soft commodities quarterly y h - standard bank · 2018-06-14 · soft commodities quarterly ......

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Research Analyst

Penny Byrne

[email protected]

+27-11-415-4177

Head: SA Macroeconomic and FIC

Research

Elna Moolman

[email protected]

+27-11-415-4543

This material is "non-independent

research". Non-independent research is

a "marketing communication" as

defined in the UK FCA Handbook. It has

not been prepared in accordance with

the full legal requirements designed to

promote independence of research and

is not subject to any prohibition on

dealing ahead of the dissemination of

investment research.

11 May 2018

Analyst certifications and important disclosures are in the disclosure appendix. For other important disclosures, please refer to the disclosure & disclaimer at the end of this document.

www.standardbank.com/research

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Soft Commodities Quarterly Still a bit in the balance

La Niña delivers mixed rainfall – many parts of South Africa had below-average rainfall over

the early rainy season between October and December 2017 despite the La Niña

conditions in the equatorial Pacific Ocean. However, the late summer rainfall season saw

far better rainfall over much of South Africa. The late March rainfall over Gauteng and the

surrounds has seen many dam levels increase significantly in the run-up to the dry season.

Western Cape outlook –The Western Cape has experienced below-average rainfall for the

past three years and dam levels remain dangerously low as the winter rainfall season starts.

The cold fronts that bring rainfall to the Western Cape form part of a highly variable

eastward propagating wave pattern of air flow over the Southern Ocean, which makes them

very difficult to predict. Although a study from climate scientists at CSAG suggests that it

is unlikely that the Western Cape will experience above-average rainfall this season, the

South African Weather Service model still anticipates average to above-average rainfall in

the region. We still expect the Western Cape drought to subtract around 0.25ppt from

GDP growth in 2018, and to widen the current account deficit by around 0.3% of GDP.

The Western Cape economic indicators that we track are tentatively reflecting a lower risk

than before that we might be under-estimating the adverse economic impact of the

drought.

South African food inflation – we expect food inflation to average around 4.3% in 2018,

from 7.0% in 2017, despite the adverse impact of the Western Cape drought on food

production. This includes the estimated impact of the one percentage point VAT rate

increase in April, although mixed anecdotal evidence means that there is some forecast risk

around the estimated pass-through of the tax hike.

Global food prices – The FAO food price index was developed in 1996 to help monitor

global agricultural commodity markets. The rate of change in the food price index has

steadily increased over the first four months of 2018 from -0.3% y/y in December 2017

to 2.6% y/y in April 2018.

Soft commodity overview and outlook – Maize prices have trended higher this year after

falling significantly during 2017. Both white and yellow maize prices fell during the first

two months of the year but have been generally increasing since March. Despite the

drought in the Western Cape, which produces around two-thirds of the country’s wheat,

prices fell in the last 6 months of 2017 and into the beginning of 2018. Contributing to

this fall in price has been the strength in the rand since December 2017. However, local

wheat prices have risen since February this year and the futures curve is currently in

backwardation, suggesting that supply is limited, and this encourages sellers to sell now

and lock in higher prices for their crop. A recent GAIN report forecasts that South African

sugar production will increase 7% y/y to 2.2 million metric tons in the 2018/19 season

due to improved sugar cane yields after a full recovery from the drought. This increase in

production is expected to result in a significant increase of 20% y/y in sugar exports.

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https://research.standardbank.com/

Standard Bank South Africa | Thematic Research 11 May 2018

1

La Niña delivers mixed rainfall

As discussed in our report Soft Commodities Quarterly dated 07 February 2018, many

parts of South Africa experienced below-average rainfall over the early rainy season

between October and December 2017 (Figure 1) despite the La Niña conditions

present in the equatorial Pacific Ocean. Typically, we expect South Africa (with the

exception of the Western Cape winter rainfall region) to receive above-average rainfall

during a La Niña year. For details on ENSO, see the Appendix at the end of this

document.

However, the late summer rainfall season saw far better rainfall over much of South

Africa. January 2018 saw more rainfall than usual over the central southern part of the

country, while the rest of the region received below-average rainfall (Figure 2).

February saw very heavy rainfall over the northern part of Limpopo and generally mixed

rainfall elsewhere, while March saw well above-average rainfall over much of the

country. The late March rainfall over Gauteng and the surrounds has seen many dam

levels increase significantly in the run-up to the dry season.

Figure 1: Monthly rainfall average, 2017, and difference (mm/month)

Source: NOAA climate prediction centre, Standard Bank Research

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2

Provincial average dam levels have recovered across almost the entire country, with the

notable exception of the Western Cape (Figure 3).

Figure 2: Monthly rainfall average, 2018, and difference (mm/month)

Source: NOAA climate prediction centre, Standard Bank Research

Figure 3: Average provincial dam levels as of 9 May 2018, with same week last

year in brackets

Source: Department of Water and Sanitation, Standard Bank Research

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3

Area planted and crop production estimates

The early season rainfall did not lend itself to improved planting and as such there was a

slight reduction in area planted, compared to what the farmers over some regions had

planned. The regions most affected were predominantly white maize growing regions

and, as can be seen in Figure 4, this led to a reduction in the white maize area planted.

However, there was a slight increase in the area of yellow maize planted in 2018.

Total crop production is expected to fall 23% y/y when compared to the record bumper

crop produced in 2017. However, we note current production estimates for 2018 are

the third-highest when considering total maize production since 2001.

The third production estimate released by the Department of Agriculture, Forestry and

Fisheries saw an increase in the production estimates for maize, sunflower seeds and

soybeans, compared with the second estimate.

El Niño currently most likely in the 2018/2019 rainy season

We note that ENSO forecasts are more accurate from the early-May forecasts on than

those made during the first few months of the year. The skill of the ENSO forecasts will

increase as we move closer to mid-year, and we keep this in mind as we present the

current forecasts.

The Climate Prediction Centre and the International Research Institute for Climate and

Society put out an ENSO forecast twice a month, one early in the month and another in

the middle of the month. The early-month forecast is called the official probabilistic

ENSO forecast, while the mid-month forecast is called the model-based probabilistic

ENSO forecast (Figures 6 and 7). The two forecasts may differ due to the different

initial conditions but, more importantly, the early-month forecast is adjusted by human

forecasters who take both their own experience and known biases of the models into

account when putting out their ENSO forecast. The mid-month forecast, on the other

hand, is based purely on the model output, with no human intervention.

Figure 6 shows the early-April ENSO forecast, while Figure 7 shows the mid-April ENSO

forecast. The human intervention forecast does not breach the 50% probability level

when forecasting the end of the year’s conditions, but does have the probability of El

Niño during the November, December, January period at 48%. The model-based mid-

April forecast shows a higher chance of neutral conditions developing in the coming

months followed by a transition to El Niño conditions during the early summer season.

