As the 2019/20 production season begins in a number of countries in the northern hemisphere, the United States Department of Agriculture (USDA) recently released its initial global production forecasts of major grains. First, the agency forecasts a 6% annual uptick in global wheat production to 777 million tons. The countries that are set to be the drivers of this rebound are Russia, Ukraine, Australia, the US, Kazakhstan and China, amongst others. Second, the outlook for 2019/20 global maize production is also positive.

The crop is estimated at 1,1 billion tons, up by 1% from the 2018/19 production season. The countries behind this improvement include Argentina, Canada, Brazil and India. Lastly, unlike the aforementioned commodities, global rice production could fall marginally in 2019/20 production season to 498 million tons owing to an anticipated decline in area planted in the US, China and India.

Optimism regarding grain production

While the aforementioned estimates paint a generally positive picture of 2019/20 global grains supplies, it is worth noting that these are early days. There could still be material changes in the numbers over the coming months, depending mainly on weather conditions. After all, the planting activity has recently started in the northern hemisphere, while the southern hemisphere is yet to harvest its 2018/19 summer crop. The 2019/20 production season will only commence towards the end of the year. Be that as it may, the weather outlook for most countries is, for now, still favourable, which partly explained the USDA’s optimism about grain production.

The developments in the global grain market are important for South Africa, since the country is a net importer of wheat and rice. But maize is also an important crop to monitor in the global market this year – not necessarily for South African needs, but regional, specifically Mozambique and Zimbabwe. Hence, the expected increase in global grains production could be beneficial for South African importers, as it will most likely add pressure on commodity prices.

Crop imports and exports

On the domestic front, South Africa imports, on average, about half of its annual wheat consumption. As set out last week, we estimate the country’s 2018/19 wheat imports at 1,4 million tons, down by 36% from the previous year due to an improvement in local production. This marketing year will end in September 2019, but the imports in the subsequent 2019/20 marketing year, will most likely remain unchanged at 1,4 million tons.

This is under the assumption that domestic wheat production amounts to 1,8 million tons. In terms of rice, South Africa imports its entire annual consumption. For 2019, rice imports could amount to 1,1 million tons, up by 10% from 2018. Importantly, the typical rice and wheat suppliers to South Africa are among the countries that are expected to have a good harvest in 2019/20 production season. This further reinforces the view that Southern Africa could benefit from improvement in global supplies.

When it comes to maize, South Africa remains a net exporter, although there will probably be 450 000 tons of yellow maize imports in the 2019/20 marketing year. The countries that will face a need of more than 1 million tons of maize in the 2019/20 marketing year, are Zimbabwe and Mozambique. This is due to lower production on the back of unfavourable weather conditions at the start of the season, and was further exacerbated by the recent cyclone. Thus, an increase in global maize supplies, albeit being mainly yellow maize, will benefit the region when there are tight supplies. –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.

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