As indicated in yesterday s note, the harvest activity is in full swing in the irrigation areas of South Africa. This is

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1 25 May 2018 South African Agricultural Commodities Weekly Wrap The weaker Rand against the US Dollar provided support to the South African grain and oilseed market this week, thus overshadowing the bearish sentiment that stemmed from expectations of a large harvest. The notable gains were on white and yellow maize with the spot prices each respectively up by 2 percent from last week. Sunflower seed and soybean prices were each up by a percentage point compared to last week s average prices. Wheat price was up marginally from the previous week. Aside Wandile Sihlobo +27(0) from this, there is not much happening in the grain and oilseed market. The summer crop harvest activity is underway across the country and should gain momentum in the coming weeks as weather conditions are expected to be favourable. The week ahead is data-packed, but the most anticipated release is the Crop Estimate Committee s fourth production estimate for 2017/18 summer crops. Maize market As indicated in yesterday s note, the harvest activity is in full swing in the irrigation areas of South Africa. This is reflected in the volumes of maize delivered to commercial silos in the week ending 18 May 2018, which amounted to tonnes, up by 14 percent from the previous week. The total maize deliveries for the first three weeks of the 2018/19 marketing year are estimated at tonnes. Additional maize will be delivered in the coming weeks when most dryland areas also commence with the harvest activity. Fortunately, the weather could present conducive conditions, as it shows clear skies over the maize belt within the next two weeks. It is also worth noting that the export activity remains sluggish, but could improve in the next couple of months. South Africa exported tonnes of maize last week, placing the 2018/19 maize exports at tonnes, which is 4 percent of the seasonal export forecast of 2.3 million tonnes. In terms of pricing, white and yellow maize spot prices averaged R2 128 and R2 217 per tonne, each respectively up by 2 percent from the previous week (Chart 1). Chart 1: South African maize prices Source: JSE, Agbiz Research Chart 2: US maize prices and ZAR/USD exchange Source: IGC, Bloomberg, and Agbiz Research 1

2 Wheat market The expected rainfall at the beginning of this week in some parts of the Western Cape province did not materialise, although the forecasts remain favourable, particularly for areas around Overberg, Winelands and Helderberg. This is concerning because a large part of the winter wheat crop has already been planted, despite the drier conditions. Therefore, there is likely to be delays in the germination process in some parts of the province. Be that as it may, the long-term outlook remains favourable. As set out in last week s note, the International Research Institute (IRI) for Climate Change Society noted a possibility of above-normal rainfall over the Western Cape province between June and August The IRI s estimate was partially in line with the sentiments expressed by the South African Weather Service in its Seasonal Climate Watch in March We place more emphasis on this particular province because of its share contribution to South Africa s wheat production. The province accounts for 64 percent of South Africa s intended hectares for winter wheat in the 2018/19 production season. Aside from the production dynamics, the wheat import tariff rate of R per tonne that triggered on 30 March 2018 was finally published in a government gazette on 21 May 2018, making it an official rate. This is 27 percent decline from the previous rate and likely to benefit wheat users, as it partially lowers the costs of importing wheat. However, this lower level will be short-lived, the wheat import tariff had triggered again on 10 April to a new rate of R per tonne following a then decline in international wheat prices (No2 HRW). The newly calculated rate will be applicable after publication in a government gazette, of which the timeframe is unclear (Chart 4). The delays and uncertainty of wheat tariff adjustments partly resulted in a decline in imports in the past couple of weeks. However, the data for the past two weeks shows an uptick in import activity. South Africa imported tonnes of wheat in the week of 18 May About 63 percent of this from Russia, with 21 percent from Poland and 16 percent from Germany. This brought South Africa s 2017/18 wheat imports to 1.2 million tonnes, which equates to 63 percent of the season s import forecast of 1.9 million tonnes. Against this backdrop, the SAFEX wheat spot price averaged R3 897 per tonne, marginally up by 0.3 percent from last week. This was in partly line with the Chicago wheat prices which increased by 3 percent from last week, averaging US$247 per tonne (Chart 3). Chart 3: South Africa and US wheat prices Source: JSE, IGC, and Agbiz Research Chart 4: South Africa s wheat import tariff Source: SAGIS and Agbiz Research 2