Figure 4: Area planted (million ha)

Source: Department of Agriculture, Forestry and Fisheries, Standard Bank Research

Figure 5: Total crop production (million tons)


The early-month forecast is adjusted

by human forecasters who take both

their own experience and known

biases of the models into account

when putting out their ENSO

forecast.

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Production 2017 3rd estimate 2018 production

[email protected]


4

We reiterate that although both the model-based forecast and the human intervention

forecast give a higher probability of El Niño than the forecasts made in the first few

months of this year, we have not yet reached the time of year when the skill of these

models becomes reliable.

We do note that the South African Weather Service model also suggests a transition into

El Niño in the early summer, but they too reiterate that the models are not very accurate

at this time of year. However, the trend of an increasing probability of El Niño is one we

will monitor in the coming months.

Figure 8 shows the Australian Bureau of Meteorology multi-model ensemble ENSO

forecast. The POAMA model shows that the Pacific Ocean sea surface temperatures are

expected to remain below the La Niña threshold (of below -0.5°C) in the near term,

warming to more neutral conditions by September, and is not currently expected to

warm to above the El Niño threshold (of above 0.5°C) by year-end.

We reiterate that although both the

model-based forecast and the human

intervention forecast give a higher

probability of El Niño than the

forecasts made in the first few

months of this year, we have not yet

reached the time of year when the

skill of these models becomes

reliable.

Figure 6: IRI/CPC Early-April official ENSO forecast

Source: IRI, CPC, Standard Bank Research

Figure 7: IRI/CPC Mid-April model-based ENSO forecast

Source: IRI, CPC, Standard Bank Research

Figure 8: ABM ENSO forecast as of 9 May 2018

Source: Australian Bureau of Meteorology

0%

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MAM2018

AMJ2018

MJJ2018

JJA2018

JAS2018

ASO2018

SON2018

OND2018

NDJ2018

El Nino La Nina Neutral

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El Nino La Nina Neutral

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5

Western Cape outlook

Three years of below-average rainfall

The Western Cape has experienced below-average rainfall for the past three years and

dam levels remain dangerously low as the winter rainfall season starts.

Figure 9 shows the monthly accumulated rainfall over the Western Cape in the last three

years, along with the average and a band of one standard deviation around the average.

This demonstrates that not only were these three years below average, but two of them

were almost one standard deviation below average, while 2017 rainfall was closer to

two standard deviations below average.

Since there are currently no seasonal forecasts that can accurately predict the rainy

season in the Western Cape, to help predict what we can expect from the 2018 rainfall

season, we take note of a recent study by climate scientists Peter Johnston and Piotr

Wolski who are part of the Climate System Analysis Group (CSAG) at the University of

Cape Town. They considered the total annual accumulated rainfall in parts of the

Western Cape catchment area from 1930 to 2017 and defined above average rainfall as

the wettest one third of all the years considered, below average rainfall as the driest one

third of all the years considered, and average rainfall as the remaining middle third.

They found a correlation between the accumulated rainfall in the first few months of the

year and the total accumulated rainfall by year-end. In particular, they found that:

If the accumulated rainfall by the end of April is above average, it is likely

that the total accumulated rainfall by the end of the year will be above

average.

If the accumulated rainfall by the end of May is below average, it is likely

that the total accumulated rainfall by the end of the year will be below

average.

If the accumulated rainfall by the end of July is average, it is likely that the

total accumulated rainfall by the end of the year will be average.

Unfortunately, using preliminary unverified April rainfall data for the Western Cape, it

appears that the accumulated rainfall over the region until the end of April was not

above average. This implies that we should not expect above average rainfall this rainy

season. The CSAG scientists who performed this study believe that without above

Figure 9: Western Cape cumulative monthly rainfall

Source: South African Weather Service, Standard Bank Research

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2015 2016 2017 2018 Average

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6

average rainfall it is unlikely that the City of Cape Town will be able to avoid Day Zero in

2019.

However, the South African Weather Service’s May seasonal climate watch anticipates

above-average rainfall over parts of the south-western Cape region during the early and

late winter seasons. Caution is advised since the skill of the models over the south

western region remains relatively low, however the consistency of the model’s prediction

of above-average rainfall over the last few months does give the forecast more

credibility.

Dam levels in the Western Cape currently around 16.6%

There are six major dams in the Western Cape that provide 99.6% of the region’s water

supply at a combined capacity of 899.3 million cubic meters. The current average

capacity of these six dams is 20.9%, while the provincial average dam levels is 16.6%.

We note that the average provincial dam levels did not decrease in the last week but

remained flat at 16.6% capacity, while the big 6 dams increased from a low of 20%

capacity in the last week of April to current levels of 20.9%. Although this is a modest

gain, it indicates the onset of the rainy season and the likelihood that dam levels in the

region will increase in the coming months. The uptick can be seen in Figure 10.

The major 6 dams that supply water to the Western Cape see around 64% go to the City

of Cape Town, 29% to agriculture, and 7% to other urban areas. The unconstrained

water demanded from this system is around 1,350 million litres a day, which has fallen

to average 650 million litres a day under the current level 6b restrictions. In the City of

Cape Town, under the current level 6b restrictions, around 150 million litres a day are

used by industry, commerce and government, while the 50 litres a day per person

should result in 200 million litres of use each day. This builds a 100 million litres per

day buffer to reach the 450 million litres a day total use target. However, non-

compliance and the onset of the rainy season has seen average daily use increase to

around 520 million litres a day.

In the Western Cape, dam levels rise in the rainy season (between August and October),

and are drawn down between rainy seasons. Drawdowns range between 36% and 56%,

and average 44% (Figure 10).

We note that the anomalously low drawdown in 2014 of 36% was accompanied by

unusual out-of-season rainfall, which saw dam levels increase periodically through the

summer months.

Figure 10: Western Cape daily “Big 6” dam levels since 2012

Source: City of Cape Town, Standard Bank Research

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53%

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7

During the normal rainfall seasons between 2012 and 2014, the dam levels recovered

by up to 53% in a rainy season. However, in the last three below-average rainfall years,

dam levels only increased by between 19% and 33% during the rainy season.

Should the Western Cape experience a rainy season as poor as last year, we could see

dam levels rise by as little as 19%. However, the stricter water restrictions would see a

smaller drawdown over the rainy season, so this is a very conservative estimate. We

estimate that in the worst-case scenario of another season similar to 2017, dam levels

would likely increase by around 25%. On the other hand, if there is another rainy season

such as the one seen in 2012, 2013, or 2014, we could see dam levels increase by up

to 60%.

Augmentation plans

Rain-fed dams are by far the cheapest source of water at R5.20 per kilolitre and as such

the region will continue to rely heavily on rainfall supplied surface water sources.

