Agri Trends 03 July 2015

Agri Trends 03 July 2015

Absa Bank Limited, Reg No 1986/004794/06, Authorised Financial Services Provider. Registered Credit Provider Reg No NCRCP7

The latest of Agoa in a nutshell The USA permits 40 percent of the products it imports from South Africa to enter the United States duty

free under the African Growth and Opportunity Act. However, the South African Poultry Association fears

that an increase in the import of US poultry products will destroy the local industry and cost South Africa

thousands of jobs. Therefore, the poultry industry and suppliers to the industry supports the continued

imposition of punitive antidumping duties against US poultry products.

But one of the conditions for a country to remain eligible for preferential duties under AGOA is continued

collaboration in eliminating barriers to US trade. Congressional critics in the US question whether South

Africa meets the basic criteria to be part of AGOA. South Africa has been imposing antidumping duties

on US poultry since 2001. The US is of opinion that demand for chicken in South Africa has been

steadily increasing. Secondly, that the demand is greater than the South African domestic industry can

supply. South Africa’s imports of chicken grow from approximately 70 000 ton in 2000 to more than 400

000 tons in 2014. The US is of opinion that South Africa’s attempt to exclude imported chicken through

the use of anti-dumping measures did not work. South African consumers consumed about 1.8 million

tons of broiler chicken. The USA wants to compete with foreign exporters in the domestic market.

The US argues that they can supply lower priced imported chicken to the consumer and add additional

tax revenue for the government without South Africa losing jobs. Furthermore, it is predicted that

agricultural exports of South African citrus, avocadoes, lamb and other products will soon reach $175

million in annual sales under AGOA and these exports will create jobs in South Africa. Citrus exports

from the Western Cape to the United States support 22 000 jobs and that new trade may add 75 000 jobs

to the SA economy. The current AGOA legislation expires on 30 September 2015. In May the US

administration passed the Bill providing an extension of AGOA for another 10 years. The US has linked

the SA’s participation in AGOA to the resolution of the poultry disputes. South Africa made presentations

highlighting its development plans for the future poultry industry, targeted at small producers in particular

and how the US demands would negatively affect those plans.

In future, South Africa will allow 65 000 tons of bone-in chicken portion imports form the USA free of anti-

dumping duties. Note that the US industry initially demanded a quota of 100 000 tons and SA offered 50

000 tons. The quota will increase annually at a rate of growth equal to the average growth of production

and consumption combined. Furthermore, the quota allocation will be spread evenly and quarterly over a

period of a year. DAFF, the DTI and SARS will administer the quota and an amount of it will be allocated

to Historically Disadvantaged Individuals creating new opportunities for emerging importers of

poultry. Poultry imports will also only be allowed from those federal states in the US not affected by avian

flu. The quota concession deal is tied to SA’s continued participation in AGOA. Thus, the threat of

South Africa losing market access for other agricultural exports to the USA under AGOA has

decreased. According to the South African Poultry Association the local poultry industry stands to lose

R900 million in annual turnover and about 6500 jobs as a result of the deal.

Wessel Lemmer

Beef Market Trends

International: New Zealand steers

and cows traded higher at NZ$518 and

NZ$368 per head respectively. New

Zealand exporters are confident that

prices will continue with its strong

positive momentum because the bulk of

the cow slaughtering has now ended. In

the US, beef traded mixed as follows:

Top side traded lower at $298,65/cwt,

Rump traded higher at $476,57/cwt and

Strip loin traded lower at 634,57/cwt,

Chuck traded slightly higher at

$314,20/cwt, Brisket traded lower at

$263,80/cwt which gave us an average

carcass price of $361,77/cwt. The US beef production is expected to remain low year on year for

the rest of 2015, but may begin to increase year on year in 2016. A drought in Canada’s beef

producing regions has left pastureland in dry conditions throughout the beef producing regions.

Supplies of cattle are currently tight, with processors forced to pay a premium for animals to

slaughter. Bloomberg has reported that retail prices are the highest on record going back to at least

1995, and prices are expected to continue being supported.

