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South Africa’s winter crop production prospects remain favourable, with favourable rains and input costs supporting farmers’ efforts. The South African Crop Estimates Committee (CEC) is expected to release preliminary area estimates for winter crops on 26 July.
We think the area will be roughly unchanged, if not having improved, from the intentions to plant data released at the end of April 2023. At the time, the CEC noted that producers intended to plant 542 600ha of wheat in the 2023/24 season, 3% up from the five-year average area tilled (although down 4% year-on-year).
In our view, such an area planted, combined with favourable weather conditions as we have observed, would yield a solid harvest of 2,03 million tons (down 4% year-on-year). We assumed an average yield of 3,75tons/ha, which is a possibility if the weather conditions remain favourable throughout the season. The decline in the overall yield is linked to a possible area reduction in the Free State and Northern Cape, while the Western Cape will likely have solid output.
However, the recent decision by Russia to halt the Black Sea Grain Deal presents risks to global food security. The Black Sea is an essential region for grain supplies, and the deal allowed for a safe grain movement from Ukraine and Russia since July 2022. Russia’s decision to halt the deal is likely to lead to higher global grain prices, which could have a knock-on effect on food prices in South Africa.
South Africa is not directly at risk from the halting of the Black Sea Grain Deal, as we have large domestic grain supplies. However, we are exposed to global shocks in our wheat value chain, since Russia was one of our major wheat suppliers in the past. We will need to monitor the price reaction to the news of Russia’s refusal and the extent to which global grain markets react to this current glitch caused by Russia.
Overall, the outlook for South Africa’s winter crop production is favourable. However, the halt of the Black Sea Grain Deal presents risks to global food security, and we will need to monitor the situation closely.
Consumer food inflation slows
Consumer food inflation in South Africa slowed in June 2023 to 11,1% from 12% in the previous month.
This slowdown is due to several factors, including a decline in global agricultural prices, a favourable agricultural season in South Africa, and the softening of prices for some key food products at the farm level.
However, there are some risks to the outlook, such as the disruption to trade in wheat and rice caused by the war in Ukraine.
Overall, we expect food inflation to continue to slow in the second half of 2023.