While South Africa is traditionally a net exporter of agricultural products, wheat is the second most valuable imported food product after rice.
In 2020, South Africa's wheat imports were valued at US$493 million, which equates to 8% of the overall agricultural import value of US$5,9 billion that year. In the first half of this year, wheat hasn't moved from its second place as a valuable imported agricultural into South Africa. Over the past decade, imports accounted for an average of 53% of South Africa's annual wheat consumption of 3,2 million tonnes . As a result of this dependency on the global market, we pay close attention to primary producers, who serve as South African suppliers. These include the Black Sea countries, Canada, Australia, the US, and the EU.
The start of the 2021/22 global wheat production season can be categorized as mixed. As such we will need to pay particular attention to how supplies could evolve as production estimates continue to be adjusted in various geographies. For example, in the Black Sea, Russia's first stages of the winter wheat harvest were initially delayed by rains, and as a result, the yields are poor in some regions of the country. Moreover, the spring wheat areas also didn't have a good start; continuous dryness negatively affected the yields. As a result, the International Grains Council (IGC) has lowered its estimate for Russia's 2021/22 wheat production by 5% year-on-year (y/y) to 81 million tonnes. This means Russia's wheat exports could potentially fall by the same magnitude to around 35 million tonnes.
Canada and the US are other major wheat-producing and exporting countries that have had a bad start to the 2021/22 season. Of these two, Canada is in a poorer position due to sustained heat and dryness that worsened wheat conditions across the country's western regions. The 2021/22 harvest estimates for Canada and the US are down by 19% y/y and 4% y/y to 29 million tonnes and 48 million tonnes, respectively. Consequently, the exports could also fall by roughly similar magnitudes to 18 million tonnes in Canada, and 25 million tonnes in the US, according to data from the United States Department of Agriculture (USDA).
After a solid rebound from the drought and fires to a good season in 2020/21, Australia had another dry season in 2021/22, especially the southern and western regions of the country. IGC now forecasts a 13% y/y decline in Australia's wheat production to 30 million tonnes. Still, the USDA believes the exports will be roughly unchanged in 2021/22, at just under 25 million tonnes, because of large stocks from the previous season. Australia’s domestic consumption is around 8 million tonnes.
Still, the production conditions are not all negative across the board. Within the Black Sea region, the abundant rains in Ukraine had a different impact than in Russia and proved beneficial to the crop. The 2021/22 wheat production is forecast at 30 million tonnes, up by 16% y/y. The United Kingdom experienced similar conditions, with wet weather initially feared, proving beneficial for crop production. The 2021/22 wheat crop is now at 15 million tonnes, up by 51% y/y.
The EU is another crucial wheat-producing region whose harvest recovered by 11% y/y in 2021/22 season to an estimated 138 million tonnes. The improvement in yields resulting from favourable weather conditions in France is a major booster of the region's wheat harvest. Argentina, China and India are also amongst the countries that currently see production improving this season because of an expansion in area plantings, combined with favourable weather conditions.
The improvement in production in the countries above has offset the decline in the likes of Russia and Canada. As such, both the USDA and IGC are optimistic about the 2021/22 global wheat production. IGC forecasts 2021/22 global wheat production at a record 788 million tonnes, up 2% y/y. Meanwhile, the USDA is slightly cautious, placing the forecast at 777 million tonnes. At the same time, consumption is rising faster, especially in the global animal feed industry and other industrial uses.
As a consequence, the global wheat stocks could remain tight irrespective of the expected increase in production. IGC forecasts a mere 1% increase in 2021/22 global wheat stocks to 280 million tonnes. This has implications for prices. The tight stock levels are what always causes volatility in global wheat prices whenever there are reports of unfavourable weather conditions or logistic glitches in major exporting countries. This happens even if such news later turns out to be inconsequential to the market fundamentals.
Consequently, South African wheat prices have also lifted somewhat over the past few months in response to the aforementioned global dynamics. However, prices are still at comfortably lower levels than last year. For example, on 12 August 2021, the South African wheat spot price was R5 410 per tonne, down by 10% y/y.
In sum, South Africa is an agriculturally abundant country, but there is still global market dependency on wheat products. Hence, we consistently monitor the global dynamics and their implication for the domestic market and consumer. So far, while we fear that tighter stocks mean global wheat prices might not fall notably in response to increased 2021/22 production, we do not expect a significant uptick in prices. We rather expect a more sideways movement, which from a local consumer perspective doesn't present major food inflation risk.
Weekly highlights
The global grains and oilseeds production outlook remains positive
Last week, the USDA released its monthly update of the World Agricultural Supply and Demand Estimates report. The report reaffirmed that global grains and oilseeds production estimates remain relatively higher than the 2020/21 season. Still, there was a widespread downward revision from July estimates (except for rice).
