The annual food producer price inflation decelerated to 4.7% y/y in June 2017, from 5.7% y/y in May 2017. This shows the benefits of the higher agricultural output this year following good summer rainfall across the country. The deceleration was largely in grain, sugar, dairy, starches, and vegetable and fruit products. Meanwhile, meat and meat products accelerated due to on-going cattle herds restocking process resulting from the 2015-16 drought, as well as low base factors.

The general deceleration in food producer inflation is due to the recovery in agricultural production. The total production of summer grains and oilseeds is estimated at 18.44 million tonnes, which is a 96% annual increase. This has led to a widespread decline in agricultural commodity prices. White maize spot price currently trades at levels around R1 768 tonnes, which is 59% lower than the same period last year. Yellow maize spot price is trading at levels around R1 889 per tonne, which is 42% lower than the same period last year. Soybean spot price is at a level around R4 711 per tonne, which is a 31% annual decline. The decline in yellow maize and soybean prices will also benefit other sectors, such as the livestock and poultry.

While meat price inflation increased at the fastest pace of 17% y/y, there seems to be some level of improvement in slaughtering which could lift meat supply. The most recent data from the Red Meat Levy shows that farmers slaughtered 202 886 head of cattle in May 2017, up by 5% from the previous month.

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Looking ahead – the large agricultural output will keep agricultural commodity prices under pressure over the short-to-medium term. This essentially means that food inflation also could remain at relatively lower levels. With that said, the recent outbreak of avian influenza in the poultry sector remains a risk. The virus has been reported in isolated farms in Mpumalanga, Free State and Gauteng. We will closely monitor the developments within the poultry industry in order to ascertain the impact on food inflation in the coming months.

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Food inflation decelerated to 6.8% y/y in July 2017, from 6.9% y/y in the previous month. This mirrors the benefits of the higher agricultural output following good summer rainfall across the country.

Although we expect further moderation in the next few months, the picture of the food basket is mixed. Most food products have decelerated, with the exception of meat which is proving stickier than expected, recording 14.4% y/y in July, which is the highest level since December 2011. This is on the back of an outbreak of avian influenza and cattle restocking process after the 2015-16 drought.

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As we set out in our note on 28 September 2017, the broad deceleration in food producer inflation is due to a robust summer crop harvest, as well as improving slaughtering activity, particularly cattle and sheep.  

Meat and meat products price inflation eased to 16.5% y/y in September 2017, from 16.8% y/y in the previous month. This was largely driven by the improvement in cattle and sheep slaughtering activity. About 228 632 head of cattle were slaughtered in August 2017, up by 12% from the previous month.  At the same time, 374 838 head of sheep, which is an 11% monthly uptick.

For now, it is unclear whether this will be a temporary blip or a continuous recovery. We will get more clarity tomorrow, 27 October 2017, when the Red Meat Levy Admin releases the figures for September 2017. Within the meat and meat products basket, the spread of avian influenza remains a major concern, although it has, so far, largely affected layers for egg production. 

A slight uptick in dairy products price inflation to 1.7% y/y in September 2017 came as no surprise. It is merely a reflection of seasonal trends. We expect dairy products inflation to soften in the coming months, in anticipation for improvement in grazing veld and milk production during the summer rainfall season.

Apart from avian influenza, large agricultural output and positive prospects for the new summer crop season will keep commodity prices under pressure over the short-to-medium term, which should contain food products’ inflation at relatively lower levels.   

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PPI UPDATE: SA food products price inflation slows to 1.3% year on year

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To everyone who takes a bit of time to read what we write, thank you. Best wishes for 2018.

Highlights in today’s morning note

South Africa’s average dam levels: week ended 01 January 2018 (last year’s figures in brackets – 01 January 2017)

Source: Department of Water and Sanitation and Agbiz Research

Weather:

 While temperatures could rise to levels above 26 degrees Celsius at the start of this week, there is a possibility of light rainfall in most parts of the country within the next eight days (see figure 1 – attached report). However, this will not be sufficient to significantly improve soil moisture in summer crop producing areas. Meanwhile, the Northern Cape and Western Cape provinces might remain dry and warm over the observed period.

Maize:

 The expectations of rainfall in the latter part of 2017 did not materialise in most areas, particularly the western regions. As result, the maize planting process has not yet been completed in some areas. Moreover, the areas that managed to plant on time are currently experiencing heat stress, but no major damage reported thus far.

Farmers planned to plant 2.47 million hectares of maize this season, which is 6% lower than the 2016/17 production season. About 56% of the area is set to be for white maize, with 44% for yellow maize. However, this might change due to the aforementioned delays in planting in the western regions of the country. Overall, there will be more clarity when the National Crop Estimate Committee releases its estimates on 30 January 2018.

South Africa’s maize supplies are still solid. SAGIS recently reported that the country’s maize stocks were at 8.2 million tonnes in November 2017, which is twice the volume seen in the same period in 2016. This notable uptick is mainly due to a record commercial maize production of 16.74 million tonnes in the 2016/17 season.

From a trade perspective, South Africa exported 64 206 tonnes of maize in the weeks of 09 to 29 December 2017. The leading buyer was Japan with a share of 56%, all yellow maize. This placed South Africa’s 2017/18 total maize export volume at 1.7 million tonnes, which equates to 77% of the season’s export forecast of 2.2 million tonnes.