Domestic: When compared to last week, prices traded mixed. The prices of the different meat

classes were as follows: Class A prices decreased by 2.06% to 33.20/kg, Class C prices increased

by 1,64% to R27.20/kg and Contract prices decreased by 0,86% closing at R33.60kg with the fifth

quarter included. The slaughtering numbers increased from the previous week, as reported by

RMAA (Red Meat Abattoir Association). The weaner prices traded slightly higher compared to last

week at R19.91/kg. Weaner prices have improved as a result of limited supplies in the market. The

average hide price traded lower over the past week at R17,27/kg. According to Business report,

Gerhard Schutte, chief executive of the Red Meat Producers Organization indicated that a large

dependent of their members had already seen their stock dying as a result of the drought,

particularly among developing stock breeders. He further indicated that while established farmers

could factor in the price, small farmers did not have the resources to do so.

Outlook Internationally, reduced supplies out of New Zealand and Australia, and lower US production are

expected to continue to support prices. Locally, prices are expected to trade sideways to downwards in

the short term, as a result of good supplies during this period and limited demand for some cuts.

Mutton Market Trends

International: The New Zealand

lamb and mutton traded slightly higher

this week compared to last week;

lamb closed the week at

NZ$75,2/head for 15kg. Ewes closed

higher as last week at NZ$52.2/head

for a 21kg ewe. Import parity prices for

lamb was slightly higher at R46.57/kg

and for mutton was slightly lower at

R27.27kg respectively. New Zealand

lamb processors have now cleared

out much of this season’s frozen

production, stabilizing prices. There

are reports which indicated some dumping of frozen and chilled lamb at low prices in the UK.

New Zealand products have however struggled to sell into China in recent months. In Australia,

small numbers of new season lambs continue to come into New South Wales auctions, but the

numbers are insufficient to greatly affect old lamb rates. The mild season and recent rain has

helped crop, pasture and lamb growth, which raises the possibility of an earlier turn-off in some

areas.

Domestic: The mutton prices traded mostly higher during the past week. Class A traded slightly

lower at R54.37/kg and Class C traded higher at R38.20/kg compared to the previous week. The

price for feeder lambs traded slightly lower at R24.63/kg. The average price for dorper hides traded

sideways at R98.00/hide and merino traded sideways at R68.00/hide respectively. The landed

imported price of mutton rib from Australia and New Zealand traded slightly higher at R 22,00/kg

compared to the previous week and mutton shoulders traded the same at 45,00/kg according to

(Association of Meat Importers and Exporters) AMIE.

Outlook

Internationally, prices are expected to move sideways to upwards due to reduced supplies in New

Zealand and Australia. Locally, prices are expected to trade sideways in the short term as a result of

limited demand during winter, with a downward potential in August in line with seasonal trends.

Pork Market Trends

International: US pork prices traded

mostly lower over the past week, as a

result of increases of 20,51% in loads.

Carcass prices traded 0.90% lower at

US$80.61/cwt, Loin traded slightly

higher at US$87.23/cwt, Rib prices

traded 5.15% lower at US$181,83/cwt

and ham traded lower at US$53.95/cwt.

The latest Hog and Pig report indicates

that hog production is near its peak

currently and pork supplies are

expected to remain high through the

remainder of the year, and maybe

slightly higher into the New Year.

Domestic: Domestic prices traded slightly lower over the past week with Porker prices slightly

lower at R25.01/kg while Baconer prices were slightly lower at R22.43/kg.

Outlook

Internationally, pork production is expected to be higher year over year in 2015 and is expected continue

to increase modestly into 2016 which is putting pressure on prices. However, prices are expected to be

given some support by good demand. Domestic prices are expected to move sideways in the short term

on the back of good production volumes in the market with some expected upward potential in the

medium term in line with seasonal trends. Higher maize prices would have a negative effect on the pork

industry and support prices in the long term.

