After experiencing a good run at the beginning of the week, yesterday (14 November 2018) almost all SAFEX grain and oilseed contract month prices pulled back and settled in negative territory. This was underpinned by a broad range of factors, the most notable ones being the recovery in the domestic currency, as well as prospects of higher rainfall during the next two weeks.
This morning (15 November 2018), the near-term weather forecasts indicate that most parts of the country, with the exception of the Northern Cape and northern parts of Limpopo could receive as much as 20 to 80 millimetres of rainfall. This is good for both areas that are yet to plant as it will improve soil moisture ahead of the process, and also bode well for recently planted areas as it will support the germination process of the crop.
The weather and Rand to Dollar (ZAR/USD) exchange are fundamental factors that will continue to underpin the domestic grain and oilseed market for months to come. Regarding the weather, however, the critical months are October to February, which is typically planting to pollination.
As set out in our previous notes, there is general optimism in the farming community regarding the 2018/2019 summer grain and oilseed production. This is evident from the recent tractor sales data, and also from farmers’ intentions to plant data. The data showed that summer grain and oilseed area plantings could increase by 5% year-on-year (y/y) to 4,03 million tons in the 2018/2019 production season. Most summer crops are expected to increase, with the exception of sunflower seed and groundnuts. While these farmers’ intentions are promising, they are just that: farmers’ intentions. The actual summer crop planting estimates will be released on 29 January 2019.
The key risk on the path ahead, which we have emphasised in our previous notes, is the possibility of a weak El Niño. The South African Weather Service (SAWS) has indicated that this weather phenomenon could lead to drier weather conditions between the end of January and March 2019.
This is a crucial period for grain and oilseed because it coincides with pollination, which requires moisture. The global agricultural agencies such as the International Grains Council (IGC) and the United States Department of Agriculture (USDA), amongst others, painted a somewhat positive picture of South Africa’s 2018/2019 summer grain and oilseed production outlook, although the estimates are lower than the previous production year (2017/2018). For example, maize production estimates currently range between 12,3 and 13,0 million tons, which is well above the long-term average of 12,0 million tons. Going forward, however, the weather will be a key determinant of whether any of the aforementioned data points materialise and this will be a central theme in the market for the next three months.
The winter wheat harvest process is in full swing in the Western Cape. In the first six weeks of the 2018/2019 marketing year, producer deliveries amounted to 449 888 tons, which equates to 50% of the Western Cape’s expected harvest for the current season. While the upcoming deliveries figure for 16 November 2018 could show a further uptick from volumes delivered the previous weeks, the weeks ending 23 November and 30 November show prospects of rainfall over the Western Cape, which could slow the process and might also negatively affect the quality of the crop in areas that have not yet harvested. Above all, South Africa’s wheat production is estimated at 1,86 million tons, up by 21% y/y. The improvement is on the back of higher yields and an expansion in overall area planted. –Wandile Sihlobo
Wandile Sihlobo, head of economic and agribusiness intelligence at Agbiz, shares highlights in his update on agricultural commodity markets. Click here for the full report on agri markets for the major commodities.