However, the province is planning to implement water augmentation schemes such as

ground water extraction, wastewater treatment, and desalination. The cost of these

schemes will need to be comparable to the cost of surface water to be sustainable.

Current projections estimate the following in terms of water added to the system and

time to implement after a firm commitment:

Ground water extraction – 100 million litres a day – 1 year to implement

Wastewater treatment – 70 million litres a day – 2 years to implement

Desalination – 120 million litres a day – 3 years to implement

Surface water – 60 million litres a day – 4 years to implement

These figures suggest that although these augmentation schemes could add up to 350

million litres a day to the Western Cape water supply system, it will take 4 years to bring

all of these schemes online.

Costs of water augmentation plans

Desalination costs depend on a number of factors including the scale of the plant, the

temperature and salt content of the sea water, the extent of marine works required, the

cost of integration into the water system, and the procurement methodology.

Desalination plants that produce less than 120 million litres a day or more than 150

million litres a day suffer from diseconomies of scale, so the most cost effective plants

should be somewhere between those two. Previous desalination projects that were

contracted through an owner-engineer design-build model, similar to those methods

adopted to build the Kusile and Medupi power stations, tend to see cost escalation that

results in the production of a thousand litres of water costing up to three times as much

as build-operate-transfer contracts. If desalination is produced in the most cost

effective manner, it is estimated to be around R12 per kilolitre.

Reuse of wastewater should cost less than desalination due to lower capital and energy

costs. Estimates suggest that wastewater treatment will cost around R7.50 per kilolitre.

Scale also plays a role in the cost of wastewater treatment with combined larger facilities

costing less than smaller separate ones.

Ground water extraction comes in below wastewater treatment due to lower capital and

operating costs. The variables that impact on the cost of ground water include water

quality which is then linked to the cost of treatment, the depth required to reach the

water, as well as yield and location. There isn’t currently a cost estimate for the planned

expansion of Cape Town’s ground water extraction.

Surface water is the cheapest of all these options, coming in at R5.20 per kilolitre.

[email protected]


8

Proposed drought tariff increases

The City of Cape Town’s proposed drought tariff increases in the 2018/19 budget are

a result of a significant decrease in revenue on the back of the water restrictions as well

as a substantial increase in costs. Reduced sales are estimated to have resulted in a

shortfall of revenue in the region of R2bn in 2017/18, which has required the City of

Cape Town to cut other programs and services to find the money elsewhere.

The new tariff structure would cover basic costs in the first two steps, some of the

augmentation costs in the third step, while the fourth step is intended to be punitive.

The monthly increase for basic use in the first two steps under level 6 restrictions would

be significant with the cost of water in Step 1 increasing 75% and Step 2 increasing

62% from their current costs. However, under level 4 water restrictions the cost of

water in the first two steps would decrease by 25% and 39% respectively. The City is

facing resistance to the proposed increases but maintains that these increases are

necessary in light of the reduced revenue and increased costs.

Why Western Cape rainfall is so difficult to predict

One of the reasons it is easier to predict rainfall over the rest of South Africa is partly

due to the correlation between ENSO (El Niño and La Niña) and rainfall over most of the

country. We are able to predict ENSO a few months in advance which helps modellers

forecast rainfall over most of South Africa. This gives a fairly reliable leading indicator of

rainfall conditions, which is not available for the Western Cape which has a weak and

inconsistent relationship with ENSO. In particular, the 2016 and 2017 winter rainfall

droughts occurred during an El Niño and La Niña respectively.

There are climate models that can be used to predict seasonal rainfall, but these models

are not equally skilled over all regions. A number of climate models failed to predict the

2017 drought in the Western Cape, including the South African Weather Service, the

European Centre for Medium-Range Weather Forecasts, as well as the International

Research Institute for Climate and Society. The reason for the low skill of forecasts over

this region is that rainfall over the Western Cape is modulated by the passage of cold

fronts originating in the Southern Ocean. As global weather systems move northward in

the winter months, more fronts reach the southern parts of the African continent. The

cold fronts that bring rainfall to the Western Cape form part of a highly variable

eastward propagating wave pattern of air flow over the Southern Ocean, which makes

them very difficult to predict.

Although we do not anticipate an extension of the current drought for another year, we

note that the possibility of extreme drought is increasing in the Western Cape as future

climate predictions indicate a shift to drier conditions over the region.

Table 1: Proposed new tariff step system Step 1 (Basic usage) Step 2 (Basic usage) Step 3 (Above basic

usage) Step 4 (Use

jeopardising water conservation)

Water 0 - 6kl 6 - 10kl 10.5 - 35kl > 35kl Sanitation 0 - 4.2kl 4.2 - 7.35kl 7.35 - 24.5kl 24.5 - 35kl

Source: City of Cape Town

The relationship between ENSO and

rainfall over most of South Africa

gives a fairly reliable leading indicator

of rainfall conditions; this is not

available for the Western Cape.

Rainfall over the Western Cape is

modulated by the passage of cold

fronts originating in the Southern

Ocean. The cold fronts that bring

rainfall to the Western Cape form part

of a highly variable eastward

propagating wave pattern of air flow

over the Southern Ocean, which

makes them very difficult to predict.

The possibility of extreme drought is

increasing in the Western Cape as

future climate predictions indicate a

shift to drier conditions over the

region.

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9

Impact of the drought on agriculture

The major agricultural produce of the Western Cape includes fruit, grains and

vegetables. The Western Cape continues to dominate SA’s production of deciduous fruit

despite the increased contributions from the Northern Cape, Eastern Cape, and Limpopo

provinces in recent years; total (national) exports of all three fruits are thus expected to

fall in 2017/18 due to lower production and some fruit (of which the quality is

negatively affected by the drought) not meeting the export requirements. Since our

previous report, disaggregated trade data released for 4Q17 shows the extent to which

Western Cape food exports have already been under pressure (see chart below). Fruit

that will likely be the worst affected by the drought include grapes, apples, and pears,

which constitute the bulk of the total area planted with deciduous fruit. The Western

Cape government’s latest surveys and estimates point to an average 14% decline in fruit

production volumes, 20% in wine grapes, 20% in vegetables, and 37% in grains in

FY17/18 from FY16/17 as a result of the drought (Figure 11).

The agricultural sector plays a significant role in the Western Cape’s economy, with

agriculture and the food and beverages manufacturing industry jointly constituting

around 9.3% of the Western Cape’s GDP (while the Western Cape constitutes around

14% of national GDP). From contributing 0.4ppt to economic growth in 2017 (see

chart below), we expect a negative contribution from the agricultural sector in 2018.

We are at this stage incorporating a negative contribution from the Western Cape

drought to aggregate economic growth of around 0.25ppt in 2018.

