Global Dry Conditions Are Affecting Crop Production

South Africa is a net importer of wheat and soybean products, therefore global factors tend to influence the domestic prices of these commodities.

21/07/2017 03:56 SAST | Updated 21/07/2017 08:56 SAST
Philimon Bulawayo/ Reuters
Martha Mafa, a subsistence farmer, stacks her crop of maize in Chivi, about 378km (235 miles) south-east of the capital Harare, April 1, 2012. Zimbabwe faces a huge grain deficit this year after a third of the current maize crop was written off due to a prolonged dry spell.

For the international grains and oilseeds market, the weather is currently the only game in town and may have notable implication on the South African market. This goes for the Americas and Europe too, and not in a good way from a crop production perspective. There have been reports of persistent dryness in the US, Europe and Black Sea region. This comes as spring crops are approaching pollination stage, which requires moisture.

In the US, persistent dryness is starting to show an effect on crops. At the time of writing (July 18), data from the USDA showed that 64 percent of maize crop was rated good or excellent, which is 12 percent below the corresponding period last year. Moreover, only 34 percent of spring wheat was rated good or excellent, compared to 69 percent in the same period last year. Some 61 percent of the soybean crop was rated good or excellent, 10 percent below last year. It is not much different in some parts of the European Union.

The dry conditions have caused notable rally on prices. On Friday, 7 July 2017, the US Hard Red winter wheat and spring wheat prices were up by 36 percent and 21 percent respectively, compared with the corresponding period last year, closing at US$250 per tonne (R3,335/tonne) and US$215 per tonne (R2,867/tonne). Meanwhile, maize was still 2 percent lower compared to the same period last year, trading around US$164 per tonne (R2,187/tonne). Soybean price was also down by 15 percent compared to levels seen on 07 July 2016.

South Africa is a net importer of wheat and soybean products, therefore global factors tend to influence the domestic prices of these commodities. Evidently, in the second week of July 2017, the South African grains and oilseeds market saw notable gains, with prices up by an average 6 percent from the previous week. A recent report from the International Grain Council (IGC) shows sings a parallel trend. The IGC revised down its estimate for 2017/18 global wheat production by 3 percent to 735 million tonnes.

The US, Russia, Canada, Australia, Ukraine and Argentina are the key drivers of this decline, which is caused by persistent dry weather conditions. Maize shows a similar story, as the IGC data indicates that 2017/18 global maize production could decline by 4 percent from the previous season to 1.025 billion tonnes. This, too, is on the back of expected lower crop in the US, EU and South America. Global soybean production in 2017/18 is estimated at 348 million tonnes, down by 1 percent from the previous season. Consistent with other commodities, the declining trend will be led by the US and South America.

It remains to be seen whether there will be an improvement in weather conditions over the next few days or if this season will end on a downbeat note. At the time of writing, the weather models for the US Midwest still projected dry conditions. Meanwhile, the Black Sea region and some parts of Europe could receive showers, which will most probably improve crop conditions. For South Africa, any price increases in the global market will be for the benefit of local farmers, as these could spill over to the SAFEX market. I will monitor the developments over the near term and perhaps write an update if necessary. Stay tuned.