Wandile Sihlobo, head of economic and agribusiness intelligence at Agbiz, shares highlights in his update on agricultural commodity markets.
South Africa’s 2017/2018 maize production season started on a bad footing, with extreme dry conditions in the western sections of the Free State and North West provinces, which led to a decline in area planted. Fortunately, crop growing conditions have since improved, following the recent rainfall across the maize belt. Moreover, the weather forecasters suggest that there is a possibility of above normal rainfall throughout the production season, which will be supportive of maize crops.
The 2017/2018 maize crop could decline significantly from the previous season due to a reduction in area planted and expected lower yields in some areas. The International Grains Council (IGC) recently revised its estimate for South Africa’s 2017/2018 maize production down by 6% from last month (January) to 11.8 million tons. This is 32% lower than the previous season’s crop.
This is not far from Agbiz’ estimate, which stands at 11.2 million tons, also underpinned by same reasons as the Council’s estimate. The official estimates will be released tomorrow (27 February 2018). From a maize supply perspective, this is not much of a concern as the expected crop is well above South Africa’s annual maize consumption of 10.5 million tons. There will be a large carryover stock of 4.2 million tons to boost the supplies in the 2018/2019 marketing year which starts in May 2018. This suggests that South Africa’s maize prices could remain under pressure for some time as the market is well supplied.
With South Africa being a net importer of wheat, the developments in the global wheat market tend to influence local price movements. While there were fears that drier weather conditions in the southern plains of the United States (US) could lead to a lower harvest, the International Grains Council kept its 2017/2018 global wheat production estimate unchanged from last month (January) at 757 million tons, which is 0.4% higher than the previous season.
The decline in wheat production in the US, Canada, Australia, Argentina and Kazakhstan has been offset by large production in the European Union (EU) region, Russia, Ukraine, China and India.
Russia has recorded the largest annual increase of 17% from the 2016/2017 production season to 85 million tons, following an uptick in area planted, as well as higher yields. Trailing Russia is India, with an annual uptick of 14% from the 2016/2017 production season to 98 million tonnes, owing to higher yields.
The International Grains Council forecasts a 1% year-on-year (y/y) uptick in the 2017/2018 global wheat consumption to 743 million tons. About 68% and 20% of this will respectively be utilised in the food and feed industries. The 2017/2018 global wheat carryover stock is set to increase by 6% from the previous season to 254 million tons.
While the area planted increased by 22% from the 2016/2017 production season to 701 000 hectares, South Africa’s 2017/2018 soya bean production could decline by 8% y/y to 1.2 million tons. This is mainly on the back of expected lower yields of 1.7 tons per hectare, compared to an average yield of 2.3 tons per hectare obtained in the 2016/2017 production season. The official estimates will be released by the National Crop Estimates Committee tomorrow (27 February 2018) afternoon.
The 2017/2018 marketing year will end on Wednesday (28 February 2018), but with a large carryover stock of 340 862 tons, which is treble the volume seen in the previous year (2016/2017). This will boost South Africa’s soya bean supplies in the 2018/2019 marketing year, which starts on 1 March 2018.
In global markets, the International Grains Council revised its 2017/2018 soya bean production estimate down by 2 million tons from last month (January) to 347 million tons. This was mainly on the back of expected lower crops in Argentina, Brazil, India, Paraguay, Uruguay and Ukraine. Overall, this is 1% lower than the 2016/17 production season. The 2017/2018 soya bean ending stock is estimated at 44 million tons, down by 4% from the 2016/2017 production season.
After experiencing a good run in the past few days, the potato market pulled back in Friday’s (23 February 2018) trade session and settled in negative territory due to a large stock of 1.09 million pockets of 10kg bags at the start of the session. The price was down by 5.90% from the previous day (22 February 2018), closing at R31.39 per pocket.
In the session, the market saw an additional increase in producer deliveries due to ongoing harvest activity in some regions of the country. This led to a 5% uptick in daily stocks to 1.14 million pockets.
The fruit market had a good run in Friday’s (23 February 2018) trade session due to relatively lower stocks. The prices of apples and bananas were up by 0.23% and 8.21% from the previous day (22 February 2018), closing at R8.73 and R6.06 per kilogramme. These gains followed a 12% and 3% respective decline in apples and bananas stocks to 142 000 tons and 223 000 tons.
The orange market has been quite volatile due to lower stocks. Friday’s (23 February 2018) session was no different; the prices were significantly up by 64.92% from the previous day (22 February 2018) and settled at R10.72 per kilogramme. This was on the back of lower stocks of 19 000 tons, compared to levels of over 50 000 tons in December 2017.