Last week brought further evidence that there is no need for protectionist policies in the global grains market as there are abundant supplies.
Russia, Vietnam and Cambodia are amongst countries that recently announced export quotas and bans on rice and wheat. This led to an increase in global prices of these commodities because of large share contribution of these countries on exports - Vietnam and Cambodia collectively account for 18% of global rice exports, while Russia accounts for 10% of global wheat exports. The data recently released by the International Grains Council (IGC) shows that the 2020/21 season will add to already higher global grains and oilseed supplies.
To start with a crop that at least has not been part of trade policy restrictions, but is vital to global food supply and animal feed, maize, the 2020/21 global production could increase by 4% y/y to a new record of 1.2 billion tonnes. This will mainly be underpinned by an expected expansion in area plantings and higher yields in the US, Mexico, Canada, Brazil and the EU. The planting of this crop has begun in the northern hemisphere and progressed with minimal interruptions albeit the additional coronavirus-related precautions on farms. Moreover, input supply chains appear to be functioning well across the globe.
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 approaching the harvest period. As we will discuss in the next section of this note, South Africa expects the second-largest maize harvest on record, about 15.2 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 forecasts for 2020/21 released by IGC suggest that South Africa’s maize production could fall to 13.7 million tonnes in 2020/21. While it is admittedly 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, which has been part of the recent restrictions, IGC forecasts a 0.3% y/y increase to a new high of 764 million tonnes. The improvement is expected in Australia, India and Russia boosted by an increase in area planted and expected higher yields. This will compensate for a potential production reduction in the EU, Ukraine, the USA and North Africa. This will mean that the 2020/21 global wheat stocks could increase by 3% y/y to 289 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 has recently started 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. Fortunately, the lockdown regulations have had minimal interruptions on wheat plantings, and now the “level 4” regulations mean that the sector is largely operational, while observing all health protocols.
In the case of rice, IGC forecasts a 2% y/y increase to a record 507 million tonnes. This is boosted by a potential increase in area plantings in Asia, Africa and the Americas. With input supply chains functional and weather outlook favourable, we are inclined to believe that such production forecasts are plausible and again shows that there shouldn’t be restrictions on exports in various key exporting nations. Under this production estimate, IGC forecasts a 3% y/y increase in global rice stocks, which would add bearish pressure on prices and, in turn, be beneficial to import countries such as South Africa.
While the road ahead is remarkably uncertain because of the COVID-19 pandemic, the export restrictions on agricultural products should not be a policy that countries pursue. 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. The area that will require constant monitoring is logistics. This is specifically the case for the shipping industry which has started to take a knock from the lockdowns resulting from the pandemic (Exhibit 2 in the attached file). But so far, there haven’t been glitches on this and one can expect conditions to improve as several countries, including South Africa, are slowly reopening the economy. Fortunately, the agriculture and food sector are relatively fully operational in many countries as it is deemed “essential”.
WEEKLY HIGHLIGHTS
SA’s 2019/20 summer grains and oilseeds harvest to be the second largest on record
This promises to be a good year for South Africa from a grain production perspective. The data released on the 29th of April 2020 by the national Crop Estimates Committee (CEC) show that South Africa’s 2019/20 summer grains and oilseeds production could increase by 32% y/y to 17.5 million tonnes. While this is only the third estimate for this season, with six more to follow, if it materialises, this could be the second-largest harvest on record after the 2016/17 crop. The major gains are maize, soybeans and sunflower seed as illustrated in Exhibit 1. The 2019/20 maize, soybeans and sunflower seed harvest are forecast at 15.2 million tonnes, 1.3 million tonnes, and 731 210 tonnes; which are up by 35%, 10% and 8%, respectively, from the 2018/19 production season. The increase is mainly supported by an expansion in area planted in the case of maize and expected improvements in yields on the back of favourable weather conditions during a greater part of the season. The harvest season for oilseeds has recently started, while for grains, it will likely gain momentum towards the end of May.
In the case of maize, the data essentially means that South Africa would remain a net exporter of at least 2.5 million tonnes in the 2020/21 marketing year which starts in May 2020 and ends in 2021 (corresponds with 2019/20 production season), up 80% y/y. This is at a time when Southern and East African maize import needs could outpace those of the previous year. For example, Zimbabwe’s 2019/20 summer grains production season started on the back foot due to unfavourable weather conditions. The International Grains Council forecasts Zimbabwe’s 2019/20 maize production at 800 000 tonnes, which is less than half of what the country needs (estimated at 2.0 million tonnes). In East Africa, Kenya, Somalia and Uganda could experience crop losses as locusts continue to spread. These countries will require maize imports.
What’s more, a maize harvest of 15.2 million tonnes would enable South Africa to 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, which ends this month. This, however, could be possible provided there are minimal disruptions on the supply chains amid the pandemic. Nevertheless, South Africa could remain a net importer of soybean products, specifically oilcake, and a net importer of sunflower oil, irrespective of the current improvement in the harvest because of growing domestic demand.
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, despite the pandemic.
On Tuesday, the USDA will release the US monthly agricultural trade data. This is also an 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 also the impact of the COVID-19 pandemic on trade.
On the domestic front, the dates we present could change if there are any interruptions caused by the COVID-19 pandemic. We tentatively expect that on Wednesday, the South African Grain Information Service (SAGIS) will release the weekly grain producer deliveries data for the week of 01 May 2020. This covers both summer and winter crops.
With summer grains, specifically, maize, not fully at harvest period, the focus remains on winter wheat data whose harvest was completed in January 2020. We will also monitor the early deliveries of oilseeds, mainly soybeans and sunflower seeds, whose harvest has recently started in a few regions of the country.
In the week of 24 April 2020, about 1 344 tonnes of wheat were delivered to commercial silos. This placed total wheat deliveries at about 1.5 tonnes, which equates to 97% of the expected harvest in the 2019/20 season. There are still relatively small volumes delivered thus far in the oilseeds market (soybeans and sunflower seed). About 292 506 tonnes of soybean had already been delivered to commercial silos on 24 April 2020. This equates to 23% of the expected harvest of 1.3 million tonnes in the 2019/20 season. In the same day, about 52 675 tonnes of sunflower seed, which accounts for 7% of the expected harvest in 2019/20 season, had already been delivered to commercial silos.
On Thursday, SAGIS will release the weekly grain trade data (maize) for the last week of the 2019/20 marketing year. In the week of 24 April 2020, South Africa’s total maize exports for the 2019/20 marketing year amounted to 1.40 million tonnes. About 71% of this is white maize, with 29% being yellow maize. At the same time, the country has thus far imported 509 684 tonnes of yellow maize. This is up from an estimated 171 622 tonnes in the 2018/19 marketing year. In terms of wheat, in the week of 24 April 2020, South Africa’s 2019/20 season amounted to 931 547 tonnes, which equates to 52% of the seasonal import forecast.
