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Agbiz Morning Market Viewpoint on Agri-Commodities 16 May 2018

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• The SAFEX wheat prices had a good run on Friday’s trade session and settled in positive territory, with spot price at R3 855 per tonne. The gains were in line with higher Chicago wheat prices, as well as commercial buying interest.
• The Chicago wheat market was supported by lingering concerns about unfavourable weather conditions in the central and eastern parts of Europe, US Plains, Australia, Canada and Russia. This could potentially lead to a decline in wheat yields in the 2018/19 production season.
• In Russia, the US and the EU region there are already expectations of lower yields. Last week, International Grains Council (IGC) placed Russia, US and EU’s 2018/19 wheat production at 75 million, 46 million and 149 million tonnes, respectively down by 12 percent, 2 percent and a percentage point from last season.
• The other countries that are expected to register a decline in production in the 2018/19 wheat production season are China, India, Ukraine and Kazakhstan. This is partly underpinned by an expected reduction in area planted and prospects of unfavourable weather conditions in some regions.
• Meanwhile, Australia and Canada are expected to receive fairly good harvests despite the unfavourable weather conditions experienced last week. The IGC forecasts Australia and Canada’s 2018/19 wheat production at 24 million and 31 million tonnes, up by 15 percent and 4 percent from the previous season, respectively.
• Overall, from a global perspective, the aforementioned potential decline in production will somewhat be offset by increases in Canada, Australia and Argentina. The IGC forecasts 2018/19 global wheat production at 748 million tonnes, down by 2 percent from the previous season.
• Back on home soil, the weather remains a key focus in winter wheat growing regions. The winter wheat planting has already been completed in regions around Swartland and Overberg. The crop has emerged, thanks to light showers received in the past few weeks, although these were not sufficient to improve subsoil moisture levels. The Western Cape province needs to receive intense and persistent rainfall for subsoil moisture to improve, which will, therefore, benefit the new season crop.
• The areas that have not made notable progress regarding planting is the Southern Cape due to persistent dryness.

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There are reports of deteriorating wheat crop conditions in the Black Sea region due to persistent dryness, particularly in the southern parts of Russia. In the third week of May 2018, the International Grains Council estimated Russia’s 2018/19 wheat production at 75 million tonnes, down by 12 percent from the previous season. This estimate did not factor in the recent weather dynamics. Therefore, there might be a further downward revision in the next monthly update.

The other countries within the Black Sea region that are set to register a decline in 2018/19 production season are Ukraine and Kazakhstan, where harvests are estimated at 27 million and 14 million tonnes, respectively down by a percentage point and 7 percent from the previous season.

From a global perspective, the aforementioned potential decline in production will slightly be offset by increases in other countries such as Canada, Australia and Argentina, amongst others. The USDA forecasts 2018/19 global wheat production at 742 million tonnes, down by 2 percent from the previous season.

Back on our home soil, the weather remains a primary focus as the winter wheat crop is at early stages of development in the Western Cape province. Last week, the Swartland region received good showers of between 20 and 40 millimetres, which bodes well with the crop at the current stages of its development.

In the Overberg region, the crop is also in good conditions, thanks to the recent showers. In the Southern Cape region, the planting activity is almost complete, also boosted by slight improvement in soil moisture. This is also evident in the province’s dam levels which averaged 19 percent in the week of 28 May 2018, up by 2 percentage points from the previous week and a percentage point from the corresponding period last year (see Map below).

With that said, it is not all rosy, while the recent showers have slightly improved topsoil moisture, the province needs intense and persistent rainfall in order to replenish subsoil moisture, which will then benefit the crop.

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The Western Cape and Free State are key wheat producing provinces in South Africa, accounting for 83 percent of the estimated area of 500 500 hectares for the 2018/19 production season.

The planting activity is still at its initial stages in the Free State province but should gain momentum within the next couple of weeks. The winter wheat crop in the Free State province is produced in both dryland and irrigation areas. Fortunately, the summer rainfall has improved soil moisture levels across the province which bodes well for the new season. Moreover, the irrigation areas could also have a good season as dams are almost at full capacity across the province (see Map below for details on dam levels).

As indicated in yesterday’s note, the planting activity is complete in Western Cape province. The newly emerged crop in areas that planted early in the season, Swartland and Overberg regions, is in good condition, following good showers in the past couple of days. This week could also bring rainfall in the province, but will most likely be concentrated in areas around Helderberg, Swartland, Winelands and western parts of Overberg. This means that there could also be minimal improvements in provincial dam levels, which averaged 24 percent on 04 June 2016, up by 6 percentage points from the corresponding period last year.

While the forecast rainfall is a welcome development which will slightly improve topsoil moisture, the Western Cape province still needs intense and persistent rainfall in order to sufficiently improve subsoil moisture and support the wheat crop in the coming months. Fortunately, there is a possibility of such rainfall within between this month and August 2018 .

Aside from the domestic production developments, the focus today will be on the USDA’s World Agricultural Supply and Demand Estimates report. Last month, the agency placed 2018/19 global wheat production estimate at 748 million tonnes, down by a percentage point from the previous season. The reduction in production was linked to expectations of a relatively lower harvest in the EU, Ukraine, India and Russia.

Click HERE to read the full report by Wandile Sihlobo

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Click HERE to read the full report by Wandile Sihlobo

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