Agbiz Morning Market Viewpoint on Agri-Commodities: 27 February 2017

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February 25, 2017
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February 28, 2017

Agbiz Morning Market Viewpoint on Agri-Commodities: 27 February 2017

Highlights in today’s morning note

Maize:

Last week, the International Grain Council (IGC) revised down its estimate for South Africa’s 2016/17 maize production by 400 000 tonnes from the previous estimate to 12.5 million tonnes. This is 61% higher than the previous season’s crop. Moreover, it is well above Agbiz’s estimate of 11.9 million tonnes. Tomorrow the National Crop Estimate Committee will release its first official production estimate for this season.

Most parts of South Africa received high rainfall over the past two weeks and that has raised concerns about possible delays in early producer deliveries, as well as (possible) complications in crop growing conditions. With that said, at the moment the maize crop is still in good condition throughout the country.

On the global front – this morning Chicago maize price was down by 0.27% from the level seen at midday Friday, owing to large global supplies.

IGC forecasts 2016/17 global maize production at 1.049 billion tonnes, up by 8% from the previous season. This is primarily tied to production increases in South Africa, Brazil, India, the US and Russia where production is set to reach 12.5 million tons (+61% year-on-year (y/y), 87.4 million tons (+31% y/y), 26 million tons (+15% y/y), 384 million tons (+11% y/y) and 14.5 million tons (+10%), respectively.

Wheat:

South Africa had a good season this year, with wheat production up by 31% from the previous season to 1.89 million tonnes. Tomorrow, the National Crop Estimate Committee will release its seventh production estimate. Given the producer deliveries activity in past few weeks, we believe that the seventh production estimate could be slightly revised up to 1.90 million tonnes.

On the global front – this morning Chicago wheat price was down by 1.60% from the level seen at midday Friday, also pressured by large global supplies.

The IGC forecasts 2016/17 global wheat production at 752 million tonnes, which is 2% higher than the previous season. The key drivers of this uptick are Russia, the US, Australia, Canada, Argentina and Kazakhstan, with production at 72.5 million tons (+18% y//y), 62.9 million tons (+12% y/y), 35.1 million tons (+45% y/y), 31.7 million tons (+15% y/y), 16 million tons (+42% y/y) and 15 million tons (+9% y/y), respectively.

Soybean:

Despite the high rainfall in the past few weeks, South Africa’s soybean crop is still in fairly good condition . Weather forecast for the week ahead shows a possibility of light showers across the main soybean producing areas of the country. This could potentially worsen the lingering concerns that wet weather conditions might possibly lower the quality of the crop (particularly in the areas that planted around October 2016). With that said, more about this will unfold as the season progresses.

In global markets – it is interesting to note that roughly 82% of global soybeans is produced by the US, Brazil and Argentina, which makes developments in these particular countries important in the soybean market. IGC forecasts 2016/17 global soybean production at 336 million tonnes, which is 7% higher than the previous season. Moreover, the 2016/17 soybean ending stocks are estimated at 35 million tonnes, which is 8% higher than the previous season.

SA Fruit:

On Friday, the Johannesburg Fresh Produce Market ended the day mixed. The apple price was up by 14.10% from the previous day’s level, closing at R8. 98 per kilogramme. This was due to a 22% decline in stock levels to 113 803 tonnes. The bananas price was up by 3.44% from the previous day’s level, closing at R6.61 per kilogramme, also supported by a notable decline stock level to 100 834 tonnes (which is a 51% decline from the previous day).

Meanwhile, the oranges market saw significant losses of 43.32% from the previous day’s level, with the price closing at R10.06 per kilogramme. This came on the back of a recovery in stock level to 13 116 tonnes (from 5 685 tonnes the previous day).

Potatoes:

Last week’s wet weather conditions slowed potatoes harvest activity, and that subsequently led to lower producer deliveries in the market. On Friday, the South African potatoes market gained 1.43% from the previous day’s level due to lower stock level, closing at R43.32 per bag (10 kg bag).

SAFEX Beef:

The SAFEX beef market ended the week on a quiet note, with prices unchanged from the previous day, closing at R44.00 per kilogramme. This was largely on the back of reduced activity at the stock exchange.

Over the past few months, the South African beef industry saw higher slaughtering rate as farmers were unable to maintain their herds due to elevated feed costs (on the back of the drought), as well as seasonal demand during Christmas holiday. Data from the Red Meat Levy Admin shows that in December 2016, South African farmers slaughtered 299 767 head of cattle, which is 22% higher than the previous month.

The recent rainfall and slowing weekly slaughtering activity seem to suggest that farmers have started rebuilding their herds. Therefore, we could see support in meat prices over the medium to long term as slaughtering rate is likely to decline substantially during this process of recovery.

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