Wheat:

In December 2017, the National Crop Estimate Committee revised its 2017 wheat production estimates down by 7% from the previous month to 1.48 million tonnes. This is 23% lower than the previous season’s crop. The downward revision was mainly due to disappointing yields in the Western Cape and Free State provinces, on the back of unfavourable weather conditions. The sixth production estimates for 2017 wheat will be released on 30 January 2018.

Overall, this implies that South Africa will have to import at least 1.80 million tonnes of wheat in the 2017/18 marketing year in order to fulfil the domestic needs. This is almost double the previous marketing year’s imports of 934 765 tonnes.

South Africa imported 48 432 tonnes of wheat in the weeks of 09 to 29 December 2017. About 66% came from Russia and 34% from Argentina. This placed 2017/18 marketing year’s wheat imports at 625 073 tonnes, which equates to 35% of the seasonal import forecast of 1.80 million tonnes (This is under the assumption that domestic production will reach 1.48 million tonnes).  

Sunflower seed:

The expectations of heavy rainfall in the summer crop growing areas of South Africa did not materialise in most areas during the festive season, particularly the western parts of the country. As a result, the sunflower seed planting process has somewhat been delayed, and the areas that have planted continue to experienced heat stress which could possibly damage the crops.

The South African farmers intended to plant 665 500 hectares of sunflower seed in the 2017/18 production season, up by 5% from the previous season. Given the aforementioned realities, this target is unlikely to be achieved. The National Crop Estimate Committee will release the preliminary area planted estimates on the 30th of January 2018.

Aside from this, the country still has large supplies from the 2016/17 production season. South Africa’s sunflower seed ending stocks were recorded at 374 117 tonnes in November 2017, down by 20% from the previous month, but up by 32% from the corresponding period last year.

In terms of trade, South Africa exported 42 tonnes of sunflower seed to Namibia in November 2017, which is well above the previous month’s exports of a mere one tonne. This brought the country’s 2017/18 sunflower seed exports to 168 tonnes – all went to regional markets, namely; Botswana, Namibia and Swaziland.

Also worth noting is that sunflower seed consumption (crushed oil and cake) declined by 3% month-on-month to 92 650 tonnes in November 2017. However, this is 59% higher than the volume utilised in November 2016.

Soybeans:

Unlike other crops, such as maize and sunflower seed, most soybean growing areas of the country managed to plant on time, with the exception of few areas in the western parts of the country which experienced delays due to dryness. The expected rainfall at the end of 2017 did not materialise in some regions, particularly the western areas, where soil moisture is still low.

The South African farmers planned to plant an area of 720 000 hectares in the 2017/18 production season. However, the current warm weather conditions could hamper this target. That said, there will be more clarity when the National Crop Estimate Committee releases its preliminary area planted data at the end of this month.

Apart from that, South Africa’s soybean consumption (crushed oil and cake) was reported at 95 433 tonnes in November 2017, up by 51% from the previous month, and 57% from November 2016.  Also worth noting is that the soybean ending stocks were at 589 106 tonnes in November 2017, down by 15% from the previous month, but double the volume seen in November 2016 due to a large harvest in 2016/17 production season.

From a trade perspective, the large soybean harvest of 1.32 million tonnes received in 2016/17 production season implies that South Africa could receive minimal imports in the 2017/18 marketing year. This is a remarkable improvement following imports of 271 098 tonnes in the previous marketing year.

The country imported 1 324 tonnes of soybean in November 2017. About 78% of this came from Zambia and the balance from Malawi. This placed South Africa’s 2017/18 soybean imports to 26 392 tonnes, which equals to 94% of the seasonal import forecast of 28 000 tonnes.

RSA Potatoes:

After a positive start this year, the South African potatoes price came under pressure in Friday’s trade session, down by 2% from the previous day, closing at R42.65 per pocket (10kg). These losses were mainly underpinned by large stocks of 776 791 pockets (10kg bag) at the beginning of the trading session.

In addition, during the session, the market saw an uptick in deliveries as harvest activity picks up after a quiet period during the Christmas holidays. This led to a 6% increase in daily stocks to 824 387 pockets (10kg bag).

RSA Fruit:

After a wobbly performance in the latter part of 2017, the fruit market started the year again on a mixed footing driven by relatively lower stocks. The prices of bananas and oranges were up by 9% and 13% from the previous day, closing at R6.78 per kilogram and R7.04 per kilogram, respectively. This was partially due to lower stocks of 289 320 tonnes of bananas and 21 088 tonnes of oranges.

Meanwhile, the price of apples was down by 2% from the previous day, closing at R8.68 per kilogram. This followed an uptick in daily stocks to 135 710 tonnes.

SAFEX beef carcass:

The SAFEX beef carcass market started the year on a quiet footing with the price flat at R44.00 per kilogram.  However, this could differ from the physical market which continues to show solid activity and volumes.

In October 2017, South African farmers slaughtered 219 393 head of cattle, up by 3% from the previous month, but 7% lower compared to October 2016. The Red Meat Levy Admin will release an update of the cattle slaughtering data later this month, and that will probably show an uptick due to strong festive season demand.

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Agbiz Morning Market Viewpoint on Agri-Commodities 08 January 2018

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