Wandile Sihlobo, head of economic and agribusiness intelligence at Agbiz, shares highlights in his update on agricultural commodity markets.
The reports of lower yields in the Western Cape have failed to support the domestic market due to a combination of factors. A key factor is that South Africa’s wheat prices are trading along the import parity levels, as the country is a net importer of wheat. Therefore, the price movements in the local market are largely influenced by developments in the global market.
The global market has been under pressure in the past few weeks due to abundant supplies. While traditional wheat-producing countries such as the United States (US), Canada and Australia are expecting a decline in production, the Black Sea region is expected to receive a notable uptick, thus compensating for the decline in other countries. Wheat production in Russia is estimated at 83 million tonnes, up by 15% from the previous season.
In terms of pricing, this morning (12 December 2017) the Chicago wheat price was down by 1.02% from levels seen at midday yesterday (11 December 2017) owing to large global supplies.
With the US winter wheat crop still at growing stages, the weather will remain a primary focus in the US wheat market. The weather forecast for the next eight days shows a possibility of drier conditions across most winter wheat growing regions, which could negatively affect the crop.
Later today, the United States Department of Agriculture (USDA) will release its US all-wheat production estimate for the 2017/2018 production season. Observers such as the International Grains Council forecasts the country’s wheat harvest at 47 million tonnes, which is 25% lower than the previous season.
The weather is the main factor to monitor in the domestic maize market as the planting process progresses across the country. During the weekend the Balfour, Davel, Hendrina, Irene, Kriel, Lydenburg, Middelburg, Morgenzon, Standerton, Wonderfontein, Vrede, Warden, Heilbron and Frankfort regions of Mpumalanga and Free State provinces received rainfall, varying between 15 and 70 millimetres.
While not sufficient to replenish soil moisture, this is a welcome development as it supports the new season crop, especially in Mpumalanga where the planting process is virtually over. Other provinces are still planting, but there have been delays caused by persistent dry conditions, especially in the western regions.
The main concern at the moment is that the optimal planting window is narrowing and most areas have not yet completed planting. The key risk of planting outside the optimal planting window is frost later in the season, which could negatively impact yields.
Weather forecasts for the next two weeks indicate constructive rainfall. If this materialises, the maize planting process will soon gain momentum in the western areas. Fortunately, the medium term forecasts also promise good rainfall which should support the crops throughout the season.
The fundamentals in the domestic soya bean market remain bearish. The ending stocks were reported at 694 681 tonnes in October 2017, which is double the volume seen in the corresponding period last year. This is a record crop of 1.32 million tonnes in the 2016/2017 production season.
To reiterate the point made in our previous notes, the 2017/2018 production season will most likely lead to a good harvest, albeit delayed due to a late start of the planting process in some provinces on the back of drier weather conditions. The weather forecasts for the next two weeks remain promising with a possibility of good showers, which should improve soil moisture and subsequently benefit the crops.
The weather remains a key focus in the sunflower seed market as the planting progresses across the country. The process has been somewhat slow in the past few weeks due to dry conditions in most regions. The rainfall in the past few days has been patchy, leaving some areas dry and warm, which explains the delays in planting.
Overall, this is not much of a concern as the optimal sunflower seed planting window only closes in early January 2018. The late planted crop does, however, mean that there will be relatively less early producer deliveries in the 2018/2019 marketing year.
The data calendar for the week is quite light; as a result, the price movements in the domestic market will be driven largely by developments in the ZAR/USD exchange and traded volumes.
The South African potato market saw extended losses in yesterday’s (11 December 2017) trade session with the price down by 4% from the previous day (10 December 2017), closing at R45.19 per pocket (10kg). These losses were mainly on the back of large stocks of 919 940 pockets (10kg) at the beginning of the session.
However, during the session, the market saw strong commercial buying interest, coupled with a marginal decline in deliveries on the back of slow harvest activity. This subsequently led to a 17% decrease in daily stocks to 763 296 pockets (10kg).
The fruit market saw widespread gains in yesterday’s (11 December 2017) trade session. The price of apples was up by 24% from the previous day (10 December 2017), closing at R8.02 per kilogramme. This was supported by lower daily stocks of 175 000 tonnes, compared to levels of over 200 000 tonnes in the past few days.
The prices of bananas and oranges were up by 2% and 3% from the previous day, closing at R6.36 and R6.37 per kilogramme, respectively. These gains were also on the back of relatively lower stocks of 264 000 tonnes of bananas and 48 000 tonnes of oranges.