Wandile Sihlobo, head of economic and agribusiness intelligence at Agbiz, shares highlights in his update on agricultural commodity markets.
If there is anything good to be said about the persistent dry conditions in the Western Cape and Northern Cape provinces it is that it has supported the winter wheat harvest process. As we set out in our note yesterday (6 December 2017), the harvest process is virtually over in the Western Cape, with few remaining areas around Mossel Bay. However, the yields are below average which is reflective of the effects of dry conditions.
The Northern Cape should start its winter wheat harvest in a week or so. Fortunately, its yields will not be as disappointing as the Western Cape’s, thanks to good water levels in the dams that supported the irrigation areas. The picture in the Free State is rather mixed, with yields varying between average and below average. The best performers were mainly supported by irrigation.
The volumes recently delivered to commercial silos show that the harvest process in the Western Cape is virtually over. About 81 318 tonnes of wheat were delivered in the week ending 1 December 2017, down by 44% from the previous week (ending 24 November 2017). This placed South Africa’s wheat producer deliveries for week 1 to 9 of the 2017/2018 marketing year at 742 029 tonnes.
On the global front, there are large wheat supplies, despite the expected decline in production in countries such as Australia, Canada and the US, amongst others. The losses in these countries have been offset by robust production in the Black Sea region. Russia’s wheat production is estimated at 83 million tonnes, up by 16% from the 2016/2017 production season.
The news of good weather and large maize supplies have somewhat been priced in, as the market showed narrow movements despite reports of the development of La Niña during the 2017/2018 summer season. The La Niña essentially means that South Africa could receive above normal rainfall during the production season, which increases the chance of yet another big crop.
Following weeks of dry conditions, the weather is improving. On 5 December 2017, Derby, Klerksdorp, Leeudoringstad, Potchefstroom, Regina, Bronkhorstspruit, Carolina, Delmas, Ermelo, Graskop, Greylingstad, Groblersdal, Irene, Lydenburg, Middelburg, Morgenzon, Nigel, Standerton and Wonderfontein in Mpumalanga and North West provinces received rainfall varying between 15 and 40 millimetres.
Rainfall in western regions was towards the lower end of the aforementioned range (15 – 40 millimetres). Nevertheless, it is a welcome development after weeks of dry conditions. The forecasts for the next two weeks indicate continuous rainfall, and the long-term expectations are linked to the development of La Niña.
Similar to the maize market, the news of large soya bean supplies, increased area plantings, as well as a favourable weather outlook has slightly been priced in. Thus, the market continued to gain ground in yesterday’s (6 December 2017) trade session despite the incoming data confirming the prospects of above-normal rainfall during the 2017/2018 production season.
Yesterday, some soya bean growing areas received showers, which should slightly improve soil moisture and subsequently support the planting process. If the forecast rainfall materialises during the next two weeks, the soya bean planting process should soon gain momentum in most provinces.
In global markets, the soya bean market remains fairly bullish, with solid demand and fears of dry conditions in South America being the key factors underpinning the market. Evidently, some market players are already revising their 2017/2018 production estimates downward in anticipation of lower yields.
The most recent one to follow this trend is Informa Economics, which slashed its Brazil’s soya bean production forecast by one million tonnes from last month’s estimate to 110 million tonnes (down by 4% year-on-year). This is still above Conab’s estimate of 108 million tonnes. More information will be available over the coming months. The main thing to do at the moment is to observe the weather developments, not only Brazil but other soya bean growers such as Argentina, Paraguay and Uruguay.
Yesterday (6 December 2017) the South African potato market remained in positive territory with the price up by 2% from the previous day (5 December 2017), closing at R49.34 per pocket (10kg). These gains were mainly on the back of relatively lower stocks of 782 977 pockets (10kg) at the beginning of the session.
During the day the market saw an uptick in deliveries owing to ongoing harvest process. This subsequently led to a 4% increase in daily stocks to 817 792 pockets (10kg).
The fruit market ended the day mixed in yesterday’s (6 December 2017) trade session. Apples and oranges took a knock following large stocks of 214 000 tonnes and 61 000 tonnes, respectively, at the start of the session. The prices of apples and oranges were down by 3% and 10% from the previous day (5 December 2017), closing at R7.92 per kilogramme and R5.98 per kilogramme, respectively.
The banana market maintained the previous day’s gains with the price up by 9% from the previous day, closing at R7.04 per kilogramme. Today’s (7 December 2017), session could present additional gains owing to relatively lower daily stocks of 158 000 tonnes, down by almost half from the previous day, following strong commercial buying.