When we look at SA’s agricultural and food import data for the past five years, wheat ranks as the second-most valuable product after rice. It accounted for 6% ($417m) of the country’s annual average agricultural imports of $6.6bn during this period.
This is equivalent to about 1.5-million tonnes in volume terms over the five-year period, which is about half of SA’s annual average wheat consumption. This time around, with the Russia-Ukraine war and drought in parts of the northern hemisphere still major concerns, there is some worry about global wheat supplies in general and SA’s domestic wheat production prospects in particular.
From a global perspective, recent data from the International Grains Council (IGC) provide some comfort. The IGC forecasts production at 792-million tonnes for the 2022/23 season, which would be an increase of 1% year-on-year (y/y) if achieved. With industrial use of wheat expected to slow this year, while feed and food use might increase marginally, global stocks are projected at 286-million tonnes. This is up 2% y/y and suggests prices could remain at current levels from now on.
At present wheat prices globally are at levels below $450 per tonne, which is a far better place than the months just after Russia invaded Ukraine, when prices surged to more than $500 per tonne between April and June.
The improvement in global wheat production is mainly supported by expected large harvests in Russia (up 25 y/y), the US (up 8%), Canada (up 56%), Kazakhstan (up 16%), China (up 1%), Turkey (up 5%) and the UK (up 4%).
In the case of Russia, uncertainly remains about whether the country will be able to efficiently export wheat to key consuming regions while it is at war with Ukraine and in conflict with the global community. Nevertheless, the expected improvement in the harvest in the countries listed above has helped to overshadow the decline in the harvest in the EU, Argentina, Australia, Ukraine and India.
With everything considered, these global production estimates suggest SA will be well positioned to procure the required imports in the 2022/23 marketing year, which started this month. SA’s wheat requirements for this new marketing year are forecast at 1.5-million tonnes, roughly unchanged from the previous year.
This import forecast is underpinned by the belief that SA could have another decent wheat harvest in the 2022/23 season. Farmers lifted the area plantings to 566,800 hectares from 523,500ha the previous year. This was on the back of attractive prices following a surge in wheat prices after Russia invaded Ukraine, as well as good soil moisture in wheat-growing regions of the country.
As such, current production estimates are also comforting, pointing to a harvest of about 2.2-million tonnes. Again, this is roughly the same as the 2021/22 season, which was the largest harvest in two decades. These figures show that most of SA’s wheat needs will be produced domestically this year. The Western Cape, Free State, Northern Cape and Limpopo are the largest producing provinces of this season’s crop, in that order. Outside the Western Cape the crop in other provinces will benefit from irrigation.
Importantly, we still see a possible upward revision of the domestic wheat harvest if the Western Cape, which produces nearly half of domestic wheat, receives good rains over the coming weeks and the weather conditions remain favourable in other producing provinces.
Overall, global wheat supplies are in a better position than many had feared, especially when there was a real prospect of serious fertiliser shortages in some regions. The world has managed to adjust, and countries with the capacity have improved domestic production to stabilise global supplies.
Still, Russia remains a significant wheat producer, making up 12% of the expected 792-million tonne global harvest. This means events affecting the Black Sea will continue to matter for the global wheat market and price dynamics.
Importantly, we expect SA to remain comfortable regarding wheat supplies and import activity during the 2022/23 marketing year, which ends in September 2023. The estimated import requirement of 1.5-million tonnes could be revised if production increases, benefiting from good weather in the coming weeks.
The sideways price movements we expect in the global environment could also be a reality here in SA. The domestic wheat price ended September 2022 at R7,120 per tonne. This is significantly lower than the price of more than R8,000 per tonne we saw a few months ago. Still, the current spot price of around R7,120 per tonne is 21% up on the end of September 2021.
This means wheat prices are likely to stabilise at relatively higher levels than last year, which will help farmers who procured inputs at elevated levels. But the opposite is true for the consumer, whose position is worsened by higher fuel prices and rising interest rates.
• Sihlobo is chief economist at the Agricultural Business Chamber of SA and author of “Finding Common Ground: Land, Equity, and Agriculture”.
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