He also provides more information about the latest developments in the agricultural sector. 

Here is Sihlobo...

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In this week’s insert Sihlobo shares that the latest data in South Africa's agricultural sector supports the view that the 2020/21 production season could potentially deliver one of the largest harvests on record.  

“This past week, the country's Crop Estimates Committee (CEC) released its first planting estimates data, which show total summer grains plantings for 2020/21 at 4.2 million hectares, up by 6% from the 2019/20 season.

“This dataset comprises maize (white and yellow), soybeans, sunflower seed, groundnuts, sorghum and dry beans. There is an expansion in most crops, except sunflower seeds, whose plantings declined by 5% year on year (y/y) to 473 300 hectares, which would be the smallest area in nine years. This decline is mainly due to some hectares being shifted to white maize plantings in the western regions of South Africa because of favourable prices.

“As we have commented in various notes, the weather conditions across South Africa have generally been favourable since the start of the production season in October 2020. Since then, the widespread rains allowed plantings to commence on time, except for a few Limpopo regions, specifically the Springbok plains, which were drier than most areas of South Africa. Nevertheless, the past week's rains have changed fortunes even for those more parched Springbok plains of Limpopo,” says Sihlobo.

He further adds that in the Free State, where the crop was generally in good condition before the past week's rains, they worry about potential damages, especially in farms around the Bultfontein, Hoopstad and Wesselsbron areas.

“In the week ahead, these regions will need sunshine to ensure that waterlogging is minimised and the crop recovers. Aside from the Free State, the crops in other provinces of the country appear in good shape, with expectations of fairly average to above-average yields.

“Such a prospect on increased area plantings reinforces our view that 2020/21 could be one of the country's best production seasons. After these recent rains, sunshine across the country would do better for the crop than additional showers,” he further adds.

Maize 

When looking at maize, Sihlobo explains that when a five-year average yield estimate of 5,30 tonnes per hectare to an estimated area planting of 2,78 million hectares (up 6% y/y) is applied, South Africa could have a harvest of 14,72 million tonnes in the 2020/21 season (15,41 million tonnes in 2019/20).

“This crop would be the fourth-largest maize harvest on record. However, a realistic high road scenario could also be constructed by assuming a possible yield of 6,00 tonnes per hectare on the back of favourable rainfall which has improved crop conditions.

“When South Africa received higher rainfall in the 2016/17 production season, the average yield was 6,40 tonnes per hectare. Therefore, a 6,00 tonnes per hectare yield assumption would not be far-fetched. Such a crop yield on an area of 2,78 million hectares would potentially lead to a 16,66 million tonnes harvest. This would be the second-largest maize harvest on record.

“The CEC will release its first production forecast on 25 February 2021. It is only then that we will have a better sense of where the crop will be. Still, the favourable crop conditions combined with an area planting of 2,78 million hectares, suggest that South Africa's maize harvest should be within the range of 14,72 and 16,66 million tonnes that we have provided above. This will be measured against an annual maize consumption of 11,47 million tonnes, meaning that South Africa will remain a maize net exporter,” explains Sihlobo.

However, he adds that the implications on maize prices will most likely be obvious around the end of this month and into March 2021.

“Over the past few months, the weaker domestic currency, growing demand for South Africa's maize in the Southern Africa region and the Far East, coupled with generally higher global grain prices provided support to the domestic maize prices.

“We think the domestic crop conditions will matter more for price movements from the end of February than it has been the case over the past few months. Still, the scale of Cyclone Eloise's damage to Southern Africa's maize (Mozambique and Zimbabwe), which is yet to be fully quantified, will likely have implications on the domestic market,” adds Sihlobo.

Soybeans

Soybeans are expected to offer an average five-year yield of about 1,82 tonnes per hectare and an area of 806 000 hectares that farmers planted. Sihlobo says the overall harvest could amount to 1,47 million tonnes.

“This is up by 18% y/y and would be the second-largest harvest on record. Like maize, we think that a crop of this size is plausible, given the favourable agricultural conditions. This, however, would not necessarily result in prices cooling off from current highs of R9 600 per tonne (up 63% y/y).

“The underlying price drivers are somewhat similar to those underpinning the maize market. Nevertheless, unlike maize, an increase in the soybean harvest will still not change the fact that South Africa imports around half a million tonnes of soybean meal. The country will always be dependent on imports, even at these harvest levels, to meet the growing demand for soybean meal by the poultry sector,” says Sihlobo.

Sunflower seed

He states that the sunflower seeds harvest could be 638 955 tonnes when using a five-year average sunflower seed yield of 1,35 tonnes per hectare with an intended area planting of 473 300 hectares. Sihlobo adds that this crop would be down by 19% y/y and from the five-year average production.

“In sum, South Africa's agricultural production outlook remains buoyant, thanks to increased plantings and favourable weather conditions.

“What will be crucial this coming week and the week after that, is sunshine over the country's summer crop-growing regions. Additional rainfall at this point would most likely cause waterlogging which, in turn, would undermine the yields.

“An essential date for official production estimates is 25 February 2021. The forecast to be published on that day will likely provide a more precise direction for domestic grain prices and food price inflation over the coming months. But the data we have thus far provides comfort that South Africa could have yet another good summer crop production season in 2020/21,” concludes Sihlobo.

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