The recent monthly report of the International Grains Council underscored the view that global wheat supplies will be tight in the 2018/2019 season. The Council placed its production estimate at 717 million tons, which is 3% lower than the five-year average global production. This is partly due to an expected lower harvest in the European Union (EU), Russia, Ukraine, Australia and Kazakhstan, amongst others. The decline in production in almost all the aforementioned countries is underpinned by expectations of lower yields on the back of unfavourable weather conditions, as well as the reduction in area planted in some countries.

Although global wheat usage in food and industrial purposes could remain solid in the 2018/2019 season, animal feed could decline by 5% year-on-year (y/y). The animal feed industry will potentially use maize and soya bean as a substitute due to price competitiveness.

Overall, the 2018/2019 global wheat stocks could decline by 6% y/y to 250 million tons. This could potentially add an upward pressure on global wheat prices in the near-to-medium term.

With South Africa being a net importer of wheat, the global shocks could also influence the local market this season. One positive point, however, is that South Africa’s 2018/2019 wheat imports could amount to 1.4 million tons, down by 33% from the previous season.

The potential decline in domestic wheat imports follows an expected 18% annual increase in wheat production to 1.85 million tons in the 2018/2019 season. This is supported by both improvement in weather conditions in the Western Cape, as well as the expansion in area planted in other provinces. The expected showers during the next two weeks in most parts of the country could boost soil moisture and subsequently crop conditions, particularly in the Free State, Limpopo, North West and the Eastern provinces where the crop is still at early stages of development and requires moisture.

Also worth noting is that the recent rainfall in the Western Cape has led to a notable improvement in dam levels.-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.

Find previous reports here.