Southern Africa’s maize supply; this is one of the themes we have been consistently revisiting since the beginning of the year when it became clear that the region would need to import a large volume in the 2019/20 marketing year.
Mozambique and Zimbabwe will be key maize importers owing to expectations of poor harvests on the back of unfavourable weather conditions. Both countries started the production season on a bad footing with droughts which delayed plantings, and when it finally rained, it was rather excessive, as was witnessed during Cyclone Idai. This destroyed crops in some regions, resulting in poor yields, and ultimately lower harvests.
• Both the United States Department of Agriculture (USDA) and the International Grains Council (IGC) forecast Zimbabwe’s 2018/19 maize production at 1.7 million tonnes, down by 21% from the previous season. Nonetheless, this is a notable improvement from expectations earlier in the year, where the IGC pegged the maize harvest at 1.2 million tonnes, while the Zimbabwe Commercial Farmers Union estimated the harvest at 900 000 tonnes.1 This had prompted us to believe that Zimbabwe would have to import nearly a million tonnes to meet its annual maize consumption of 2.0 million tonnes.
• But we were not far off the ball. While the production numbers from both the USDA and IGC look better than the preliminary estimates, the Grain Marketing Board has recently issued a tender to buy 750 000 tonnes of maize, which will be the largest volume since 2016 when the country imported 1.4 million tonnes.2 It is unclear, however, where Zimbabwe will get the maize supplies as the likes of South Africa and Zambia, who are typically the region’s maize exporters, will have tight supplies due to lower production in 2018/19 production season. South Africa could have about 1.1 million tonnes for exports, but this will largely be destined to the BNLS countries (Botswana, Namibia, Lesotho and the Kingdom of Eswatini). The other important factor is that Zimbabwe will possibly be looking for white maize, which means that outside of the Southern Africa region, the reliable white maize supplier could be Mexico, with about a million tonnes of maize for the export market in the 2019/20 marketing year, according to data from the USDA. Aside from white maize, there are a number of countries that can supply the region, with the most likely ones being Brazil, Argentina, Ukraine and the United States.
• In the case of Mozambique, the 2018/19 maize harvest could fall by 27% year-on-year to 1.8 million tonnes, which is slightly lower than the annual consumption of 2.1 million tonnes. As a result, the imports could amount to 200 000 tonnes, which is double the typical import volume. In the past, South Africa, Malawi and Mexico were the key suppliers of maize to Mozambique, but this year, things are unclear for similar reasons as the Zimbabwe situation.
• For maize producers and users in South Africa, these factors will most likely add upward pressure on prices in the coming months when the demand from Zimbabwe and Zambia intensifies, especially in the case of white maize.
Western Cape winter crops regions need follow-up rains
• This week might not bring what is needed in the Western Cape winter crop growing areas – rainfall. The precipitation forecasts for the next two weeks show clear skies across the province with the exception of the coastal areas which could receive light showers (see Figure 3). This is a troubling outlook which could undermine the positive development set by higher rainfall over the past few weeks. The recent rains led to increased plantings in the Southern Cape and Overberg regions which had previously paused due to dryness at the start of the planting season. The province has now managed to largely plant the intended area.
• The activity in other winter crop producing provinces of the country, which are mainly under irrigation, could gain momentum over the coming weeks. Broadly speaking, we think the crops could experience a generally good season as dams across the country are still at healthy levels, measured at over 60% full in the week of 10 June 2019. Overall, these developments reinforce our view that farmers might be able to achieve the intended area of 513 450 hectares of wheat, 118 500 hectares of barley, and 80 000 hectares of canola across South Africa. • Looking ahead, we are concerned that the next couple of months could present relatively dry weather conditions which will not be conducive for crop development. We base this view on the South African Weather Service’s Seasonal Climate Watch report, which noted that “there is still no clear indication on rainfall expectations for the winter rainfall areas during mid- and late-winter (June-July-August; July-August-September).” We will closely monitor the weather developments in the Western Cape over the coming weeks, with the hope that dryness doesn’t get to be a reality.
The agricultural and food data calendar for this week is quite light. Stats SA will release the CPI data for May 2019 tomorrow.
On Thursday and Friday, SAGIS will release South Africa’s weekly grains and oilseeds producer deliveries data, and also grain trade data for the week of 14 June 2019.
South Africa’s food price inflation
• While South Africa’s food price inflation has remained relatively subdued over the past few months, easing to 2.3% y/y in April 2019, despite the notable increases in grain-related food products (bread and cereals), which account fora 21% share of the food basket, we believe that there will be an uptick in the coming months.
• One key factor which has kept headline food price inflation at lower levels in the past few months is softer meat prices, which account for more than a third of the food inflation basket, and were actually in deflation in April 2019.
This was partly driven by expectations of an increase in domestic meat supplies as the outbreak of foot-and-mouth disease at the beginning of this year led to a ban on South Africa’s beef in key export markets.
• But this might change in the coming months. First, a number of African and Middle East countries have recently lifted the ban on South Africa’s beef exports. This means the impact of the foot-and-mouth disease might not be as severe as initially expected. Second, it is worth noting that South Africa’s cattle and sheep slaughtering activity is slowing, although it is not clear if this trend will hold in the coming months, and this could add support to prices in the near term. Third, aside from red meat, poultry products prices could lift somewhat in the coming months, as there is likely to be an uptick in import tariffs. In terms of pork, the increase in global pork prices on the back of the reduced stocks in China and Vietnam owing to the African swine fever outbreak could spillover to the local market. Be that as it may, there is no imminent threat from the recent African swine fever in the local market, according to SA Pork Producers’ Organisation, although there have been a few cases over the past few months.
• We will closely monitor the producer deliveries data over the coming months as it is a good indication of the harvest progress. The South African farmers have delivered to commercial silos about 2.1 million tonnes of maize between the beginning of May 2019 and 07 June 2019. About 72% of this is yellow maize, with 28% being white maize. This variation can partly be explained by the fact that the eastern parts of South Africa, which is predominantly yellow maize, planted early in the season, and therefore started early with the harvest process. On Thursday, we will get an indication of the activity for the week of 14 June 2019.
• In terms of soybeans, which is also largely grown in the eastern parts of South Africa, about 1.03 million tonnes had been delivered to commercial silos between 23 February 2019 and 07 June 2019. On Thursday, SAGIS will release data for the activity in the week of 14 June 2019.
• South Africa’s weekly grain trade data is due for release on Friday, 21 June 2019. This will mainly be maize and wheat. In terms of maize, this week’s data will show activity for the seventh week in the 2019/20 marketing year which started on 01 May 2019. The sixth weeks’ exports amounted to 110 914 tonnes. We expect South Africa to remain a net exporter of maize in the 2019/20 marketing year, although the volume will most likely fall by half from the previous year to about 1.1 million tonnes. This is under the assumption that domestic maize production could
amount to 10.9 million tonnes. At the same time, we expect imports of about 450 000 tonnes, all yellow maize, mainly for the coastal provinces of the country. This is up from an estimated 171 500 tonnes in the 2018/19 marketing year.
The country has thus far imported 42 495 tonnes of yellow maize, all from Argentina.
• 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. 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 54% of the seasonal forecast. The leading suppliers have been Germany, Russia, Lithuania, Canada, Czech Republic, the United States and Latvia, amongst others.