The agricultural sector’s role in the province’s exports is even more pronounced. Food-

related products constitute around 48% of total Western Cape goods1 exports (and in

turn constitutes around 5% of SA’s total exports). These (Western Cape food) exports

(see Figure 14) are dominated by (raw and processed) fruit and nuts (27% of its

exports), beverages (9%), and fish (4.1%). As alluded to above, the impact of the

drought on export volumes will be affected not only by the smaller crop, but also by the

negative impact of the drought on the quality of select produce, which may mean that

they won’t meet export standards.

1 These numbers only include goods exports, not services.

The Western Cape government

expects an average 14% decline in

fruit production volumes, 20% in

vegetables, and 37% in grains in

FY17/18 from FY16/17 as a result

of the drought.

Figure 11: Estimated production impact of the drought

Source: Western Cape Government

Figure 12: Food exports

Source: Quantec, Standard Bank Research

We expect a negative contribution

from the agricultural sector to GDP in

2018.

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Western Cape Total Western Cape (% of total, RHS)

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10

Impact of the drought on the Western Cape and SA economies

As per our previous report (Western Cape Water Crisis), we still incorporate the impact

of the Western Cape drought essentially via the direct impact on its agricultural sector.

This is premised on the current water restrictions, and assumes that Day Zero, which

would have a disproportionately big impact on non-agricultural economic activity, is

avoided as per the government’s latest predictions. We are, however, tracking several

non-agricultural economic activity indicators to assess the probability that we are under-

estimating the impact on general economic activity. The focus of our analysis is mainly

on the impact that the drought will have on key official economic indicators, which may

not fully reflect the socio-economic impact, for example on the estimated 50,000 poor

households in the Western Cape that depend on irrigated backyard gardening for their

subsistence, and who may not be able to produce any food during the drought.

In addition to the trade balance pressure from lower food-related exports described in

the previous section, there is also likely to be pressure from higher imports, of wheat in

particular given the adverse impact on Western Cape production. While maize

production is expected to fall, a large carry-over crop from last year is expected to be

sufficient to prevent an increase in maize imports.

At this stage, we incorporate a negative impact on the trade account of 0.3% of GDP

due to the Western Cape drought. This, along with the forecasted recovery in domestic

demand and possibly the import-intensity of demand, is one of the reasons why we

expect the current account deficit to widen from last year.

Figure 13: Western Cape GDP composition

% of total

Agriculture, forestry, fishing 3,9%

Agriculture 3,1%

Mining 0,3%

Manufacturing 15,2%

Food and beverages 6,3%

Electricity 2,8%

Construction 5,7%

Trade 17,9%

Transport 11,0%

Finance 24,7%

Community services 18,5%

Source: IHS, Standard Bank Research

Figure 14: Western Cape food-related exports (% of

Western Cape total exports, 2017)


The impact of the drought on export

volumes will be affected not only by

the smaller crop, but also by the

negative impact on the quality of

select produce, which may mean that

they won’t meet export standards.

0% 5% 10% 15% 20% 25%

Fruit and nutsBeverages, spirits, vinegar

FishPrepared fruit, nuts

Oil seedsEdible products n.e.c.

Prepared meat and fishDairy, eggs, honeyEdible vegetablesPrepared cereals

MeatCereals

Live plantsCoffee, tea, spices

Animal fatsSugars

Milled productsCocoa

Animal products, n.e.c.Live animals

Vegetable extractsVegetable products n.e.c.

% of Western Cape exports

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11

There are few official economic time series available on a provincial basis, which makes

it difficult to monitor the state of the Western Cape economy to assess how the risks to

our estimates of the macroeconomic impact of the drought evolve. The latest available

data remains somewhat mixed, but on balance they are tentatively signalling less

downside risk to the non-agricultural economy than at the time of our previous report in

March (see our report Western Cape Water Crisis published on 08 March 2018).

While some measures of economic activity in the Western Cape remained under

pressure, there was generally no further deterioration relative to the national trends

since our previous report, and in some cases the Western Cape momentum exceeded the

national trend. New passenger car sales picked up in the Western Cape in 1Q18, almost

in line with the trend in national sales (see Figure 19). Building plans passed in the

Western Cape recovered strongly in the data available for 1Q18 at this stage, and

marginally outperformed the national trend during this period, following under-

performance towards the end of 2017 (see Figure 17). While electricity consumption in

the Western Cape remained weak, and contracted on a YoY basis in 1Q18, this was

stronger than the national trend (see Figure 18).

A key concern remains the noticeable slowdown in total and international tourist arrivals

(by air) in the Western Cape (albeit still higher on a y/y basis), which could pose a risk

Figure 15: Western Cape food-related exports (% of SA

total, 2017)


Figure 16: GDP by sector

Source: Stats SA, Standard Bank Research

Figure 17: Building plans passed – Western Cape

Source: Stats SA

Figure 18: Electricity consumption – Western Cape

Source: Stats SA

0% 10% 20% 30% 40% 50% 60% 70%

Beverages, spirits, vinegarPrepared fruit, nuts

Prepared meat and fishOil seeds

Food-relatedAnimal products, n.e.c.

Live plantsEdible vegetables

Vegetable extractsDairy, eggs, honeyCoffee, tea, spices

Edible products n.e.c.Prepared cereals

MeatCocoa

Live animalsTotal

Milled productsAnimal fats

Vegetable products n.e.c.CerealsSugars

Western Cape (% of SA exports)

85

95

105

115

125

135

145

4Q

07

2Q

08

4Q

08

2Q

09

4Q

09

2Q

10

4Q

10

2Q

11

4Q

11

2Q

12

4Q

12

2Q

13

4Q

13

2Q

14

4Q

14

2Q

15

4Q

15

2Q

16

4Q

16

2Q

17

4Q

17

Inde

x

Agric Mining Manuf

Utilities Construction Trade

Transport Fin, bus. service Personal service

Govt

-60%

-40%

-20%

0%

20%

40%

60%

80%

15%

17%

19%

21%

23%

25%

27%

29%

31%

33%

35%

Sep

-03

May

-04

Jan

-05

Sep

-05

May

-06

Jan

-07

Sep

-07

May

-08

Jan

-09

Sep

-09

May

-10

Jan

-11

Sep

-11

May

-12

Jan

-13

Sep

-13

May

-14

Jan

-15

Sep

-15

May

-16

Jan

-17

Sep

-17

Ratio to national % YoY (RHS)

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Jan

-14

Ap

r-1

4

Jul-

14

Oct

-14

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

Ap

r-1

7

Jul-

17

Oct

-17

Jan

-18

% YoY % of total (RHS)

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12

to the estimated economic impact. We will monitor this closely in the coming months.

