Highlights in today’s morning note
The weather forecast shows a possibility of rainfall across many areas of South Africa within the next eight days. These expected showers vary between 16 and 80 millimetres and could improve soil moisture and dam levels, and in turn, benefit summer crops. However, this is with the exception of the western parts of the Western Cape and Northern Cape province which could remain dry and warm over the observed period (see figure 1).
On Friday the National Crop Estimate Committee (CEC) released its final 2016 maize production estimates, placing the total crop at 7.78 million tons, which is 3% higher than the previous estimate. However, this is 21% lower than the 2015 maize crop.
The current crop is in good condition across maize areas of South Africa. The weather forecasts show a possibility of rainfall over the coming weeks and that will further improve the crop conditions. Assuming that South Africa receives a normal rainfall pattern throughout the remainder of the season, we believe that total maize production could reach at least 11.9 million tons (compared to 7.5 million tons the previous season). The official CEC estimates will be out on the 28th February 2017.
Risk perspective: we view the armyworms outbreak in certain provinces of South Africa as a key risk that could potentially change our view if it is not controlled effectively. That said, with South Africa’s maize crop roughly 85% Genetically Modified, available pesticides on the market, technical assistance from the Department of Agriculture, Forestry, and Fisheries, as well as organised agriculture groups, we are optimistic that the country is in a better position to control this pest.
On the global front – last week the USDA placed 2016/17 global maize production at 1.040 billion tons, which slightly above the previous month’s estimate and 8% higher than the previous season. This notable recovery is due to expected increase in production in Brazil, Argentina, the US and South Africa.
On the global front – this morning Chicago wheat price was up by 1.13% from the level seen at midday Friday, largely supported by last week’s US weekly export sales which reached 527 000 tons – well above market expectations. Moreover, a slight downward revision of global wheat crop also added bullish pressure to the market.
Last week there was generally no major news except the release of the USDA’s World Agricultural Supply and Demand Estimates (WASDE) report. The report indicated that 2016/17 global wheat production at 748.24 million tons, which is 1% lower than the previous month’s estimate of 752.69 million tons. With that said, this is 2% higher than the 2015/16 output. The general upswing is on the back of an upward revision in the EU countries, with the region’s overall wheat production estimated at 144.86 million tons, from the previous estimate of 144.32 million tons.
Amongst the key global wheat producers, the US, Australia, Canada and Argentina’s wheat production estimates were left unchanged from the previous month, at 62.86 million tons, 33 million tons, 31.70 million tons and 15 million tons, respectively. Additionally, 2016/17 global ending stocks were revised down by 2% from the previous estimate to 248.29 million tons. However, this is still 3% higher than the previous season.
Demand perspective – the Middle-East, North Africa, and Southeast Asia are expected to remain key global importing regions of wheat in the 2016/17 season.
South Africa’s soybean crop is generally in good condition and set to benefit from forecast rainfall this week. Applying an average yield of 1.6 tons per hectare, combined with the CEC’s preliminary area estimate (542 200 hectares), the country could potentially produce 867 520 tons of soybeans this season. This is a 17% annual production increase.
In global markets – this morning Chicago soybean price was up by 0.09% from the level seen at midday yesterday, largely supported by strong global demand, as well as slight downward revision of global soybean production.
Last week the USDA placed 2016/17 global soybean production estimate at 336.62 million tons, down by 0.36% from the previous month’s estimate. That said, this is still 8% higher than the previous season’s output. The downward revision was mainly in Argentina, where overall production was slashed by 3% from the previous estimate to 55.5 million tons.
Amongst the key soybean producers, the US, Brazil, Paraguay and China’s 2016/17 production estimates were left unchanged from the previous estimates, at 117.21 million tons, 104.00 million tons, 9.17 million tons and 12.90 million tons, respectively. In the same season, the global ending stocks were estimated at 80.38 million tons, down by 2% from the previous estimate. However, this is 4% higher than the 2015/16 ending stock levels.
Demand perspective – China is expected to remain a key buyer of soybeans this season. The recent estimates from the USDA suggest that Chinese 2016/17 soybean imports could reach 86 million tons, which is 3% higher than the previous season’s estimate.
On Friday the South African sunflower seed market ended the day mixed. The Spot price remained unchanged from the previous day’s level due to limited participation which was reflected by lower traded volumes. Meanwhile, the May 17 contract month price lost ground and closed in negative territory due to the favourable weather forecast for the new season crop.
The sunflower seed Spot price ended the week at R5 170 per tons. Meanwhile, the May 17 contract month price lost 0.17% from the previous day’s level, closing at R5 300 per ton.
South Africa’s sunflower seed crop is in good condition across the country. The forecast rainfall within the next two week could be beneficial to the crop. Worth noting is that a large part of the crop was planted late due to late rainfall. Therefore, there are fears that later in the season some areas could be affected by frost.
Overall, if South Africa receives a normal rainfall pattern throughout the season, this year’s sunflower seed crop could be higher than that of last season. Applying an average yield of 1.2 tons per hectare, together with the CEC’s preliminary area estimate for sunflower seed (665 800 hectares), South Africa could possibly harvest 798 960 tons of sunflower seed. This is 6% higher than the previous season (despite the drop in area, which has been compensated by higher yields). The CEC will release the official estimated on the 28th February 2017.
In global markets – on Friday the EU’s sunflower seed market saw marginal losses of 0.47% from the previous day’s level, closing at US$420 per ton. This comes on the back of large supplies, with the region’s (EU) production estimated at 8.6 million tons, which is 6% higher than the previous season’s crop. Meanwhile, the Black Sea region’s sunflower seed oil market ended the week on a quiet now note, with prices unchanged from the previous day’s level, closing at US$760 per ton.
The South African potatoes market ended the previous week in negative territory, with the price down by 4% from the previous day level, closing at R38.26 per bag (10 kilograms). These losses were largely on the back of higher stocks level that was seen at the start of the session.
Additionally, during Thursday’s trade session, the market saw a notable uptick in producer deliveries and that led to a 26% increase in daily stock level to 896 923 bags (10 kg bags).
South African Fruit:
On Friday the Johannesburg Fresh Produce Market ended the week mixed. The apple price was down by 7% from the previous day’s level, closing at R7.51 per kilogram, mainly pressured by relatively large stock levels of 127 205 tons.
The bananas price saw marginal losses of 0.57% from the previous day’s level, closing at R8.73 per kilogram. This comes on the back of a 2% increase in daily stock levels to 161 264 tons.
Lastly, the oranges market has been quite wobbly, the prices doubled the previous day’s level on Friday’s trade session, closing at R12.93 per kilogram. This was due to lower stock levels and strong buying interest.
On Friday the SAFEX beef market saw a fairly quiet day, with prices unchanged from the previous day’s level, closing at R42.00 per kilogram.
The South African beef market has generally been under pressure since July 2015 due to large supplies. This comes on the back of higher slaughtering rate as farmers were unable to maintain their herds due to drier grazing fields and elevated feed costs.
Looking ahead, a recovery of the South African beef industry is dependent on weather conditions. Over the past few weeks, South Africa received moderate rainfall. Vegetation is improving and grazing fields are already replenished. Moreover, the weather forecast suggests South Africa could receive rainfall over the coming weeks, which bodes well with the much-needed improvement in grazing fields. Against this background, we anticipate that farmers will soon start to rebuild their herds, which in turn will lead to a decline in slaughtering rate to the normal levels of 6 500 herd of cattle a week.
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