Starting with maize, the 2021/22 global harvest estimate is down by 1% from July 2021, currently estimated at 1,19 billion tonnes. The downward revision of the crop was primarily in the US and the EU. Nevertheless, this is 6% higher than the 2020/21 production season. The 2021/22 global maize stocks were also lowered from the previous month to 284 million tonnes. This is up marginally by 1% from the 2020/21 season, in part, because of growing consumption, especially from the animal feed industry and industrial use. But this is well below the 300 million tonnes of the past few seasons’ stocks. As a result, these thin stocks continue to be a source of volatility in maize prices. Notably, while the 2021/22 global maize production forecasts look promising, another essential region that we continue to observe is the Southern Hemisphere crop (particularly in South America), where 2021/22 maize plantings only commence in October. The outcome of the crop in this region will have a notable implication on the current global harvest estimates.
We have covered wheat dynamics comprehensively in the opening section of this note. So, we move to the global rice production prospects, which remain favourable, at 507 million tonnes, up by a million tonnes from the previous month's estimate. Compared with the 2020/21 season, this is up by 0,3% because of expanding area plantings in Asia and expected improvement in yields. The global rice stocks also lifted marginally from July 2021 to 170 million tonnes. Still, this is 4% lower than the 2020/21 global rice stock levels. Therefore, we expect the global rice prices to increase marginally or move sideways in the coming months. This will follow a period of nearly six months of decline in global rice prices. This also means that rice-importing countries such as South Africa can expect prices at relatively higher levels in the coming months. Still, prices are unlikely in the near term to be at higher levels as experienced at the start of the year where Thailand and Vietnam rice prices (5% broken) were over $US500 per tonne in February and March. Both these prices are now at levels below US$400 per tonne (Exhibit 2 in the attached file).
Similar to maize and wheat, the USDA lowered, marginally, its 2021/22 global soybeans production estimate from July by two million tonnes to 384 million tonnes. This is still 6% higher than the previous season. This is supported by a generally expected large harvest in the US, Brazil, Argentina, India, Paraguay, Russia, Ukraine, and Uruguay. Again, the 2021/22 production season in the Southern Hemisphere will only start in October, so the optimistic harvest estimate in South America, specifically, is still tentative. Unlike other grains that are characterized by tight stocks, the 2021/22 global soybeans stocks are at fairly comfortable levels at 96 million tonnes, up by 4% from the previous season. This is a result of both an improvement in production and also an expected slight decline in global consumption, especially in China.
As we have stated in the previous month, these production forecasts suggest that global crop prices this second half of the year could soften slightly from the recent months' higher levels as there is increasingly more confidence about the crop level in the Northern Hemisphere. The major upside risk to prices is the tighter stocks, especially on maize, wheat and rice. Still, the potential softening, albeit marginal, of global prices could also positively influence the South African consumer food price inflation outlook.
Data releases this week
We start the week with a global focus, as the USDA will today release US Crop Progress report for 15 August 2021. In the previous report of 08 August, the US maize crop was rated 64% good/excellent, which is well below the previous year’s rating in the same week of 71%. These results speak to the dryness reported in parts of the US, which has led to a monthly downward revision of the country’s maize production estimate. In the same week, the US soybean crop was rated 60% good or excellent, poorer than the same time last year’s rating of 74%. On Thursday, the USDA will release the US Weekly Export Sales data.
On the domestic front, on Wednesday, Stats SA will release the Consumer Price Index (CPI) for July 2021. We expect a slight moderation from the previous month’s rate of 7% y/y.
On the same day, SAGIS will release the Weekly Grain Producer Deliveries data for 13 August 2021. This data cover summer and winter crops, although we only focus on summer crops for now where harvesting has recently been completed and farmers will soon be preparing for the next season. To recap, on 06 August, about 822 tonnes of soybeans were delivered to commercial silos. This placed the soybean producer deliveries for 23 weeks of the 2021/22 marketing year at 1,81 million tonnes, which equals 94% of the expected harvest of 1,92 million tonnes. Moreover, 651 780 tonnes of sunflower seed for the 2021/22 season had already been delivered to commercial silos in the same week, out of the expected crop of 677 240 tonnes. In maize, the marketing year is different from oilseeds; we are still in the fourteenth week of the 2021/22 marketing year, which began at the start of May. The producer deliveries currently amount to 12,8 million tonnes, equating to 78% of the expected crop of 16,4 million tonnes.
On Thursday, SAGIS will release the Weekly Grain Trade data for the week of 13 August 2021. In the week of 06 August, which was the fourteenth week of South Africa's 2021/22 maize marketing year, total maize exports amounted to 1,1 tonnes. The seasonal export forecast is 2,6 million tonnes, roughly 10% below the previous season because of an anticipated decline in Southern African demand, as previously stated. In terms of wheat, South Africa is a net importer. On 23 July, imports amounted to 1,4 million tonnes, equating to 88% of the seasonal import forecast of 1,6 million tonnes.
