As the 2019/20 production season begins in a number of countries in the northern hemisphere, the United States Department of Agriculture (USDA) recently released its initial global production forecasts of major grains.
First, the agency forecasts a 6% annual uptick in global wheat production to 777 million tonnes. The countries that are set to be the drivers of this rebound are Russia, Ukraine, Australia, the US, Kazakhstan and China, amongst others. Second, the outlook for 2019/20 global maize production is also positive. The crop is estimated at 1.1 billion tonnes, up by 1% from the 2018/19 production season. The countries behind this improvement include Argentina, Canada, Brazil and India. Lastly, unlike the aforementioned commodities, global rice production could fall marginally in 2019/20 production season to 498 million tonnes owing to an anticipated decline in area planted in the US, China and India.
• While the aforementioned estimates paint a generally positive picture of 2019/20 global grains supplies, it is worth noting that these are early days and there could still be material changes in the numbers over the coming months depending mainly weather conditions. After all, the planting activity has recently started in the northern hemisphere, while the southern hemisphere is yet to harvest its 2018/19 summer crop. The 2019/20 production season will only commence towards the end of the year. Be that as it may, the weather outlook for most countries is, for now, still favourable, which partly explained USDA’s optimism about grain production.
• The developments in the global grain market are important for South Africa since the country is a net importer of wheat and rice. But maize is also an important crop to monitor in the global market this year, not necessarily for South African needs, but regional, specifically Mozambique and Zimbabwe. Hence, the expected increase in global grains production could be beneficial for Southern African importers as it will most likely add pressure on commodity prices.
• On the domestic front, South Africa imports, on average, about half of its annual wheat consumption. As set out last week, we estimate the country’s 2018/19 wheat imports at 1.4 million tonnes, down by 36% from the previous year due to an improvement in local production. This marketing year will end in September 2019, but the imports in the subsequent 2019/20 marketing year, will most likely remain unchanged at 1.4 million tonnes. This is under the assumption that domestic wheat production amounts to 1.8 million tonnes. In terms of rice, South Africa imports its entire annual consumption. For 2019, rice imports could amount to 1.1 million tonnes, up by 10% from 2018. Importantly, the typical rice and wheat suppliers to South Africa are amongst the countries that are expected to have a good harvest in 2019/20 production season, which further reinforces the view that Southern Africa could benefit from improvement in global supplies.
• When it comes to maize, South Africa remains a net exporter, although there will probably be 450 000 tonnes of yellow maize imports in the 2019/20 marketing year. The countries that will face a need of more than 1 million tonnes of maize in the 2019/20 marketing year are Zimbabwe and Mozambique due to lower production on the back of unfavourable weather conditions at the start of the season, and was further exacerbated by the recent cyclone. Thus, an increase in global maize supplies, albeit being mainly yellow maize, will benefit the region when there are tight supplies.
• Agriculture is one of the sectors that continues to be viewed as having a potential to boost employment in South Africa if the underutilised land in the former homelands and other parts of the country are brought into full production with a key focus on labour-intensive subsectors, such as horticulture and field crops.1 There has not been notable progress in unlocking the potential in these particular areas thus far as the land policy framework, which is key in the process, is still under discussion in the country. Therefore, the data coming out on 14 May 2019 will not be reflective of the much talked about agricultural jobs potential, but rather the activity in the first quarter of this year.
• Although production conditions have improved somewhat in the horticulture-producing areas of the country, we don’t expect agricultural employment numbers for the first quarter of this year to show a notable uptick due to reduced activity in summer grains and oilseeds-producing provinces on the back of unfavourable weather conditions. This could have been the case notwithstanding that grains and oilseeds are not labour intensive. To recap, South Africa’s primary agricultural sector created an extra 7 000 jobs in the fourth quarter of 2018 to a total of 849 000 compared to the previous quarter (Figure 1). The quarterly uptick was boosted by increased activity in livestock, fisheries and forestry subsectors. This was mainly spread across four provinces, namely; Western Cape, KwaZulu-Natal, Mpumalanga and North West, which showed 16% quarter-on-quarter (q/q), 13% q/q, 5% q/q and 4% q/q, respectively, improvement in employment. Meanwhile, the other provinces experienced a quarterly reduction. About two-thirds of South Africa’s agricultural jobs were in the field crop and horticultural subsectors.
1 While agriculture’s potential to create jobs has been widely discussed in numerous platforms in South Africa, the country is still far behind its target of creating a million agricultural jobs by 2030 as envisaged in the National Development Plan. What's more, if the underutilised land in the former homelands and other parts of the country are not brought into full production with a key focus on labour-intensive subsectors, notable job creation in South Africa’s agriculture will not materialise. Fortunately, President Cyril Ramaphosa in his State of the Nation Address (SONA) signalled a positive message on this.
Weekly grain trade data
• South Africa’s weekly grain trade data is due for release on Thursday, 16 May 2019. This will mainly be maize and wheat. In terms of maize, this week’s data will show activity for the second week in the 2019/20 marketing year which started on 01 May 2019. The first week’s exports amounted to 13 672 tonnes. We expect South Africa to remain a net exporter of maize in the 2019/20 marketing year, although the volume will most likely be 51% lower than the previous year, at 1.0 million tonnes, as shown in Figure 2. This is under the assumption that domestic maize production could amount to 10.6 million tonnes. At the same time, we expect imports of about 450 000 tonnes, all yellow maize, mainly for coastal provinces of the country. This is up from an estimated 171 500 tonnes in the 2018/19 marketing year.
• 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. As noted in the introductory section of this note, 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 41% of the seasonal forecast. The leading suppliers have been Russia, Germany, United States, Latvia, Argentina, and Canada, amongst others.
