Agbiz Morning Market Viewpoint on Agri-Commodities: 05 February 2018

Highlights in today’s morning note:

South Africa’s average dam levels: week ended 29 January 2018 (last year’s figures in brackets – 29 January 2017)

Source: Department of Water and Sanitation and Agbiz Research

Wheat

To reiterate a point made in our note on 16 January 2018, the movements of the international wheat prices will be of importance in the local market this season, not only because of their influence on local wheat prices but their implications on the import tariff.

South Africa is a generally a net importer of wheat but, but what distinguishes the 2017/18 marketing year is that the imports will double the previous year’s volume, estimated at 1.9 million tonnes. Moreover, this is the second largest import volume on record (footnote in the attached file).

The wheat import tariff rate is currently at R716.30 per tonne, down from R910.00 per tonne on 12 December 2017. The downward revision was largely underpinned by the higher global wheat prices.

In the short to medium term, the global wheat prices could trade sideways at levels around US$220 per tonne due to solid global supplies (footnote in the attached file). The USDA forecasts 2017/18 global wheat production at 757 million tonnes, which is a 1% uptick from the previous season. Therefore, the wheat import tariff could remain at current levels for some time expect there a sustained notable uptick or decline in global wheat prices from the aforesaid level.

Maize:

South African maize is still in the weather market — this implies that the weather will remain a key factor in price movements at least until March 2018 when the crop passes the pollination stage of development. Although the past few weeks presented erratic rainfall across the maize belt with the western regions experiencing extremely warm conditions, the past few days brought some showers.

In addition, the weather forecast for the next two weeks shoes a possibility of over 30 millimetres of rainfall across the maize belt. This could further improve soil moisture and therefore benefit the crop.

The expected decline in South Africa’s 2017/18 maize production will not significantly change the supply dynamics in the market. There are two major reasons for this, with the first one being the fact that the production estimate of 11.2 million tonnes is still above the annual consumption of 10.5 million tonnes (footnote in the attached file).

Lastly, the total maize carryover stock in the 2017/18 marketing year is estimated 4.2 million tonnes, up four-fold from the previous year. All this will boost supplies in the 2018/19 marketing year which starts on 01 May 2018.

Soybeans:

The 2017/18 soybean marketing year will end on 28 February 2018, but in better footing than the 2016/17 marketing year. The ending stock is estimated at 340 862 tonnes, which is treble the volume seen in the 2016/17 marketing year. This will boost South Africa’s soybean supplies in the 2018/19 marketing year.

As we set out in our note on 01 February 2018, the preliminary area plantings of 701 000 hectares could potentially lead to 1.2 million tonnes of production, which would be 9% lower than the 2016/17 production season (footnote in the attached file). This is under the yield assumption of 1.7 tonnes per hectares, which is an average for the past five seasons, as well as expectations of good weather conditions.

South Africa’s soybean crop is generally in good condition across the country, albeit unfavourable weather conditions in the past few weeks. Moreover, the soybean fields could receive rainfall of over 30 millimetres this week, which bodes well for the crop as it needs moisture at the current stage of development.

RSA Potatoes:

The South African potatoes market lost ground in Friday’s trade session owing to a large stock of 824 236 pockets (10kg bag) at the start of the session. The price was down by 1% from the previous day, closing at R40.41 per pocket (10kg).

However, during the day, the market experienced commercial buying interest, coupled with relatively lower deliveries on the back of slow harvest activity. This subsequently led to a 2% decline in daily stocks to 804 451 pockets (10kg bag).

RSA Fruit:

The fruit market ended Friday’s trade session on a mixed footing. The prices of apples and bananas were down by 2% and 1% from the previous day, closing at R9.53 and R5.92 per kilogram, respectively. These losses were mainly underpinned by commercial selling, but could soon be reversed owing to lower stocks of 118 000 tonnes of apples and 214 000 tonnes of bananas.

Meanwhile, the price of oranges was up by 6% from the previous day, closing at R7.59 per kilogram due to lower stocks. At the end of Friday’s session, the oranges stock was at 24 000 tonnes, down by 35% from the previous day.

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Agbiz Morning Market Viewpoint on Agri-Commodities 05 February 2018