South African wheat market had a good run at the start of this week

Highlights in today’s morning note

Maize:

The week started on a positive note in the SAFEX maize market, with support emanating from a combination of factors which include commercial buying interest, higher Chicago maize prices, and a slightly weaker Rand against the US Dollar.

The gains in Chicago maize market followed the United States Department of Agriculture’s (USDA) prospective plantings data. The agency projected the US 2018/19 maize plantings at 35.6 million hectares, well below market expectations. Moreover, this is 2 percent lower than the previous season’s plantings. This is almost in line with the International Grains Council’s (IGC) expectations of a 3 percent decline in US 2018/19 maize production to 359 million tonnes.

Nonetheless, this will not have a notable impact on global maize supplies as the area plantings and the harvest is expected to increase in other key maize producing countries such as Brazil, Argentina, China and Ukraine, amongst others. Maize production in these countries could compensate for the expected decline in the US. IGC forecasts a percentage point uptick in 2018/19 global maize production to 1.05 billion tonnes. This essentially means that global maize prices could trade sideways in the near term.

This is likely to be the key theme in the local maize market as well, particularly within the medium term. The large carry-over stock of 4.2 million tonnes from the current marketing year, sluggish exports and expectations of relatively large domestic production in the 2017/18 season could keep domestic maize prices under pressure.

Wheat:

The South African wheat market had a good run at the start of this week and settled in positive territory. This was mainly underpinned by the weaker Rand against the US Dollar, as well as higher Chicago wheat prices.

The Chicago wheat prices were partially supported by solid weekly US export inspections, which were reported at 361 723 tonnes, in line with market expectations. Moreover, the relatively poor rating of US winter wheat crop conditions also provided a bullish sentiment to the market. On 01 April 2018, the USDA rated 2018/19 US winter wheat crop conditions at 32 percent good/excellent, which is 19 percentage points lower than the corresponding period last year.

Going forward, however, global wheat prices could trade sideways, at least for the short to medium term, because of large global supplies. To recap from our previous note, the International Grains Council forecasts 2017/18 global wheat production at 758 million tonnes, up by a percentage point from the previous season. In the same season, the stocks are estimated at 256 million tonnes, up by 7 percent from the previous season.

Although the global market is well supplied this season, the 2018/19 season supplies could decline slightly. In its preliminary forecasts, IGC placed 2018/19 global wheat production at 741 million tonnes, down by 2 percent from the previous season. The notable decline is expected to be underpinned by a reduction in output in countries such as Russia, Argentina, Kazakhstan, India and the EU region.

Contrary to the global development, domestic wheat production could slightly recover this production season. The USDA forecasts South Africa’s 2018/19 wheat production at 1.65 million tonnes, up by 8 percent from the previous season . This is mainly underpinned by expectations of higher yields which in turn could be boosted by favourable weather conditions.

Soybeans:

The South African soybean market started yesterday’s trading session in positive territory and maintained the gains throughout the session. Similarly to other commodities, the weaker Rand against the US Dollar, as well as higher Chicago soybean prices were the key drivers of the market.

The Chicago soybean prices gained ground following the USDA’s prospective plantings report which indicated that 2018 plantings could decline by a percentage point from last year to 36.0 million hectares. This was worse than market expectations of a marginal decline to 36.4 million hectares.

Other observers such as the IGC already forecasts a decline in US soybean production for the new season. Last month, IGC estimated US 2018/19 soybean production at 119 million tonnes, slightly down by 0.4 percent from the previous season. With that said, it still early in the season to be certain about the potential size of the crop. More information will unfold over the coming months.

Also worth noting is that the US and Ukraine are the only major soybean producers that IGC had estimated a decline in the 2018/19 production season. Ukraine’s soybean harvest is estimated at 3.7 million tonnes, down by 5 percent from the 2017/18 season.

Meanwhile, other major producers such as Brazil, Argentina, China, India, Paraguay, Canada, Russia and Uruguay are set to record an uptick in production in 2018/19 season. In fact, this is set to overshadow the expected decline in production in the US and Ukraine. Overall, the 2018/19 global soybean production is estimated at 354 million tonnes, up by 4 percent from the previous season.

RSA Potatoes:

The potatoes market started the week on a positive footing with price up by 7 percent from the previous day, settled at R45.89 per pocket (10kg). This was underpinned by the relatively lower stock of 717 526 pockets (10kg bag) at the start of the session, as well as strong commercial buying interest.

Towards the end of the trading session, the strong commercial buying interest, coupled with relatively lower deliveries on the back of slow harvest activity over the Easter weekend led to a 31 percent decline in daily stock to 496 391 pockets (10kg bag).

SAFEX Beef:

Yesterday there was not much happening in the SAFEX beef carcass market. The price remained flat from the previous day and settled at R39.50 per kilogram due to thinly traded volumes. It is worth emphasising that the SAFEX beef carcass price is not a true reflection of the physical market, which continues to show solid activity.

From a supply point of view, South African farmers slaughtered 185 262 head of cattle in February 2018, down by 11 percent from the corresponding period last year. This was largely on the back of a cattle herd rebuilding process after a reduction during the 2015-16 drought. Lower maize prices and a good recovery in pastures have provided a conducive environment for the cattle stock rebuilding process.

Full report available below:

Agbiz Morning Market Viewpoint on Agri-Commodities 04 April 2018