High stock levels, low demand put grain farmers in a tight spot

Significant weather improvements for Southern Hemisphere producers, ample global grain and oilseed supplies as well as waning Chinese demand continue to put pressure on global grain and oilseed prices, according to Absa AgriBusiness.

While previous production seasons were associated with relatively low global grain and oilseed stock levels as a result of the persistent La Niña weather phenomenon that led to supply woes for major producer Argentina, ample supplies in the 2023/24 season are expected to bring some reprieve and lower prices. This piece considers several market dynamics and shares expectations for local grain and oilseed prices over the coming months.

MAIZE

Chicago Board of Trade (CBOT) maize prices continued to lose momentum in January, decreasing by 2,7% monthon-month (see Graph 1), underpinned by expectations of a bumper harvest in Argentina and fast planting in Brazil.

Production in Argentina is expected to increase by approximately 60% year-on-year in the 2023/24 production season, attributed to good production conditions. Brazilian farmers have already planted 27% of the area intended for the production for Safrinha maize.

SAFEX yellow maize prices decreased by 1,2% month-on-month and SAFEX white maize increased by 1,1%. While local production conditions have significantly improved for the eastern parts of the country, the western parts, where white maize is predominantly produced, experienced below-average and high rainfall variation within close geographical proximity. This has led to divergent price trends in the region.

Both SAFEX white and yellow maize prices are notably lower compared with a year ago, decreasing by 9,4% and 17% year-on-year. This decline is attributed to lower global prices, which decreased by 34,8%, as well as a weaker exchange rate. Production prospects remain favourable due to better-than-expected weather conditions for most of the summer rainfall regions. This is further supported by good soil moisture content for most of the summer grain-producing regions.

As a result, SAFEX yellow maize prices are anticipated to follow a slight decreasing trend for the next few months while SAFEX white maize is expected to trade sideways due to lower rainfall in the western parts of the country. Early frost presents an upside price risk.

WHEAT

CBOT wheat prices decreased by 3,4% month-on-month (see Graph 2), weighed by lower Russian wheat prices that continue to dominate the export market. The dollar strength and lacklustre global wheat import demand continue to weaken CBOT wheat prices.

THE CHICAGO BOARD OF TRADE WHEAT PRICE DECREASED BY 20,7% YEAR-ON-YEAR

Compounding this is the increased global wheat supplies on the back of the arrival of recently harvested supplies in the Southern Hemisphere countries.

In yearly terms, CBOT wheat price decreases were more pronounced, decreasing by 20,7%.

The Crop Estimates Committee (CEC) revised local wheat production slightly down at the end of January due to yield decreases for the major producing provinces, primarily due to excessive rains during harvest that led to lower yields.

SAFEX wheat prices decreased by 1,2% monthon-month following global price decreases. In yearly terms, SAFEX wheat prices decreased by 9,4%. Wheat prices are expected to continue trading around the R6 100/t mark.

OILSEEDS

CBOT soya bean prices decreased by 3,2% month-onmonth (see Graph 3) on the back of expectations of ample Southern Hemisphere supplies, driving prices to lows last seen in 2021. Brazil’s soya bean crop suffered at the beginning of the production season and the output is likely to decline. However, as with maize, production in Argentina is expected to significantly increase.

Compounding the CBOT soya bean price pressures is the waning Chinese demand on the back of a prolonged property crisis and cautious consumers. As a result, prices are significantly lower year-on-year, decreasing by 21,2%.

SAFEX soya bean prices decreased by 5,6% monthon-month, underpinned by global price decreases as well as improved local production conditions. SAFEX sunflower prices decreased by 4,4% month-on-month, underscored by easing global oilseed prices as well as the expectation of increased local production for the current season as shown by the CEC’s preliminary area planted report. The report showed that the area planted for sunflower increased by 10% while that of soya beans decreased by 9,7%. SAFEX soya bean prices remain under pressure despite this decrease due to the previous season’s record harvest, which was significantly above the five-year average. SAFEX soya bean prices are expected to trade sideways for the coming months while SAFEX sunflower seed prices are expected to follow a slight decreasing trend on the back of good local production conditions.

Email Marlene Louw of Absa Agribusiness at marlene.louw@absa.africa.