Highlights in today’s morning note
Most provinces of South Africa received rainfall this weekend and are likely to see additional showers this week. This bodes well with crop growing process as it is largely in the pollination stage that requires fairly wet weather conditions.
Overall, South Africa’s maize crop is in good condition and that supports our view that this year’s crop could at least reach 11.9 million tonnes, which is a 53% annual increase.
Regionally, there are some challenges in maize production. According to the Food and Agriculture Organisation of the UN (FAO), Zimbabwe is likely to be the hardest hit by an outbreak of the Fall Armyworm, with up to 130 000 hectares of maize fields likely to be affected. In Zambia, about 90 000 hectares of maize are reportedly affected and Namibia has about 50 000 hectares affected .
These respective countries produce maize that is not genetically modified (GM), which puts them in a more precarious position than South Africa (which grows roughly 85% GM maize). Moreover, a considerable volume of maize is produced by smallholder farmers in remote areas, which could slow pesticide distribution. That said, more will unfold over the coming months.
Mozambique has been hit by Cyclone Dineo and that has raised the risk of flooding and crop damage in most areas. At this stage the scale of the damage is unclear, but we will be monitoring the developments over the coming days.
There is some level of uncertainty in the South African wheat market which stems from the import tariff. Earlier this month, data from the South African Grain Information Services (SAGIS) showed that the newly calculated wheat import tariff is R1 190.19 per tonne, which is 25% lower than the current level of R1 591.40 per tonne.
However, this newly calculated duty will not be active until published in the Government Gazette. At this point, it is unclear when this publication will be, as there is no formal timeframe that guides the processes.
At the same time, there is an ongoing review of import tariffs by the National Treasury, with the outcome expected later this quarter.
The new season crop could face weather challenges. Recent reports from the World Meteorological Organisation suggest that El Nino weather pattern could return during the second half of this year, with a probability of 35-40%. This weather event is usual accompanied with dryness in South Africa. With that said, it is still early stages, we will continue to monitor the developments.
Over the past few days, most soybean growing areas received high rainfall, which bodes well with the crop as it is still in growing stages. The crop is in good condition and set to benefit from expected favourable weather conditions within the next two weeks. These developments support our view that South Africa’s soybean crop could reach at least at 867 520 tonnes – a 17% annual production increase .
In global markets – this morning Chicago soybean price was down by 0.29% from the level seen at midday Friday, owing to disappointing export sales. Last week the US weekly soybean export sales reached 890 000 tonnes, which is well below market expectations.
Elsewhere, South America’s weather developments remain of much interest in the global soybean market. The Recent forecast suggests that the region could see widespread rainfall within the next eight days.
Although this bodes well with Argentina’s soybean crop that is still at early growing stages, the Brazilians that are at harvest stages could experience delays due to wet weather conditions. By end of last week, Brazilians had harvested 25% of their soybean crop. The USDA forecasts Brazil’s 2016/17 soybean production at 104 million tonnes, which is 8% higher than the previous season.
The western parts of South Africa received high rainfall over the past few days and the crop is in relatively good condition. There were reports of Sclerotinia in some sunflower seed fields in the North West province, but with pesticides in the market, the farmers should be in a better place to manage the disease.
Overall, if the country continues to receive consistent rainfall pattern over the next few weeks, then this season’s crop should at least reach 798 960 tonnes, which is 6% higher than the previous season.
In global markets – the EU’s sunflower seed market gained ground during Friday’s trade session, largely supported by strong global demand. The price reached US$420 per tonne, which is 0.96% higher than the previous day.
The same trend was observed in the Black Sea region’s sunflower seed oil market, where prices gained 0.13% from the previous day’s level, closing at $761 per tonne. This was also supported by strong global demand. Recent reports showed that in the first 2-weeks of February, Ukraine exported 164 100 tonnes of sunflower oil and 139 700 tonnes of sunflower meal to an unknown destination.
Over the past few weeks potatoes, the price has been on a downward trend due to increasing stocks on the back of ongoing harvest activity. Friday was no different, the market started off with high stock levels of 1 021 033 bags (10 kg bags) which added bearish pressure, with a price closing at levels below R30 per bag (10 kg).
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