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The March 2019 World Agricultural Supply and Demand Estimates report by the United States Department of Agriculture (USDA) has provided further evidence that the world will have fairly large maize, soybean, and rice supplies in the 2018/2019 season. Meanwhile, wheat production could decline from levels seen in the 2017/2018 season.
The USDA lifted its estimate for 2018/2019 global maize production marginally from last month to 1.1 billion tons. This is 2% higher than the previous season. The increases are mainly in South America and the Black Sea region.
The agency placed its 2018/2019 global rice production at 501 million tons, up by a percentage point from the levels observed in January, and the 2017/2018 production season.
The 2018/2019 global soybean production estimate was roughly unchanged from January levels at 360 million tons which is 6% higher than the 2017/2018 production season. The uptick is mainly on the back of an expected large harvest in the United States, China, and Argentina.
The data for 2018/2019 global wheat production shows a marginal decline from January, with production set to reach 735 million tons. This, however, is a 4% decline from the 2017/2018 production season.
While production of most commodities is expected to increase in the 2018/2019 season, prices might not decline or stabilise due to expectations of a rise in global consumption of grains and oilseeds, amongst other factors. This is already evident in the Food and Agricultural Organisation of the United Nations (FAO) Global Cereal Price Index which averaged 169 points in February, up by 4% from the corresponding period in 2018.
Nonetheless, I suspect that there will not be a significant uptick in overall global food prices, as slowing meat and dairy product prices could overshadow the increases in grains, and sugar product prices. In fact, the FAO Food Price Index, which comprises grains (cereals), vegetable oils, meat, dairy and sugar products, averaged 167 points in February, down by 2% from the same period last year.
The SA perspective
From a South African perspective, the relevance of the aforementioned points is through a number of channels, with the most direct one being that the country is a net importer of rice and wheat.
In terms of rice, prices could remain stable to downwards in the near term as global rice stocks could increase by 5% year-on-year, boosted by large supplies, despite the anticipation of an increase in global consumption. Given that South Africa’s 2019 rice imports could amount to 1.1 million tons, up by 10% from last year, a potential decline in global rice prices as a result of increased production will benefit the consumers. The key contributing countries to the expected increase in production are India, Vietnam, Thailand, the United States, China, Bangladesh and the Philippines. These are some of the countries that supply South Africa.
Also, worth noting is that although South Africa’s wheat production has recovered from levels seen in the drought year, with the 2018/2019 harvest estimated at 1.84 million tons, up by 19% from the previous season, the country will remain a net importer of the commodity. The imports, however, could fall by 36% from the 2017/2018 season to 1.4 million tons. In the first week of March, about 376,789 tons had already been imported. The leading suppliers are Germany, Russia, Argentina, Ukraine and Canada.
Overall, the outlook for global food prices is fairly positive, although some commodity prices could show an uptick from time to time. – Wandile Sihlobo, Bizcommunity