We will also carefully unpack the employment data for 1Q18, due later this month, for

any indication of further pressure on jobs. Agricultural employment in the Western Cape

was already clearly under pressure by 4Q17, when it contracted 23% y/y, although

total employment in the province remained relatively resilient up to 4Q17 (with

106,000 jobs created y/y and 92,000 q/q).

Figure 19: Western Cape new car sales in context

Source: NAAMSA, Standard Bank Research

Figure 20: Western Cape tourist arrivals (by air)

Source: ACSA

Figure 21: Western Cape employment


Figure 22: Western Cape employment


12.5%

13.0%

13.5%

14.0%

14.5%

15.0%

15.5%

16.0%

16.5%

-30%

-20%

-10%

0%

10%

20%

30%

Jan

-12

Jun-

12

No

v-1

2

Ap

r-1

3

Sep

-13

Feb

-14

Jul-

14

Dec

-14

May

-15

Oct

-15

Mar

-16

Au

g-1

6

Jan

-17

Jun-

17

No

v-1

7

%

% Y

oY

Western Cape dealer/day (% YoY)

SA dealer/day (% YoY)

Western Cape % of total (3m avg, RHS)

-10%

-5%

0%

5%

10%

15%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

Ap

r-1

3

Au

g-1

3

Dec

-13

Ap

r-1

4

Au

g-1

4

Dec

-14

Ap

r-1

5

Au

g-1

5

Dec

-15

Ap

r-1

6

Au

g-1

6

Dec

-16

Ap

r-1

7

Au

g-1

7

Dec

-17

% Y

oY, 3

m a

vg

% Y

oY, 3

m a

vg

International arrivals Total arrivals (RHS)

-40%

-20%

0%

20%

40%

60%

80%

100%

100

120

140

160

180

200

220

240

260

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

%

Tho

usan

ds

Agriculture Private households

Construction Transport

Agriculture (RHS)

250

300

350

400

450

500

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

Tho

usan

ds

Finance Trade

Community and social services Manufacturing

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13

South African food inflation outlook still quite benign

We expect food inflation to average around 4.3% in 2018, from 7.0% in 2017. This

includes the estimated impact of the one percentage point VAT rate increase in April.

This estimate assumes that the VAT rate increase is fully passed through, in line with the

international norm (see Macro Weekly dated 25 February 2018), but anecdotal

evidence so far is somewhat mixed and there will thus be some forecast risk in this

regard until the publication of the April CPI data.

Our initial view that the drought in the Western Cape should not generally put upward

pressure on food prices, except perhaps in the case of vegetables, has not changed.

Grain prices remain relatively subdued, despite a modest uptick recently. Wheat prices,

which always track import parity prices, are not influenced by the increase in imports. As

discussed above, the decline in maize production should not drive prices closer to import

parity, given sufficient domestic supply to meet demand.

Meat inflation should meanwhile moderate. Even though beef supply is expected to

remain well below the historical average, we still expect it to increase gradually, while

price increases should also be curbed by increasing consumer resistance following

cumulative 20% (40%) price increases over the past two (four) years. That said, the

recovery in slaughtering numbers have been somewhat disappointing, following a

promising increase late last year.

Last year’s Avian flu outbreak disproportionately affected egg layers rather than

broilers, with around 91% of the birds that died or were culled being egg layers (and

only a very small proportion of broilers affected). While poultry prices were therefore

not materially affected, egg prices are still boosted by the lingering impact on the egg

layers. Relatively contained feed costs (given the aforementioned subdued grain price

trends), however, is the key reason why we expect limited increases in poultry prices.

The ratio between poultry prices and feed costs has increased materially given the

decline in grain prices (feed costs) and is the highest since our data series began in

2008.

As discussed above, the Western Cape drought may weigh on fruit prices, if a drought-

related deterioration in quality necessitates a redirection of exports to the domestic

market. Vegetable prices, however, is one of the exceptions in which prices may be

supported by the decline in production.

We expect food inflation to average

4.3% in 2018.

Figure 23: Food inflation forecasts (CPI)


Figure 24: Meat prices (CPI)


-10

-5

0

5

10

15

20

25

30

% Y

oY

Food Grain products Meat

60

70

80

90

100

110

120

130

140

150

160

Index

Beef Pork Lamb

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14

Figure 25: Poultry prices (retail)


Figure 26: Fruit and vegetable prices


70

80

90

100

110

120

130

140

150

160

Index

Fresh, whole Fresh, portions Frozen, portions

50

60

70

80

90

100

110

120

Inde

x

Fruit and nuts Vegetables

[email protected]


15

Global food prices

Food and Agriculture Organisation of the UN (FAO) food price index

The FAO food price index measures the monthly change in the global price of a basket

of food commodities (Figure 28). It is calculated by taking a weighted average of five

commodity group price indices, namely cereal, vegetable oil, meat, dairy, and sugar

(Figure 29). The FAO food price index was developed in 1996 to help monitor global

agricultural commodity markets. 2008 saw a significant rise in food prices in the wake

of the global financial crisis and the index has remained elevated relative to the period

before 2008 ever since.

Figure 27: Food price index (annual)

Source: FAO, Standard Bank Research

Figure 28: Food price index (% y/y)


Figure 29: Constituent price indices since 2017


Figure 30: Monthly change in each index (% y/y)


-2%

4%

-5%

9%

15%

5%8%

27%25%

-20%

17%

22%

-7%

-2%-4%

-19%

-2%

8%

-30%

-20%

-10%

0%

10%

20%

30%

50

70

90

110

130

150

170

190

210

230

250

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

%

Inde

x

Food Price Index Food Price Index Growth

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Jan

uary

Feb

ruar

y

Mar

ch

Ap

ril

May

Jun

e

July

Au

gust

Sep

tem

ber

Oct

obe

r

No

vem

ber

Dec

embe

r

%

2014 2015 2016 2017 2018

100

150

200

250

300

350

Jan

-20

17

Feb

-20

17

Mar

-20

17

Ap

r-2

01

7

May

-20

17

Jun-

20

17

Jul-

20

17

Au

g-2

01

7

Sep

-20

17

Oct

-20

17

No

v-2

01

7

Dec

-20

17

Jan

-20

18

Feb

-20

18

Mar

-20

18

Ap

r-2

01

8

Inde

x

Meat Price Index Dairy Price Index Cereals Price Index

Oils Price Index Sugar Price Index

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

Jan

-20

16

Mar

-20

16

May

-20

16

Jul-

20

16

Sep

-20

16

No

v-2

01

6

Jan

-20

17

Mar

-20

17

May

-20

17

Jul-

20

17

Sep

-20

17

No

v-2

01

7

Jan

-20

18

Mar

-20

18

%

Meat Price Index Dairy Price Index Cereals Price Index

Oils Price Index Sugar Price Index

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16

The rate of change in the food price index has steadily increased over the first four

months of 2018 from -0.3% y/y in December 2017 to 2.6% y/y in April 2018 (Figure

28).