Poultry Market Trends

International: Poultry prices in the

US traded mixed over the week

compared to the past week. Whole

bird prices traded 1.25% higher and at

104.4USc/lb. Breasts traded slightly

lower at 134,00USc/lb and leg

Quarters traded higher at 31,00USc/lb

respectively. US broiler production is

expected to be higher in 2015 when

compared to the previous year, and

this is expected to continue with the

upward production trend in 2016,

however, at a slow pace. The Brazilian

Animal Protein Association (ABPA) has reported that 395,700 tons were exported in June, which

is 30% higher than total exports in the same month of 2014. The data includes whole chicken

products, cuts, salted meat, processed and embedded products.

Domestic: Poultry prices traded mostly higher during the past week compared to the previous

week. Frozen birds traded 0.49% higher at R20.32/kg compared to the previous week. Whole

fresh medium bird prices traded slightly higher at R21.74/kg while IQF traded slightly higher at

R19.03kg. Prices were higher in the past week in spite of the oversupply that has been reported

in the market currently.

Outlook

Internationally, US broiler production is expected to be higher in 2015 which pressure prices. Slow

exports and high inventories are expected to continue to add to the bearish tone in the chicken market.

However, the continued strong domestic demand is expected to absorb increased supplies of broiler

meat. Locally, the oversupply in the market continues to hold, and prices are expected to be weighed

down by volume discounts as a result of higher supplies in the market. Prices are therefore expected to

be pressured in the short term, with a possible upward potential in the medium term in line with seasonal

trends.

Livestock Prices

(R/kg)

03 July 2015

Beef

Mutton

Pork

Poultry

Current

Week

Previous

Week

Current

Week

Previous

Week

Current

Week

Previous

Week

Current

Week

Previous

Week

Class A / Porker

/ Fresh birds 33.20 33.90 54.37 54.98 25.01 25.06 21.74 21.54

Class C/

Baconer /

Frozen birds

27.20 26.76 38.20 37.19 22.43 22.56 20.32 20.22

Contract /

Baconer/ IQF 33.60 33.89 55.37 54.59 23.72 23.81 19.03 18.94

Import parity

price

52.72 51.74 27.27 27.44 22.89 23.41 12.43 10.99

Weaner Calves /

Feeder Lambs/ 19,91 19,51 24,63 24,88 - -

Specific

Imports: Beef

trimmings

80vl/b/Mutton

Shoulders/Loin

b/in /chicken

leg1/4

47,00 43,95 45,00 45,00 32.45 35.45 18.60 19.50

Fibre Market Trends

International: The Australian wool

moved 3,36% lower for the week in the

market and closed on Au 1231c/kg.

Wool prices have decreased for the

fourth consecutive week last week, with

prices having been reduced as a result

of increases in volumes. The Eastern

Market Indicator however closed the

season over 24% higher than last year.

Australian Wool Innovation (AWI) said in

a recent report that volume increased by

38% and 21% in the last two weeks.

Despite the recent softening in auction

wool prices, forward prices have not

decreased to the same degree and interest remains from both the sellers and buyers. Cotton has

traded 3.78% higher over the past week and closed at US64,83c/lb. International Cotton Advisory

Committee (ICAC) expects international cotton prices to remain stable; however dependent on part

on changes in world cotton stocks especially on the dynamics of inventories in China, with the price

for this season looking like averaging 71 cents a pound. The threat to price stability will be posed by

China's selling of its huge inventories. Meanwhile, for India, the better-than-expected start to the

monsoon encouraged the ICAC to propose that yields may improve.

Domestic: The last wool auction took place on the 10th of June 2015. The local market traded

higher and closed 0.86% higher to close at a record R141.20/kg (clean). Prices closed the season

on a good note, with this season having been a successful one and there are expectations that the

market will carry on with the positive trend going into the new season. The next sale, which is the

first sale of the new season, is expected to be on the 12th of August. SA cotton prices traded higher

or a 4.89% increase to close at R20.05/kg. The 6th estimate for the 2014/15 production year

indicates a total crop of 98 546 lint bales, which is 1% lower than last month’s crop estimate.

Outlook

Internationally, the Australian last sale of the season was lower, however, the Eastern Market Indicator

closed the season over 24% higher than last year. During 2015/16, Australian prices are expected to be

supported as output of both cotton and wool underperforms government expectations. The ICAC expects

international cotton prices to remain stable in 2015/16 though, however the committee expects this to

depend in part on changes in world cotton stocks. Local wool prices closed the season on a positive note,

and there are expectations that the market will continue with the current strong trend going into the new

season.

