15.07.2019

What to make of the latest USDA report?

If the US maize crop was at an advanced stage of growth, the latest US Department of Agriculture (USDA) report would have convinced us that the supplies will be in better shape than initially feared. Last week, the agency lifted its estimate for US maize production by 1% from June 2019 to 352 million tonnes. This improvement, coupled with an uptick of the Black Sea's production estimates led to a 1% increase in the 2019/20 global maize production estimate to 1.1 billion tonnes. This would, however, still be 2% less than the 2018/19 harvest. - Wandile Sihlobo, Agbiz chief economist

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If the U.S. maize crop was at an advanced stage of growth, the latest U.S. Department of Agriculture (USDA) report would have convinced us that the supplies will be in better shape than initially feared. Last week, the agency lifted its estimate for U.S. maize production by 1% from June 2019 to 352 million tonnes.

This improvement, coupled with an uptick of the Black Sea’s production estimates led to a 1% increase in the 2019/20 global maize production estimate to 1.1 billion tonnes. This would, however, still be 2% less than the 2018/19 harvest. But the crop is not yet at an advanced stage of development, and the production estimates could change notably in next month’s update report. On 07 July 2019, only 8% of the U.S. maize crop was at the silking stage of growth, compared to 34% in the corresponding week in 2018, and a five-year average of 22%. This is a result of late plantings in most parts of the U.S. due to excessive wet weather conditions in the past few weeks.

The excessive rains did not only slow plantings but also increased a chance of poor yields in the U.S. On this end, we continue to monitor the developments through the USDA’s Weekly Crop Conditions report. On Sunday, 07 July 2019, only 57% of the U.S. maize was rated as being in good or excellent growing conditions, compared with 75% in the corresponding period in 2018. This alone tells us that the U.S. maize crop is not in good condition.

As we pointed out in our note last week, for South African maize farmers and maize-users, developments in the U.S. market are important and have strong influences on our local market, which is generally linked to the global agricultural markets.

The other crop that we are viewing from the same lenses as maize is soybeans. But, unlike maize, the U.S. soybean production estimate was revised down by 7% from June 2019 to 104 million tonnes. This contributed to an overall 2% month-on-month decline in global soybean production estimate to 347 million tonnes. Moreover, global soybean production is 4% lower than the 2018/19 season.

It is not only the U.S. that is contributing to the decline in global soybean harvest, but also Argentina owing to the expectations of poor yields. Similar to maize, we cannot take the soybean production numbers as an absolute indication of what is likely to transpire at the end of the season because the crop is still at its early stages of growth. This is also due to a late start of the season on the back of excessive moisture. In the week of 07 July 2019, the U.S. soybean crop hadn’t even completely emerged.

About 90% of soybeans had emerged compared to 100% on 07 July 2018. Of the crop that had emerged, only 10% of it was blooming compared to 44% on 07 July 2019. In terms of crop-growing conditions, data from the USDA shows that 53% of the soybean crop was rated good or excellent, compared to 71% in the corresponding period in 2018.

While South Africa is not a major importer of soybeans, developments in the global soybean market do influence the local market and prices of soybean by-products. The most notable one is soybean oilcake, of which South Africa imports on average about half a million tonnes a year.

Over the coming weeks, we will closely monitor the crop-growing conditions in the U.S. maize and soybean fields in order to ascertain the impact on global supplies. To this end, an important report to keep an eye is the USDA’s August 2019 issue of the World Agricultural Supply and Demand Estimates report which will be released on 12 August 2019.

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