The cereals price index has increased consecutively in the first four months

of 2018 (Figure 29) which is also reflected in the y/y change (Figure 30).

The prices of wheat, coarse grains, and rice have all increased this year.

Weather-related risks in the US and robust trade have provided support to

wheat prices, while the drought in Argentina and expectations of lower

planning in the US have seen maize prices rise.

The meat price index has increased marginally YTD although on a y/y basis

it has fallen from around 5% y/y in January to 0% y/y in April. The price of

cattle and pork decreased slightly in April, while sheep and poultry prices

remained stable.

The sugar price index continued to decrease in 2018 reaching lows last seen

in September 2015. The fall in sugar prices is largely due to a supply glut

after record output from Thailand and India, as well as a depreciation in the

Brazilian real.

The vegetable oil price index has fallen for the third consecutive month and

remains 4% lower in April 2018 when compared with April 2017. Palm oil

prices (the oil carrying the heaviest weight in the index) fell on the back of

slowing growth in demand and increased expected production in Southeast

Asia.

The dairy price index increased for a fourth consecutive month in April,

increasing 15% y/y. The increase in dairy prices reflects the robust import

demand for milk products.

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17

Soft commodity overview and outlook

Maize – South Africa

Maize prices have trended higher this year after falling significantly during 2017. Both

white and yellow maize prices fell during the first two months of the year but have been

generally increasing since March. The futures curve shows that the current market

expectations are for maize prices to be stable to slightly higher over the remainder of

the year.

Over the last 12 months, the price of maize has been relatively flat, while export parity

prices have fallen and returned to similar levels as last year May. SAFEX maize prices

remain closer to export parity since the record 2016/17 harvest and expectations of

another decent harvest this year (Figure 33).

The first estimate of area planted suggests that farmers have planted 12% less maize,

compared to the 2017 season. This comes largely on the back of the dry conditions

seen over the western parts of the maize triangle during parts of the early summer

season (Figure 1). Crop production is expected to have fallen from the record high of

16.7 million tons last year to around 12.8 million tons in 2017/18. The expected

12.8-million-ton crop is very likely to more than meet local consumption demands.

Figure 31: SAFEX white maize price and futures curve

Source: Bloomberg, Standard Bank Research

Figure 32: SAFEX yellow maize price and futures curve


Figure 33: Maize near export pricing


2 565

1 864

2 573

3 296

4 825

3 980

2 315

1 888

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

5 000

5 500

Jan

-20

14

Jul-

20

14

Jan

-20

15

Jul-

20

15

Jan

-20

16

Jul-

20

16

Jan

-20

17

Jul-

20

17

Jan

-20

18

Jul-

20

18

ZA

R /

met

ric

ton

SA white maize price White maize futures price curve

White maize 6-month average

2 555

1 911 2 350

2 978

3 498

3 211

2 325 1 998

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

5 000

5 500

Jan

-20

14

Jul-

20

14

Jan

-20

15

Jul-

20

15

Jan

-20

16

Jul-

20

16

Jan

-20

17

Jul-

20

17

Jan

-20

18

Jul-

20

18

ZA

R /

met

ric

ton

SA yellow maize price Yellow maize futures price curve

Yellow maize 6-month average

0

1000

2000

3000

4000

5000

6000

Dec-2006 Dec-2008 Dec-2010 Dec-2012 Dec-2014 Dec-2016

ZA

R /

met

ric

ton

White Maize Price Yellow Maize Price Import Parity Export Parity

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18

Figure 36 shows the cumulative weekly exports of both white and yellow maize over the

last two seasons. Due to the timing of the maize harvest, the first week of the export

year occurs in the first week of May each year. In the wake of the record-breaking

bumper crop of 2016/2017, we have seen exports increase significantly in the

2017/2018 export year.

Figure 34: SA maize area planted and yield


Figure 35: SA final crop production and growth y/y


In the wake of the record-breaking

bumper crop of 2016/2017, we have

seen exports increase significantly in

the 2017/2018 export year.

Figure 36: White and yellow maize cumulative exports

Source: SAGIS, Standard Bank Research

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 0002

00

1

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

e

%

tho

usan

d ha

Area Planted (ha) Yield (metric ons/ha)

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

-

2 000

4 000

6 000

8 000

10 000

12 000

14 000

16 000

18 000

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

e

% y

/y

tho

usan

d m

etri

c to

ns

Final Crop (metric tons) % growth (y/y)

0

200

400

600

800

1 000

1 200

1 400

1 600

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52

tho

usan

d m

etri

c to

ns

Weeks of the year

White maize exports 2016/2017 Yellow maize exports 2016/2017

White maize exports 2017/2018 Yellow maize exports 2017/2018

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19

Maize – Global CBOT

Global maize prices have increased over the course of the year so far and the futures

curve expects this trend to continue for the rest of the year. The lower-than-average

stocks to use ratio is contributing to higher futures prices.

Global maize production came off record highs of 1,076 million metric tons in 2016 to

record the second-largest year of maize production in 2017, while consumption has

continued to increase over time. However, we note that the global stocks to use ratio

has fallen from close to the long-term average of 23% to 19.5% at the end of 2017.

Argentina, Brazil and the USA are the three major global exporters of maize. Global

maize prices are firmer on the back of lower production in Argentina due to dry

conditions in the region, while both Brazil and US production are also expected to be

lower due to reduced area planted.

Figure 37: CBOT corn price and futures curve


Figure 38: Global maize production

Source: Bloomberg, USDA, Standard Bank Research

Figure 39: Global stocks to use ratio (year-end)


183

144 148 149 148

134

144 139

100

120

140

160

180

200

220

240

Jan

-20

14

Jul-

20

14

Jan

-20

15

Jul-

20

15

Jan

-20

16

Jul-

20

16

Jan

-20

17

Jul-

20

17

Jan

-20

18

Jul-

20

18

USD

/ m

etri

c to

n

CBOT corn price CBOT corn futures price curve CBOT corn 6-month average

0

200

400

600

800

1 000

1 200

1960 1966 1972 1978 1984 1990 1996 2002 2008 2014

mill

ion

met

ric

tons

Global maize production Global maize consumption

0

5

10

15

20

25

30

35

40

45

50

1961 1967 1973 1979 1985 1991 1997 2003 2009 2015

% a

t ye

ar-e

nd

% Stocks to Use Average Stocks to Use Ratio

[email protected]


20

Wheat – South Africa

Despite the drought in the Western Cape, which produces around two-thirds of the

country’s wheat, prices fell in the last 6 months of 2017 and into the beginning of

2018. Contributing to this fall in price has been the strength in the rand since

December 2017. However, local wheat prices have risen since February this year and

the futures curve is currently in backwardation, suggesting that supply is limited, and

this encourages sellers to sell now and lock in higher prices for their crop.

