 season, South Africa's wheat imports could amount to 1,60 million tonnes, according to our estimates. This would be mildly down from last season's import forecast of 1,66 million tonnes. The reasonably large carryover stock, combined with the expected decent harvest in the 2023/24 season, is the primary reason for this year's expected mild decline in imports.
The Western Cape province, which accounts for just over two-thirds of South Africa's wheat plantings of 537 050 hectares, has had one of the most favourable production conditions in a long time. The province's wheat and other winter crops are in good condition, having benefited from conducive winter rainfall. The expected large winter crop in the Western Cape has somewhat overshadowed the decline in production in the Free State and Northern Cape. Overall, South Africa's 2023/24 wheat production is forecast at 2,14 million tonnes, up 2% from the previous season. This is according to data from the Crop Estimates Committee (CEC).
On 27 September, the CEC will release their second monthly production forecast for winter crops. We think the wheat production forecast data will likely remain unchanged from the previous month.
If there are any changes, they will probably be an upward revision, given that the weather conditions have remained reasonably favourable across South Africa's wheat-growing regions. In various interactions with farmers in the Western Cape, we found that this will be one of their strongest winter crop seasons in a long time. Notably, the quality of the crop will also likely be better than in recent seasons.
The current 2023/24 season is far better than the previous season. The improvements are mirrored in both the domestic wheat supplies and global wheat price levels, which were a significant challenge for wheat importers and consumers in the 2022/23 season, particularly in the months that followed the invasion of Ukraine by Russia. The prices only eased after the inception of the Black Sea Grain Deal in July 2022. With the uncertainty around the renewal of the Black Sea Grain Deal still lingering, the market, fortunately, has not overreacted. We think market participants are appreciative of the fact that there are large global wheat supplies, but the temporary challenge is movement. Despite the decline in 2023/24 global wheat production, the current expected harvest of 783 million tonnes is still the second-largest crop on record. This underscores the point we made in a different context a few weeks ago, which is that there are large wheat supplies in the global market. The immediate challenge is the movement or trade of wheat supplies, which has been worsened by Russia's refusal to renew the Black Sea Grain Deal.
From a consumer inflation perspective, these production and price data are worth monitoring in the coming months, but there are no major concerns about a potential price surge. If anything, we can expect a sideways price movement, which would still mean lower prices compared to a year ago and a better food price inflation path for the coming months.
WEEKLY HIGHLIGHT
South Africa's consumer food inflation continued to slow in August 2023
South Africa's consumer food inflation slowed to 8,2% in August 2023 from 10% in the previous month. The product prices underpinning this deceleration are similar to the previous month, mainly bread and cereals; meat; fish; oils and fats; milk, eggs and cheese; and vegetables. Our view of the path forward remains unchanged from what we communicated last month.
In essence, we stated that while there are renewed risks in global agriculture, such as India's decision to ban specific categories of rice exports and the Black Sea Grain Deal Initiative that facilitated grains and oilseeds exports from Ukraine terminated, and domestically the increases in fuel prices, we are still optimistic that South Africa's consumer food inflation will continue to slow throughout the year into 2024.
The products that could underpin the slowing food inflation trend will likely remain similar to those in the past few months. Notably, red meat prices, which have softened at the farm level, should continue on this trend at the retail level in the coming months. Fruit and vegetable prices should remain relatively affordable because of improved domestic supplies. We may, however, see temporary blips in the prices of products such as potatoes due to seasonality.
Regarding the "bread and cereals" product prices, admittedly, the Black Sea Grain Deal challenges, and India's rice exports ban are an upside price risk. With South Africa importing a million tonnes of rice and similarly exposed to wheat imports, the disruption in trade of these commodities and the length of it could have implications on global price and, ultimately, South Africa's "bread and cereals" component of the food inflation basket. We are already seeing a surge in global rice prices. Still, we have not seen a material change in prices domestically, and there will be a lag between three to five months before these are apparent at the retail level. What is essential to monitor is the extent of price changes and the duration of the current surge. Hence, we expect the prices of grain-related products in the inflation basket to maintain a softening path regardless of the recent disruption in grain prices. Notably, the softening in maize prices could also overshadow the increases in rice prices in the coming months.
We had feared that the "oils and fats" products prices would start to increase and follow the global price trend, which showed an uptick in July. But the recent data from the FAO shows a retraction. For example, In August 2023, the FAO's vegetable oil price index was at 126 points, down 3% from July 2023 and 23% y/y. The decline in the global prices of palm, sunflower, soybean and canola oils underpinned this.
Beyond the global dynamics, South Africa has a favourable agricultural season. For example, the 2022/23 maize harvest is estimated at 16,4 million, 6% higher than the 2021/22 season's harvest and the second-largest harvest on record. Soybean harvest could reach a record 2,8 million tonnes. Be that as it may, the prices of these products are influenced by global developments as we are an open economy interlinked to the world markets. Other field crops and fruits also show prospects for decent harvest this season. These increased supplies support the slowing food inflation view we expressed.
Also crucial for the food inflation outlook going into 2024 is highlighting that El Nino's forecast in the upcoming 2023/24 summer crop season is another aspect to keep an eye on, although we remain optimistic that it will have a mild impact on the sector and thus keep production at decent levels and, by extension, sustain moderating food prices. (read our Business Day column on this issue here).
WEEK AHEAD
What we are watching this week
We start the week with a global focus, and the United States Department of Agriculture (USDA) will release its weekly US Grains and Oilseeds Exports data on Thursday.
On the domestic front, today, Statistics South Africa will release the Provincial Gross Domestic Product: Experimental Estimates for 2022.
On Wednesday, the Crop Estimates Committee will release its eighth production forecast for 2022/23 summer field crops. Moreover, the Committee will release the second production forecast for 2023/24 winter cereals. We do not expect major revisions from the existing forecasts in these data. If anything, it will probably be upward revisions.
On Thursday, SAGIS will release its weekly South Africa's Grains and Oilseeds Producer Deliveries data for 22 September 2023. In the previous release on 15 September, South Africa's 2023/24 maize producer deliveries were about 64 333 tonnes. This placed the 2023/24 deliveries at 14,1 million tonnes out of the expected harvest of 16,4 million.
The soybean deliveries on 15 September 2023 were about 2,7 million tonnes of soybeans out of the expected crop of 2,8 million tonnes. On the same day, sunflower seed producer deliveries amounted to 710 248 tonnes out of the expected harvest of 743 610 tonnes.
On Friday, SAGIS will publish its weekly South Africa's Grains and Oilseeds Trade data for 22 September 2023. In the previous release on 15 September, the 20th week of the 2023/24 marketing year, South Africa exported 70 213 tonnes of maize. Of this volume, about 75% was to Taiwan, and the balance was to the neighbouring African countries. This placed South Africa's 2023/24 maize exports at 1,82 million tonnes out of the seasonal export forecast of 3,22 million tonnes.
South Africa is a net wheat importer, and 15 September was the 50th week of the 2022/23 marketing year, with a weekly import volume of 47 911 tonnes from Australia, the Czech Republic, Poland, and Russia. This placed South Africa's 2022/23 wheat imports at 1,65 million tonnes, above our seasonal import forecast of 1,60 million tonnes. The 2022/23 marketing year ends this month.
