South Africa’s 2020/21 summer grain and oilseed planting season should begin in areas with sufficient soil moisture from the end of this week, which will be the start of an optimal planting window in the eastern regions of the country
For the central and western regions of South Africa, the optimal planting window will only open from the beginning of November .
As we have previously noted, the two most important indicators to be observed to get a sense of farmers’ potential planting decisions for the season ahead are (1) commodities prices and (2) the weather outlook. Both of these are generally positive for the 2020/21 season. First, commodity prices remain at higher levels, which might be ironic as the 2019/20 season had large supplies which would have ordinarily added pressure on prices. South Africa had the second-largest maize harvest on record, about 15.5 million tonnes (yellow maize at 6.5 million tonnes and white maize: 9.0 million tonnes) and the third-largest soybean harvest on record (1.26 million tonnes).
Yet, at the end of this past week, 25 September 2020, South Africa’s soybeans spot price traded at R8 100 per tonne, up 39% y/y. While, white and yellow maize spot prices ended the week at R3 494 per tonne and R3 350 per tonne, each up by roughly 23%, respectively. These price increases are precipitated by the weaker domestic currency, coupled with growing demand from China and other Asian markets in the case of soybeans. China is rebuilding its pig herd, the world’s largest, which was decimated by the deadly African swine fever last year. This process has led to a notable increase in global soybean imports in the recent month, and in turn, prices. South Africa’s soybean prices tend to follow global soybean prices, in part, because of the import dependence status. South Africa imports about half a million tonnes of soybean meal a year. Therefore, the uptick in global soybean prices has fed into domestic soybean prices.
In the case of maize, South Africa is a net exporter, which means that the global market developments tend to have a smaller impact than in soybeans. But the likes of South Korea, Vietnam, Japan and Taiwan, to name a few, have been relentless in buying domestic maize (primarily yellow maize). In the week of 18 September 2020, South Africa’s 2020/21 total maize exports were at 1.46 million tonnes, which equates to 54% of the seasonal export forecast (2.70 million tonnes). Yellow maize exports accounted for 75% of the volume already exported, with 25% being white maize. This growing global demand, coupled with the weaker domestic currency which makes exports more lucrative, and generally higher global maize prices have added to the aforementioned increase in domestic maize prices.
These dynamics are unlikely to change in the near term, which means that soybeans and maize prices could remain at fairly higher levels for some time, at least within the 2020/21 marketing year. This marketing year ends in February 2021 for soybeans and April the same year for maize. This will subsequently lead to sustained higher costs to the users of grain and oilseeds, mainly the livestock and poultry industry.
Second, the weather outlook for 2020/21 production season remains favourable. In its recent Seasonal Climate Watch released on 25 September 2020, the South African Weather Service noted that “the El Niño-Southern Oscillation is currently in a weak La Niña state and the forecast indicates that it will most likely remain and strengthen towards a moderate La Niña state during early- and midsummer. With this strong likelihood of a moderate La Niña, there are increased chances of above-normal rainfall in the summer rainfall areas during the coming summer season”. The weather bureau further noted that the summer rainfall season may start with below-normal rainfall around October, but change to above-average from November 2020 through to February 2021. This is also the period that the summer grain and oilseed will require moisture the most, which means the forecast rainfall increases a chance of yet another good harvest in 2020/21. Moreover, the possible higher rainfall is not only conducive for summer grain and oilseed, but the entire agricultural sector. The horticulture subsector, which largely relies on irrigation will benefit from possible increased water levels in dams, while the livestock subsector could also benefit from potentially improved pastures.
As we started last month, this environment of higher commodity prices and forecast higher rainfall provides a greater incentive for farmers to maintain or increase plantings in the 2020/21 grain and oilseed production season which begins in October 2020. This is particularly the case as we expected the demand for maize in East Africa to remain robust as the La Niña event typically leads to dryness in that region, the opposite of Southern Africa. The only key challenge there is regulations, as imports of genetically modified maize are still prohibited. The Far East countries which have thus far been the major buyers of South Africa’s maize are likely to show sustained demand going into 2021, which will help grain farmers.