3 Soybean market Most areas in the central and eastern parts of the country have made notable progress in harvest activity, thanks to dry and cool weather conditions experienced in the past couple of weeks. There is likely to be good progress in the coming weeks due to favourable weather outlook. The yields received in most areas largely vary between average and above-average, which supports the National Crop Estimates Committee s view of a record harvest of 1.4 million tonnes. The Committee will present an update of its estimate on 29 May We believe that this will be left unchanged as the as weather conditions have been favourable since the start of the harvest period. Regionally, South Africa, Nigeria, Zambia, Zimbabwe, Uganda and Egypt are the only African countries amongst the world s top 40 soybean producers, according to data from the USDA. South Africa is the only African country with production over a million tonnes, as previously noted. This has materialised due to an increase in area planted, technological improvements in forms of seeds, fertilizers and better farming practices, amongst others. The closest to South Africa s production level is Nigeria, where output averaged tonnes over the past 5-seasons. Production in other African countries is at levels below tonnes a year. Overall, the SAFEX soybean prices averaged R4 543 per tonne, up by a percentage point from last week (Chart 5). Sunflower seed market The sclerotinia and alternaria diseases in parts of the Free State did not meaningfully affect the sunflower seed crop since the outbreak was at a stage when crops in most areas had already matured. With that said, the diseases holds risk for the upcoming seasons. We highlight this because the Free State province is a leading producer of sunflower seed in South Africa, accounting for 57 percent share in the expected harvest of tonnes. In the past couple of weeks, we expressed concerns that frost could negatively affect the crop in late-planted regions of the North West and western Free State. However, a large part of the crop has passed the pollination stages of development, therefore there is minimal chance that frost could lead to lower yields. Above all, the weather forecast for the next two weeks shows clear skies over sunflower seed growing areas of South Africa, which implies that the harvest activity could continue with minimal interruptions. In terms of pricing, the SAFEX sunflower seed price averaged R4 588 per tonne this week, up by a percentage point from the previous week (Chart 6). Chart 5: Soybean prices Source: JSE, IGC, and Agbiz Research Chart 6: Sunflower seed prices Source: JSE, IGC, and Agbiz Research 3

4 Beef market There was not much happening in the SAFEX beef carcass market this week, the price remained flat, averaging R39.50 per kilogram due to thinly traded volumes. Overall, the SAFEX beef carcass price might not be a true reflection of the physical market which continues to show solid activity. From a meat supply perspective, South African farmers slaughtered head of cattle in March 2018, up by 9% from the previous month, but down by 17% from the same period last year. That said, the trend in slaughtering activity could soon change as the USDA forecasts a 4% year-on-year increase in the number of cattle to be slaughtered in South Africa in 2018 to 3.5 million cattle, due to the anticipated uptick in demand and a general recovery in the industry performance (Chart 7). Chart 7: Monthly cattle slaughtering activity Source: Red Meat Levy Admin, Agbiz Research Potato market The potato market was on negative footing around midweek, with the price down by 2% from the previous week, closing at R34.67 per pocket/10kg bag (Chart 8). These losses were mainly on the back of large producer deliveries, supported by the ongoing harvest activity, which then led to an uptick in stocks to 1.08 million pockets (10kg bag). Chart 8: South Africa s average potato prices and stocks Source: Potato SA 4

5 Weather conditions ahead of the weekend The weather charts remain roughly clear over most parts of the country with the exception of few areas around Winelands and Overberg of the Western Cape, as well as the eastern parts of Mpumalanga province which could receive light showers. This does not bode well for winter crop growing regions which urgently need moisture. Meanwhile, the summer crop harvest activity could receive a good boost from drier weather conditions (Chart 9). The forecast for the week of 09 June 2018 presents more of the same, which is dry and cool weather conditions across the country. This is with the exception of Overberg, Winelands, Helderberg and Garden Route regions of the Western Cape, as well as parts of the Eastern Cape province, which could receive light showers (Chart 10). Chart 9: Next 8-days precipitation forecast Source: wxmaps Chart 10: Next 16-days precipitation forecast Source: wxmaps 5

6 Chart 11: Precipitation forecast Source: wxmaps Key data releases in the South African agricultural market SAGIS monthly data: 25/05/2018 SAGIS weekly grain trade data: 29/05/2018 National Crop Estimates Committee s data: 29/05/2018 SAGIS producer deliveries data: 30/05/2018 Disclaimer: Everything has been done to ensure the accuracy of this information, however, Agbiz takes no responsibility for any losses or damage incurred due to the usage of this information. 6