The global grains market is well supplied in the 2020/21 season, despite commodities prices rising substantially in the recent past. The primary driver of grains and oilseeds prices has been the rising demand in China. Another factor is the unfavourable weather conditions at various stages of the production season in Europe and parts of South America.

This message was clear at the end of last week when the United States Department of Agriculture (USDA) released an update of its World Agricultural Supply and Demand Estimates report for April 2021.

As a summary, the latest USDA estimates placed the 2020/21 global wheat production at 776 million tons, marginally down from the previous month but still up by 2% from the prior season. Nevertheless, the ending stocks were down by 1% year-on-year (y/y), estimated at 295 million tons.

Rise in consumption equals decline in inventory

The decline in inventory is, in part, due to the rise in consumption and will most likely provide upward pressure on global wheat prices in the near term. In maize, 2020/21 global production is 1,14 billion tons, which is marginally up from March 2021 and 2% higher than the previous season.

Like wheat, the maize ending stocks are down 6% y/y, as the annual maize usage in countries such as China increased substantially this season. Such a decline in stocks provides conditions for global maize prices to remain elevated, at least in the near term.

Moreover, the USDA forecasts the 2020/21 global soya bean production at 363 million tons, up slightly from March 2021 estimates and 7% higher than the previous season. The expected large crop in Brazil and the United States (US) is behind the global crop increase.

Nevertheless, the 2020/21 global soya bean stocks could fall by 10% y/y, primarily on the back of an increase in China’s consumption. In rice, the 2020/21 production could amount to 504 million tons, roughly unchanged from the previous month and up by 1% from the previous season. Meanwhile, the stocks are at the same levels as in the 2019/20 season, estimated at 178 million tons.

In sum, the global grains and oilseeds supply is still in reasonably good shape, but the commodity prices could remain elevated because of growing demand, particularly from China. These global grain and oilseeds production dynamics have an indirect (and direct) impact on South Africa.

The country is both an importer of some products such as wheat, soya bean oilcake and rice, as well as a maize exporter. The transmission to the domestic market is mainly through commodity prices, especially for wheat and soya beans. For maize, South Africa is a net exporter and is currently expecting its second-largest harvest on record, which means prices will most likely be influenced mainly by domestic matters rather than international matters. – Wandile Sihlobo, Agbiz

Wandile Sihlobo, chief economist at Agbiz, shares highlights in his update on agricultural commodity markets. Click here for the full report on the agricultural markets for the major commodities. Find previous reports here.