The total area of wheat planted has remained relatively steady in the last six years after

falling noticeably in the decade preceding them. However, yields have generally trended

upwards despite the reduction in total area planted. This is likely due to improved

farming techniques and improved seeds. 2017 did see yields fall due to the persistent

drought in the Western Cape. The first production estimate for 2018 will be released in

August this year. South Africa is a net importer of wheat, importing between 40% and

55% of its annual consumption. Current forecasts from the USDA suggest that South

African imports of wheat are expected to increase by more than 60% y/y as a result of

the drought in the Western Cape.

Figure 40: SAFEX wheat price and futures curve


Figure 41: Wheat area planted and yield


Figure 42: Wheat production and growth y/y


3 883

3 724

3 877

4 250

4 784

4 148 4 211 4 192

3 000

3 500

4 000

4 500

5 000

5 500

Jan

-20

14

Jul-

20

14

Jan

-20

15

Jul-

20

15

Jan

-20

16

Jul-

20

16

Jan

-20

17

Jul-

20

17

Jan

-20

18

Jul-

20

18

ZA

R /

met

ric

ton

SA wheat price Wheat futures price curve Wheat 6-month average

0

1

2

3

4

5

6

7

0

200

400

600

800

1 000

1 200

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

e

%

tho

usan

d ha

Area Planted (1000 ha) Yield (metric tons/ha)

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

0

500

1 000

1 500

2 000

2 500

3 000

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

% y

/y

tho

usan

d m

etri

c to

ns

Final Crop (1000 metric tons) % growth

[email protected]


21

Wheat – global CBOT

CBOT wheat prices continued their increasing trend this year and the futures curve is

currently in contango.

Global wheat production has been steadily increasing, reaching a high of 757,006

million tons in 2017, while consumption has likewise increased steadily over time. The

current stocks-to-use ratio remains comfortably above the long-term average of 30%,

at 36.2% as at year-end 2017.

Russia saw a record crop produced in their last season and have been an increasingly

important supplier for sub-Saharan Africa. Sub-Saharan Africa is estimated to have the

largest y/y increase in wheat imports of any region in the wake of stagnant production

and increased consumption.

Figure 43: CBOT wheat price and futures curve


Figure 44: Global wheat production


Figure 45: Global wheat stocks to use ratio (year-end)


250

214 203

198

184

159 170 173

100

120

140

160

180

200

220

240

260

280

300

Jan

-20

14

Jul-

20

14

Jan

-20

15

Jul-

20

15

Jan

-20

16

Jul-

20

16

Jan

-20

17

Jul-

20

17

Jan

-20

18

Jul-

20

18

USD

/ m

etri

c to

n

CBOT wheat price CBOT wheat futures price curve CBOT wheat 6-month average

0

100

200

300

400

500

600

700

800

1960 1966 1972 1978 1984 1990 1996 2002 2008 2014

mill

ion

met

ric

tons

Global wheat Production Global wheat consumption

0

5

10

15

20

25

30

35

40

45

1961 1967 1973 1979 1985 1991 1997 2003 2009 2015

% a

t ye

ar-e

nd

% Stocks to Use Average Stocks to Use Ratio

[email protected]


22

Sugar – South Africa

Sugar farming in South Africa takes place mainly in KwaZulu-Natal and Mpumalanga

(Figure 43). As this map indicates, most of the sugar cane in KwaZulu-Natal is rain-fed,

while farms in Mpumalanga are irrigated.

Sugar production in South Africa has decreased in recent years since reaching highs in

the early 2000s, while consumption has steadily increased over time (Figure 47).

Production is expected to have increased around 27% y/y in 2017/18, recovering to

around 2.04 million metric tons, after suffering during the drought in 2015 and 2016.

A recent GAIN report forecasts that South African sugar production will increase 7% y/y

to 2.2 million metric tons in the 2018/19 season due to improved sugar cane yields

after a full recovery from the drought. This increase in production is expected to result

in a significant increase of 20% y/y in sugar exports.

Figure 46: Sugar cane production regions and mills

Source: USDA, SASA

Figure 47: SA sugar production and consumption


Figure 48: SA sugar stocks to use ratio


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Figure 49 shows how imports have picked up since the early 2000s, while exports have

fallen. South Africa only exports surplus sugar after the domestic and South African

Customs Union (SACU, consisting of Namibia, Botswana, Lesotho, Swaziland and South

Africa) markets have been supplied. During the relatively low production year 2016/17,

97% of raw sugar exports went to the SACU along with 62% of refined sugar exports.

The majority of imported South African sugar products come from Swaziland, Argentina,

and Brazil.

Figure 49: Total sugar imports and exports


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Sugar – global market

The global sugar price has continued to decline this year after coming off recent highs

near the end of 2016.

Global sugar production and consumption have been steadily increasing since 1960,

and we note that 2017 saw production exceed consumption after two years of

depressed production. Record production in Brazil during 2017/18, recoveries in India

and Thailand, expansion of planting in China, and the end of production quotas in the

EU have all contributed to the increased global production.

There has been a slight pick-up in the stocks to use ratio last year, although it remains

below the long-term average.

Figure 50: Global sugar prices and futures curve


Figure 51: Global sugar production and consumption


Figure 52: Global sugar stocks to use ratio


16.8115.85

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The white sugar premium is an indicator of profitability of refining cane into white

sugar. The higher the premium the greater proportion of cane is utilised for sugar, as

opposed to ethanol/biofuel production.

This year has seen the premium rise to closer to the average after a recent trough in

November 2017.

Figure 53: White sugar premium compared to raw sugar


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26

Soybean – South Africa

SAFEX soybean prices have remained fairly steady so far this year and are expected to

increase marginally over the course of the rest of the year.

The total area of soybean planted has increased significantly in the last decade, while

yields have remained fairly steady around 2%. Production has matched the increased

area planted, thus reflecting a relatively steady yield. Domestic soybean production is

estimated to be the largest on record for the 2018 season on the back of increased area

planted. This could result in South Africa being a net exporter of soybeans.

Figure 54: SAFEX soybean price and futures curve


Figure 55: Soybean area planted and yield


Figure 56: Soybean production and growth y/y


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27

Soybean – CBOT

The CBOT soybean price has been relatively steady for the past three years, although it

has increased in the first few months of 2018. The futures curve expects a modest

increase in price over the course of the rest of the year.

Brazil saw a record crop last year, which saw them export more than 11 million tons of

soybeans in the last few months of 2017.

Global production and consumption of soybeans has increased steadily. The global

stocks to use ratio has been above the historical average for the last two decades along

with the increased production.

