Agbiz Morning Market Viewpoint on Agri-Commodities: 08 February 2017

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February 9, 2017

Agbiz Morning Market Viewpoint on Agri-Commodities: 08 February 2017

Highlights in today’s morning note

Weather:

The weather forecast still shows a possibility of light showers across many areas of South Africa within the next eight days. These expected showers vary between 16 and 50 millimetres and could marginally improve soil moisture and dam levels, and in turn, benefit summer crops. 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).

Maize:

With the exception of the weekly maize trade data, there were no key events in South Africa’s maize market during yesterday’s trade session. In the week ending 03 February 2017, South Africa’s maize imports came in at 85 486 tons (about 80% of this was yellow maize from Ukraine and 20% was white maize from the US). This placed South Africa’s 2016/17 yellow maize imports at 1.28 million tons – 69% of the seasonal import forecast. Moreover, South Africa’s 2016/17 white maize imports stand at 673 076 tons – 79% of the seasonal import forecast.

In the same week, South Africa exported 12 772 tons of maize to regional markets (Africa), with 51% share being yellow maize and 49% being white maize. Overall, South Africa’s 2016/17 total maize exports currently stand at 623 519 tons (61% is white maize and 39% is yellow maize).

For the new season, South Africa’s maize crop is in good condition in most areas and set to benefit from forecast rainfall over the coming weeks. Assuming that the country 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 Fall Army Worm remains a risk, however, there are pesticides already approved to control the pests in maize and other crops. Over the coming weeks, we will monitor the developments as and when they emerge.

On the global front – this morning Chicago maize price was up by 1.10% from the level seen at midday yesterday, following the USDA’s announcement of 128 000 tons of US maize sale to Japan.

Wheat:

There were no major events in the domestic wheat market, except the release of weekly wheat trade data. Imports for the week ending 03 February 2017 came in at 49 137 tons (52% from the Czech Republic and 48% Poland). This was double the volume seen the previous week. Overall, South Africa’s 2016/17 total wheat imports stand at 187 732 tons, which is 13% of the seasonal import forecast (1.5 million tons).

Although a net importer of wheat, South Africa continues to export wheat to regional markets. In the week ending 03 February 2017, total exports reached 4 616 tons, all went to regional markets (Africa). Overall, South Africa’s 2016/17 total wheat exports currently stand at 27 884 tons. About 53% of this went to Zimbabwe, 15% to Namibia, 10% to Botswana, 11% to Lesotho, 7% to Mozambique, and 4% to Swaziland.

On the global front – this morning Chicago wheat price was up by 2.13% from the level seen at midday Friday, ahead of tomorrow’s USDA World Agricultural Supply and Demand Estimates report (WASDE).

Soybean:

In global markets – this morning Chicago soybean price was up by 0.67% from the level seen at midday yesterday, ahead of tomorrow’s USDA WASDE report.

Weather forecast shows a possibility of rainfall this week across South America, which is favourable for the crop. Over the past few days, weather developments in South America have been the key driver the global soybean market.

Of late, a number of private analysts have revised up their 2016/17 soybean production estimates for Brazil. The most recent one is Soybean & Corn Advisor, which placed the country’s production estimate at 104 million tons, up by 9% from the previous season. This is well below Safras & Mercado Consultancy and Informa Economics’ estimates, which were placed at 107.1 million tons and 106.5 million tons, respectively (compared to 95.4 million tons in 2015/16).

Also worth noting is that soybean harvest process is underway in Brazil. Data from Sunseedman shows that the process was at 13% complete on the 7th of February 2017. Therefore, the forecast rainfall later this week could potentially delay the process.

Sunflowerseed:

In global markets – yesterday was fairly quiet for both sunflower seed and sunflower oil market. The EU’s sunflower seed prices remained unchanged from the previous day’s level, closing at US$423 per ton. Moreover, the Black Sea region’s sunflower seed oil market also remained unchanged from the previous day’s level, closing at US$759 per ton.

According to data from Sunseedman, on the 7th of February 2017, Argentina‘s sunflower seed harvest was estimated at 36% complete, which is well ahead of the progress seen in the corresponding period last year. With that said, weather forecasts for most parts of the country show a possibility of rainfall this week, which could possibly slow the harvest process.

Argentina’s 2016/17 sunflower seed crop is estimated at 4.0 million tons, from 2.9 million tons in 2015/16. This comes on the back of a 48% annual increase in area plantings to 2.0 million hectares. The key driver behind the increase in area planted was largely the removal of export taxes, which provided an incentive for farmers.

Besides the developments in South America, there were no key events in the global sunflower seed landscape. Generally, the Black Sea region had a good season. Sunseedman estimated Ukraine’s 2016/17 total sunflower seed production at 14 million tons – up by 17% from the previous season. Moreover, Russia’s 2016/17 sunflower seed production is estimated at 11 million tons, which is a 10% annual increase.

Potatoes:

The South African potatoes market gained ground during yesterday’s trade session, with the price up by 6% from the previous day level, closing at R41.13 per bag (10 kilograms). These gains were largely on the back of lower stock levels that was seen at the start of the session.

Moreover, during yesterday’s trade session, the market saw a slight uptick in producer deliveries and that led to a 12% increase in daily stock level to 663 483 bags (10 kg bags).

South African Fruit:

Yesterday the Johannesburg Fresh Produce Market saw widespread gains. The apple price was up by 9% from the previous day’s level, closing at R7.80 per kilogram, largely driven by a strong buying interest.

The bananas market gained 8% from the previous day’s level, closing at R8.10 per kilogram due to relatively lower stock levels of 242 714 tons – a 5% decline from the previous day.

Lastly, the oranges price saw marginal gains of 0.34% from the previous day’s level due to relatively lower stock levels of 18 644 tons and strong buying interest.

SAFEX Beef:

It was again a quiet day in the SAFEX beef market, 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. Recent data from the Red Meat Abattoir Association showed that 16 975 head of cattle were slaughtered in the week ending 27 January 2017 . This was still 5% higher than the same period last year, but well below the higher levels that were seen the previous months.

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 suspect 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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