Overall, an important date to look forward to in all this is 28 October 2020, when the national Crop Estimates Committee will be releasing the farmers’ intentions to plant data. It is only then when we will be certain if farmers were indeed persuaded by the high prices and favourable weather outlook.
WEEKLY HIGHLIGHTS
IGC remains fairly optimistic on 2020/21 global grain and oilseed production
The International Grains Council (IGC) monthly report which came out on 24 September 2020, maintained a fairly optimistic picture, with 2020/21 global grains harvest estimated at 2.23 billion tonnes, up 2% y/y. This is on the back of expected large maize, wheat, rice and soybean harvests in various regions.
Starting with maize, which accounts for more than half of global grains in volume terms, the 2020/21 harvest projection of 1.16 billion tonnes is slightly lower than the previous month’s estimate, but up 4% y/y. The US, parts of sub-Saharan Africa, Russia, and Brazil are the key drivers of the potential increase in harvest. This will offset the projected harvest decline in Argentina, India, Ukraine, and China whose crop has been negatively affected by dryness and flooding in the case of China.
In the case of wheat, the 2020/21 harvest is projected to increase just marginally by 0.2% y/y to 763 million tonnes. This is boosted by expected large harvests primarily in Russia, Australia, Canada, and Kazakhstan. The increase in the harvests of these countries will compensate for the expected harvest declines in the US, EU, North Africa and the UK.
For rice, IGC forecasts the 2020/21 global harvest at 504 million tonnes, which is down marginally from the previous month estimate, but up by 1% y/y. This is underpinned by an expected large harvest in Asia and the US, following expansion in area planted and expectations of higher yields.
There is also optimism about soybeans, with the 2020/21 global harvest estimated at 373 million tonnes, roughly unchanged from the previous month and 10% higher than the 2019/20 season. The US, Brazil, Argentina, China, India and Paraguay are amongst the key drivers of the expected large harvest.
In a nutshell, the global grains market will still be well supplied in the 2020/21 season, but the recent weather disruptions and changes in demand have led to prices increases, which is not conducive for importing countries such as South Africa. Wheat, rice and soybean meal are the key products that South Africa is a net importer of and exposed to recent price increases in the global market which are induced by growing demand, specifically form China.
DATA RELEASES THIS WEEK
From a global calendar, today we have the US weekly crop progress data which will be released by the USDA. The previous report of 20 September 2020 showed that US maize and soybean crop conditions were rated in a better condition compared to the corresponding period in 2019. Moreover, the harvest process had started in some states. On Thursday, the USDA will release the US weekly export sales data, which also help in tracking the agricultural trade activity between the US and China.
On the domestic front, on Tuesday Stats SA will release the Quarterly Labour Force Survey data for the second quarter of the year. We expect the agricultural sector to show some level of resilience from a jobs perspective this year as the large output meant that labour was required in the fields. Those that typically participate in the sector in the form of seasonal labour were, however, affected by social distancing and other health regulations. This is a component of the labour market that possibly led to an overall decline in agriculture employment in the second quarter and throughout the year, albeit the share of the decline could be negligible relative to other sectors of the economy.
On Wednesday, the South African Grain Information Service (SAGIS) will release the weekly grain producer deliveries data for the week of 25 September 2020. This data covers both summer and winter crops. But the focus is on summer crops where the harvesting process has recently been completed. Also, on Wednesday, Stats SA will release the Consumer Price Index (CPI) data for August 2020. For background, South Africa’s food price inflation increased to 4.6% y/y in July 2020, from 4.5% y/y in the previous month. This was primarily underpinned by a slight uptick in bread and cereals; fish; and oils and fats.
On Thursday, SAGIS will release the weekly grain trade data also for the week of 25 September 2020. In the previous week of 18 September 2020, South Africa’s 2020/21 total maize exports were at 1.46 million tonnes, which equates to 54% of the seasonal export forecast (2.70 million tonnes), as previously noted. In terms of wheat, South Africa is a net importer, and in the week of 18 September 2020, about 99% of the expected 1.80 million tonnes of imports in the 2019/20 season had already landed on domestic shores. The 2019/20 marketing year ends this month.
