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November 2016
WANDILE SIHLOBO, head economist: Agbiz
South Africa is one of the key players in global grain markets and its footprint is clear in international forums such as the International Grains Council. Every year, the grain trusts (Winter Cereal and Maize Trust) nominate individuals to represent the industry in these international engagements.
This year, Mr Nico Hawkins (SAGIS) and Mr Wandile Sihlobo (Agbiz) were amongst those privileged enough to attend the 25th International Grains Council Conference in London, UK.
The main theme of the conference was ‘Changing dynamics: The new trading environment’ under which were contributions from all major grain producing regions, such as the United States of America (USA), China, Ireland, Australia, the Black Sea region and the European Union.
Four key subjects stood out in the Conference presentations, and these include:
Rising concern about climate change and its effects on grain production
Dr Corey Cherr, head of Agriculture and Weather Research at Lanworth, shared insights on climate change and its relative impact on crops. The key risk with regards to recent climatic developments is La Niña – particularly in the Northern Hemisphere. The crops that are likely to be negatively affected in the 2016/2017 season are soybeans and maize, due to expected dryness later in the year across the USA Midwest. Wheat production is expected to be fair in the 2016/2017 season.
The changing dynamics in the global grain supply and demand and agricultural policies
Mr Alan Tracy, president of US Wheat Associates, focussed on the changing landscape of global wheat trade.
Wheat is the most traded grain in the world, with soybean and maize interchanging over the years. With regards to production, however, it is the second most produced crop after maize. In the 2016/2017 production year, global wheat production is forecast at 730 million tons, with hectares set to remain fairly flat. The leading producers are China, India, the USA, Russia, France, Canada, Germany, Pakistan, Australia and the Ukraine.
Additionally, the 2016/2017 wheat trade volumes could increase to 164 million ton, from 161 million tons in 2015/2016 season. USA, Canada, France, Australia, Russia, Germany, Ukraine and Argentina are expected to be the leading countries on the export side.
It is important to note that there have been big shifts in the recent past in the global wheat market – a notable one being Russia’s transition from being a net importer to a global exporter. To some extent, the rise in Russia’s wheat exports has created competition for USA wheat exporters, especially in the European, Middle East and African markets.
In fact, over the years the USA has lost roughly 10 million tons market size in the Middle East, North Africa and Indian market. However, the USA has somehow managed to gain market share in the Latin and Asian markets, estimated at 22 million tons.
A noteworthy development in the recent past is the increasing demand for high quality wheat throughout the world, particularly across the Americas. This has, of course, been driven by an increasing middle class and changes in consumption patterns.
Global agricultural policy also came under the spotlight because of its significance for the wheat market. The USA Wheat Associates argue that domestic price support is the most significant market distortion today, as opposed to domestic price support measures.
In this regard, China, India, Turkey and Brazil are seen as the leading countries with the highest domestic price support measures distorting the market.
International trade agreements
There is currently an emergence of the so called ‘mega-regionals’ in the global trade environment. Mega-regionals are trade agreements between partners making up a significant portion of global trade, that aim for integration beyond traditional trade concerns such as tariffs with ambitions to oversee issues such as regulatory co-operation and investment.
The most prominent mega-regionals on the global trade scene include the Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP).
Mr Masanori Hayashi of the Japanese Ministry of Agriculture, did a presentation on the TPP. The TPP is a trade agreement amongst twelve Pacific Rim countries, namely Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, USA and Vietnam.
The TPP members represent roughly 25,6% of global trade, valued at US trillion, as well as a considerable population of 806 million people (11,2% of global population).
With a grains perspective, this agreement covers wheat, barley, rice, maize and soybean. However, some of these have different quota levels, with the exception of soybeans which is free of duties. Hayashi’s presentation leaned on assessing these agreements from an importer perspective, particularly considering consumer response and the effects of the trade agreement on grain trade.
Concluding remarks
During discussions with analysts and experts, a growing concern was voiced about the scarcity of white maize supply in the global market — with the current drought in Southern Africa in mind. Indications seemed to be pointing to Mexico and the USA for temporary relief, as other grain producing countries are mainly focussed on yellow maize production.
However, on a positive note, the global grain market will be wellsupplied in the 2016/2017 season, with global grain production estimated at 2 billion tons – up by 1% from the previous season. In addition, the 2016/2017 global grain stocks are forecast at 474 million tons, up by 1,3% from the previous season.
Global consumption is also expected to maintain an upward trend, largely supported by an increasing demand for wheat particularly in North Africa and the Asian markets.
In essence, global grain prices are expected to move sideways in the short to medium term, with lingering uncertainty around the possibility of La Niña occurrence and the effects thereof on the Northern Hemisphere.
All presentations from the conference are available online at the Agbiz website (www.agbiz.co.za) and SAGIS website (www.sagis.org.za).
Publication: November 2016
Section: Relevant
