Highlights in today’s morning note
The weather forecast shows a possibility of rainfall across South Africa within the next eight days. This expected rainfall varies between 16 and 70 millimetres and could improve soil moisture and dam levels, and in turn, benefit summer crops. Meanwhile, the western parts of the Western Cape and Northern Cape province could remain dry and warm over the observed period (see figure 1).
On Friday, the Department of Agriculture, Forestry, and Fisheries (DAFF) confirmed that the Fall Army Worm (FAW) was positively identified from samples collected in the Limpopo province. The damage reported so far is mainly on yellow maize as well as maize planted for seed production. 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.
Overall, 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) (see SA Grains and Oilseeds Outlook – 30/01/2017).
Regionally, recent reports from the Zimbabwe’s Commercial Farmers Union suggest that the country could possibly see improvement from last season’s output of 500 000 tons. That said, the recent heavy rainfall, fertilizer shortages and now armyworms remain a key risk that could potentially undermine the yields.
On the global front – this morning Chicago maize price was up by 0.27% from the level seen at midday Friday, owing to last week’s export sales of 1.14 million tons (well above market expectations).
On the global front – this morning Chicago wheat price was down by 0.46% from the level seen at midday Friday, owing to large global supplies. The International Grains Council forecasts 2016/17 global wheat production at 751.5 million tons, which is 2% higher than the previous season. Moreover, the 2016/17 global ending stocks are estimated at 235 million tons, which is 6% higher than the previous season.
Elsewhere, recent weather forecasts suggest that the colder conditions could return to the Black Sea region (Russia and Ukraine) this week, but sufficient snow cover should protect the wheat crop from winterkill. The region is the key supplier of wheat to South Africa, normally making up about a half of imported wheat, on average.
According to the International Grains Council, Russia’s 2016/17 wheat production could reach 72.5 million tons, which is 19% higher than the previous season. Meanwhile, Ukraine could see a 2% annual decline in their 2016/17 wheat production to 26.8 million tons. Overall, the Black Sea region is set to see a large wheat crop this season.
In global markets – this morning Chicago soybean price was down by 0.10% from the level seen at midday Friday owing to last week’s lower US soybean export sales. The weekly sales reached 623 900 tons, which is a lower end of market expectations.
In the absence of major news in the global soybean market, South America’s weather outlook has been a central focus. The conditions remain favourable in the region, with Informa Economics lifting its production forecast for Brazil’s 2016/17 soybean crop by 1.5 million tons from the previous estimate to 106.5 million tons. This is 12% higher than the previous season’s harvest.
Moreover, FC Stone also lifted their estimate for Brazil’s 2016/17 soybean production by 1.3 million tons from their January estimate to 104.1 million tons (slightly below Informa Economics’ estimate).
In Argentina, weather forecast remains favourable. The forecasts suggest that the northern regions could receive rainfall this week and that might further improve crop conditions as some regions were starting to experience heat stress. Informa Economics forecasts Argentina’s 2016/17 soybean crop at 55 million tons, which is 6% lower than the previous season.
In global markets – on Friday the EU’s sunflower seed market gained 0.48% from the previous day’s level, closing at US$422 per ton. The market was largely supported by strong global demand for sunflower seed products. Meanwhile, the Black Sea region’s sunflower seed oil market lost ground, down by 0.26% from the previous day’s level, closing at US$756 per ton.
Some parts of Argentina were dry and warm in the past few days, and that benefited sunflower seed harvest. According to the Buenos Aires Grains Exchange, in the week ending 02 February 2017, Argentina‘s sunflower seed harvest was estimated at 30% complete, which is 4% higher than the corresponding period last year.
The Argentinian 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% year-on-year uptick in area planting to 2.0 million hectares. The key driver behind the increase in area planted was largely due to the removal of export taxes, which provided an incentive for farmers.
The South African potatoes market lost ground during Friday’s trade session, with the price down by 3% from the previous day level, closing at R40.28 per bag (10 kilograms). These losses were largely on the back of higher stock levels (895 517 tons) that was seen at the start of the session.
South African Fruit:
On Friday, the Johannesburg Fresh Produce Market ended the day mixed. The apple price was down by 4% from the previous day’s level, closing at R7.43 per kilogram. These losses were largely on the back of lower buying interest, as well as relatively higher stock levels of 143 367 tons.
The oranges market lost 5% from the previous day, closing at R4.50 per kilograms, also pressured by relatively lower buying interest. Meanwhile, the bananas market gained 4% from the previous day’s level, closing at R6.82 per kilogram. This followed a 28% daily decline in stock levels to 189 922 tons.
On Friday, the SAFEX beef market gained ground, with prices up by 2% 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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