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Better global agricultural conditions continue on comforting food price path

Wandile Sihlobo
By Wandile Sihlobo
21 Jul 2024
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South Africa’s agriculture is part of the global agricultural market. Therefore, we must consistently pay attention to the production conditions of agricultural commodities globally as they affect our domestic prices and consumers.

The world endured elevated food prices in the past few years for various reasons, ranging from drought in major agricultural-producing regions of South America to the Black Sea wars.

But in recent months, global agricultural prices and consumer food prices have softened. Food prices globally are roughly 25% less than the peak levels reached in March 2022, which was right after Russia invaded Ukraine and caused much disruption and panic in the agricultural markets.

At the moment, global agricultural observers are shifting their focus to the new production season, which is 2024/25, of grains and oilseeds. Production has recently started in the northern hemisphere, which is in the summer season. Farmers may begin tilling the land in the southern hemisphere around October 2024.

Still, as early in the season as we are, and a lot yet to unfold, the International Grains Council (IGC) forecasts a decent harvest. For example, in its latest update, the IGC placed the 2024/25 global grains and oilseed production forecast at 2.3 billion tonnes, up mildly from the previous season. The stocks are expected to be healthy, around 582 million tonnes, although having declined somewhat from the 2023/24 season because of the expected increase in the industrial use of grains.

Encouraging


We see an encouraging outlook if we consider the significant grains such as rice, wheat, maize and soybeans. For example, the IGC forecasts a 1% year-on-year increase in the 2024/25 global rice production to 528 million tonnes. This is based on an anticipated large crop in all the major rice-producing regions, such as India, Vietnam, Thailand, the US, China, Pakistan, Indonesia, Bangladesh and the Philippines. Subsequently, the stocks could also increase by 1% to 175 million tonnes. 

The production prospects for 2024/25 global soybeans are also positive, estimated at 415 million tonnes, up by 6% year on year. This is based on the expected large harvest in the US, Brazil, Argentina, India and Paraguay. 

Still, given that nearly half of the production is by the southern hemisphere producers, specifically South America, we view these data as tentative until the start of the season in the region in about two months. Assuming the current estimates materialise, the 2024/25 global soybean stocks would lift by 16% year on year to 79 million tonnes. Such an increase in the harvest and supplies would add downward pressure on worldwide soybean prices, which is favourable for the animal feed industry.

Wheat and maize


A less optimistic view is in the major grains such as wheat and maize, although their supplies will remain at levels above average. For example, the IGC forecasts the 2024/25 global wheat production at 793 million tonnes, slightly lower than the 2023/24 season’s crop of 804 million tonnes. This is due to the expected production declines in the EU, UK, Ukraine and Russia. Overly wet weather conditions in these countries during the season are the reason for the anticipated poor yields. 

With food and industrial use of wheat expected to remain strong, the IGC placed the 2024/25 global wheat stocks at 261 million tonnes, down 3% year on year. Be that as it may, international wheat prices have not reacted to these expectations and have remained on a moderating path in recent weeks, which is a welcome development from a consumer perspective.

Moreover, while the southern hemisphere’s major maize producers will start the season only in October, the IGC’s preliminary estimates point to possible large harvests. For example, the 2024/25 global maize production is forecast at 1.2 billion tonnes, down by 0.2% from the previous season and well above the long-term average production levels. The slight crop decline is due to an expected slight harvest decline in the US, Argentina, Ukraine and Russia. 

Subsequently, after considering the slight decline in global maize production and strong usage, the IGC forecasts the 2024/25 global maize stocks to be at 281 million tonnes, down 2% year-on-year. Still, we doubt this would lead to a price surge and that the current moderation may continue.

Overall optimism


Overall, while we are still in the early stages of the 2024/25 global grains and oilseed season, with some weather-related risks ahead, the data from the IGC and the United States Department of Agriculture (which we didn’t explore in this column), paint an optimistic view of the harvest. 

Assuming the expected harvest materialises, we can expect global grains and oilseed prices to remain on the moderating path, which is positive for importing countries like South Africa. Notably, South Africa imports nearly half of its annual wheat consumption, about 1.5 million tonnes yearly. Furthermore, South Africa imports about a million tonnes of rice each year. 

Therefore, favourable global grain and oilseed production conditions and subsequent price softening would be welcome developments. 

Still, a lot is yet to unfold in the coming months. We will monitor the monthly updates to ascertain our view of prices and the food inflation path in South Africa. For now, the indications remain reasonably optimistic. 

The risk fact to remember is the impact of the possible La Niña in the 2024/25 summer season on South America’s crop. This weather phenomenon, while it brings rain in southern Africa, typically leads to below-average rains in South America. A drought in South America would significantly change the global agricultural outlook and commodity price expectations.

Still, the available data and information provide a comforting path for global food prices. DM

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