Figure 57: CBOT soybean price and futures curve


Figure 58: Global soybean production and consumption


Figure 59: Global soybean stocks to use ratio


519

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28

Appendix

What are El Niño and La Niña? A quick recap

In our first note El Niño, La Niña, Da Nada? La Niña developing we gave a summary of

El Niño and La Niña, their impact on southern African rainfall, and what the forecasts

said about the summer rainfall season. To recap:

El Niño is recognised when the equatorial Pacific Ocean waters are anomalously

warm for an extended period of time, while La Niña is the opposite, with anomalously

cool waters (Figure 60 and Figure 61).

El Niño and La Niña are two extremes of an oscillation known as the El Niño

Southern Oscillation (ENSO).

ENSO comes in three flavours: warm events called El Niño years; cold events called

La Niña years; and neutral events, sometimes irreverently referred to as La Nada (The

Nothing), and also called ENSO-neutral, where the Pacific Ocean equatorial waters

are neither anomalously warm nor cool.

The causes of ENSO are not well understood.

El Niño tends to result in below-average rainfall over southern Africa; La Niña tends

to result in above-average rainfall over southern Africa; during ENSO-neutral years

southern Africa tends to experience average rainfall.

Some important notes:

When we discuss southern African rainfall, we exclude the Western Cape since the

same rules don’t apply to this winter rainfall region.

Not every El Niño is associated with drought, and not every La Niña with heavy

rainfall; however, both have around an 80% correlation, which is to say that around

8 out of 10 events result in the associated rainfall pattern.

The relative strength or weakness of an ENSO event is not proportional to the

strength or weakness of the resulting rainfall anomaly. In other words, a strong ENSO

event would not necessarily result in significantly more or less rainfall than a weak

one.

What is average rainfall and how does ENSO affect it?

The impact of ENSO on rainfall over southern Africa is usually spoken about in relation

to average rainfall. Figure 62 shows the actual average monthly rainfall over southern

Africa between 1980 and 2015. The legend is in mm per month and ranges between 0

and 180 mm/month, since that is within the range of average monthly rainfall over

Figure 60: El Niño sea surface temperature anomalies

Source: NOAA

Figure 61: La Niña sea surface temperature anomalies

Source: NOAA

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29

South Africa. However, this upper limit can be far higher over the rest of southern Africa

and Madagascar.

The purpose of Figure 62 is to demonstrate the average rainfall over South Africa. In

particular, this figure shows that although South Africa does experience some rainfall

along its coasts in September, the rainy season doesn’t really get started until October.

January is typically the wettest month of the year.

How do we measure ENSO?

We often talk in three-month-averages when discussing the climate, as these give an

indication of the medium-term average. In particular, both ENSO and the forecast of

ENSO are given in terms of a rolling three-month-average.

To meet the technical definition of El Niño, the rolling three-month-average sea surface

temperatures over a box over the equatorial Pacific Ocean (called Niño 3.4 and

displayed in Figure 63) must be more than 0.5°C warmer than average for five

consecutive three-month-average seasons. This definition ensures that the El Niño

conditions are strong enough and that they persist for long enough to have the

expected impacts. La Niña has a similar definition, except that sea surface temperatures

must be less than -0.5°C cooler than average for five consecutive three-month-average

seasons.

Figure 62: Actual average monthly rainfall over southern Africa from September to April (mm/month)

Source: NOAA/ESRL

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Table 2 shows the index that tracks the rolling three-month-average sea surface

temperatures over the Niño 3.4 box. Red text highlights an El Niño, while blue text

shows when La Niña conditions were present.

Figure 63: The Niño 3.4 box over the equatorial Pacific Ocean

Source: Meteorologist Dr. Maue

Table 2: ONI table – red shows El Niño, blue La Niña, black ENSO-neutral Year DJF JFM FMA MAM AMJ MJJ JJA JAS ASO SON OND NDJ 1997 -0.5 -0.4 -0.2 0.1 0.6 1.0 1.4 1.7 2.0 2.2 2.3 2.3 1998 2.1 1.8 1.4 1.0 0.5 -0.1 -0.7 -1.0 -1.2 -1.2 -1.3 -1.4 1999 -1.4 -1.2 -1.0 -0.9 -0.9 -1.0 -1.0 -1.0 -1.1 -1.2 -1.4 -1.6 2000 -1.6 -1.4 -1.1 -0.9 -0.7 -0.7 -0.6 -0.5 -0.6 -0.7 -0.8 -0.8 2001 -0.7 -0.5 -0.4 -0.3 -0.2 -0.1 -0.1 -0.1 -0.2 -0.3 -0.4 -0.3 2002 -0.2 0.0 0.1 0.2 0.4 0.6 0.8 0.8 0.9 1.1 1.2 1.1 2003 0.9 0.7 0.4 0.0 -0.2 -0.1 0.1 0.2 0.2 0.3 0.3 0.3 2004 0.3 0.3 0.2 0.1 0.2 0.3 0.5 0.6 0.7 0.7 0.6 0.7 2005 0.7 0.6 0.5 0.5 0.3 0.2 0.0 -0.1 0.0 -0.2 -0.5 -0.7 2006 -0.7 -0.6 -0.4 -0.2 0.0 0.0 0.1 0.3 0.5 0.7 0.9 0.9 2007 0.7 0.4 0.1 -0.1 -0.2 -0.3 -0.4 -0.6 -0.9 -1.1 -1.3 -1.3 2008 -1.4 -1.3 -1.1 -0.9 -0.7 -0.5 -0.4 -0.3 -0.3 -0.4 -0.6 -0.7 2009 -0.7 -0.6 -0.4 -0.1 0.2 0.4 0.5 0.5 0.6 0.9 1.1 1.3 2010 1.3 1.2 0.9 0.5 0.0 -0.4 -0.9 -1.2 -1.4 -1.5 -1.4 -1.4 2011 -1.3 -1.0 -0.7 -0.5 -0.4 -0.3 -0.3 -0.6 -0.8 -0.9 -1.0 -0.9 2012 -0.7 -0.5 -0.4 -0.4 -0.3 -0.1 0.1 0.3 0.3 0.3 0.1 -0.2 2013 -0.4 -0.4 -0.3 -0.2 -0.2 -0.2 -0.3 -0.3 -0.2 -0.3 -0.3 -0.3 2014 -0.5 -0.5 -0.4 -0.2 -0.1 0.0 -0.1 0.0 0.1 0.4 0.6 0.7 2015 0.6 0.6 0.6 0.8 1.0 1.2 1.5 1.8 2.1 2.4 2.5 2.6 2016 2.5 2.2 1.7 1.0 0.5 0.0 -0.3 -0.6 -0.7 -0.7 -0.7 -0.6

2017 -0.3 -0.1 0.1 0.3 0.4 0.4 0.2 -0.1 -0.4 -0.7 -0.9 -1.0

2018 -0.9 -0.8 -0.6 Source: NOAA

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