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

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In this week’s insert, Sihlobo unpacks what the market views are on the 2021/22 global and domestic grains and oilseeds harvest.

“The closing session of last week’s Agbiz Grain Symposium offered an opportunity to explore global and domestic grains market developments. The central global theme around production was that the 2021/22 season seems set to show recovery across all major grains and oilseeds.

“This was echoed by the International Grain Council (IGC) on 23 September when the institution released its monthly update, placing the 2021/22 global grains and oilseeds production estimate at 2,29 billion tonnes, up by 4% from the previous season.

“The expected recovery in maize, wheat, rice and soybeans production is the primary driver of this forecast. Still, rising consumption from the animal feed industry and general industrial use mean that the 2021/22 global grains and oilseeds stocks could remain tight at 599 million tonnes, which is roughly unchanged from the previous season’s level of 598 million tonnes,” says Sihlobo.

He explains that the latter point has implications for prices in the coming months.

“Tighter stocks could mean that prices will remain generally volatile in the coming months as the market sensitivity to changes in weather conditions in the major producing areas around the globe will be high. This, however, is not a concern for the Northern Hemisphere, where the grain-growing conditions are promising, and the crop has matured in most regions, with harvesting in the early stages in parts of the US.

“Nevertheless, the same cannot be said about the Southern Hemisphere, where the planting activity for the 2021/22 season will only gain momentum at the start of October. The major risk for this region is the expected La Niña weather event which brings mixed experiences across regions. South America and East Africa typically experience dryness during La Niña episodes.

“Meanwhile, the Southern Africa region would usually receive above-normal rain. We experienced a similar phenomenon in the 2020/21 production season, and Brazil’s crops suffered, mainly in the maize-growing areas,” says Sihlobo.

He adds that a second consecutive year of below-normal rainfall in Brazil and Argentina would mean an increased risk of poor yields and consequently a relatively lower harvest than the 2020/21 production season.

“Notably, a poor season would change the optimistic global production view that the IGC and the likes of the United States Department of Agriculture (USDA) have already painted. Brazil and Argentina collectively account for 14% and 50% of global maize and soybean production, respectively.

“Therefore, the concerns about crop conditions in this region could have implications on both global supplies and, subsequently, prices. In all the major risks that we discussed with analysts at last week’s Agbiz Grain Symposium, the primary point that was widely shared as a risk to keep an eye on was South America’s weather for this reason.

“Within the African continent, one such region is East Africa, where the La Niña weather event also correlates with below-average rainfall from December to February. This is a period just before the summer grains planting, which is typically in February of each year.

“Therefore, the current La Niña event has raised the risk of a potential poor harvest for Kenya, Somalia and Ethiopia. While some countries in the African continent had large yields in the 2020/21 production season, these particular countries saw a decline in production and some production stagnation from the previous 2019/20 season because of poor rainfall.

“The 2020/21 summer season was a La Niña period, although the expectations for the 2021/22 season are pointing to a weaker event compared with the previous season. The expected La Niña episode also mean that these particular African countries will likely still depend on maize imports in the 2022/23 marketing year (this corresponds with the 2021/22 production year).

“Nevertheless, securing maize imports will not be a daunting task as the Southern Africa region will likely have yet another year of a large harvest, all else being equal.”

Furthermore, Sihlobo says the discussions about the South African grains and oilseeds production prospects ahead of the 2021/22 season were generally positive.

“The recent update on the La Niña points to an at least 50% chance of occurrence in the 2021/22 summer season, and this would provide conducive production conditions, as we have previously stated. This favourable weather outlook, along with higher commodity prices and strong tractor sales, is an important signal for a good season, as we have previously stated.

“Regarding pricing, the domestic market will again likely take a cue from the global dynamics as in the past two years. The domestic market could be well supplied with prices possibly remaining at export parity levels.

“At these levels, the global market determines the price movements, as is the case now. This applies to all major grains and oilseeds. While we expect the global prices to soften from levels we saw much of this year, we doubt that prices could be back to 2019 levels because of the tighter stocks and the production risk in South America that we discussed above.

“Also worth noting is that South Africa’s summer grain and oilseeds planting could average around 4,2 million hectares in 2021/22 production season with slight switches between some crops. This is roughly in line with the 2020/21 production season.

“With that said, we will have a reliable estimate on 27 October 2021 when the national Crop Estimates Committee releases its farmers’ intentions to plant data. At this period, we will be able to formulate a view on the potential size of the crop in the 2021/22 season.

“Notably, while our discussion focused on grains as we drew from conversations at the recent Agbiz Grain Symposium, these favourable production conditions will likely be a reality across the agricultural subsectors – horticulture (fruit and vegetables), livestock and the entire field crops. Provided that we are emerging from another wetter season in 2020/21, there is a likelihood of higher yields for most crops and fruits in the upcoming 2021/22 season,” concludes Sihlobo.

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