Fibres Market Trends

Week ending 03 July 2015

Wool prices SA prices

(c/kg)

Australian

prices

(SA c/kg)

Australian

Future Sep -

2015 (AU$/kg)

Australian

Future Dec –

2015 (AU$/kg)

Wool market indicator 14120 11399 - -

19μ micron 14661 12473 12.90 12.50

21μ micron 14033 12128 12.50 12.10

Cotton prices

SA derived

Cotton

(R/kg)

New York A-

Index (US$/kg)

New York

future Oct-2015

(US$/kg)

New York

futureDec-2015

(US$/kg)

Cotton Prices 20.05 1.64 1.49 1.49

Yellow Maize Trends

International: When compared to

the previous week, the average US

Fob Gulf maize price closed the week

8.49% higher at US$182.44. Unusual

wet weather conditions in the US

Midwest may impact negatively on a

third of the crop production in the

USA. Consequently, maize prices are

supported by risk premiums offered in

the market. Although the maize

balance sheet does not support higher

prices the possibility of a decrease in

yield adds to nervousness in the

market. Although some of the

independent yield estimates indicate

expected yields to reach 165, 4 bushels per acre the possibility of yields to reach as low as 157

bu/acre cannot be fully excluded. Especially if the extreme wet growing conditions continues.

Hence, the current support in maize prices to increase.

Domestic: The local maize market for yellow maize traded 6.24% lower at an average of

R2699.60/ton over the past week. The average exchange rate for the week was weaker at

R12.25/US$ compared to R12.13/US$ the previous week. All the futures prices week on week

traded higher as follows: Sep-15 contracts increased by R81/t to R2732/t, Dec-15 also increased

by R73/t to R2778/t, Mar-16 increased by R63/t and traded at R2749/t, May-16 increased by

R22/t to R2426/t, while Jul-16 increased by R15/t to R2400/t. The 5th yellow maize forecast by the

CEC was 0.05% lower than the 4th estimate at 5 105 500 tons. The area of yellow maize is

estimated at 1.205 million hectares. As of 26 July the total yellow maize imports to date are 79

850 tons.

Outlook

Internationally the maize prices will continue to be supported by the bad weather conditions in the US

should it persist. Locally the weaker rand and the stronger international market will support maize prices.

Yellow Maize Futures:

3 July 2015 Sep-15 Dec-15 Mar-16 May-16 July-16

CBOT ($/t) 180.65 184.12 187.74 189.94 191.28

SAFEX (R/t) 2732.00 2778.00 2749.00 2426.00 2400.00

Dec-15 Mar-16 Jul-16

Ask Put Call Ask Put Call Ask Put Call

2,820 200 158 2,780 224 193 2,460 224 190

2,780 178 176 2,740 202 211 2,420 202 208

2,740 158 196 2,700 181 230 2,380 181 227

White Maize Trends

International: The US white maize

spot market traded 5.98% higher at an

average of US$ 167.11/t over the past

week. The maize condition went from

71% to 68% good over the last 7

days. The bullish acreage and stocks

estimates released by the USDA

added support to the maize price.

Domestic: The rand has weakened

against the dollar during the week by

1.04%. The local average white maize

spot price traded 4.15% or R123.80/t

higher at R3105t compared to the

prior week. The futures prices all

traded lower except July-16 as follows: the Sep-15 contracts decreased by R20/t to R3102/t,

Dec-15 also decreased by R15/t to R3168/t, Mar-16 decreased by R18/t and traded at R3165/t,

May-16 decreased by R25/t to R2595/t while July-16 traded R74/t higher at R2564/t. The 5th

white maize forecast by the CEC was 1.73% lower than the 4th estimate at 4 649 800 tons. The

area of white maize is estimated at 1.448 million hectares. As of 26 July the total white maize

imports to date are 163 tons.

Outlook Internationally the US acreage report estimated maize plants lower than first predicted and will support

the international maize price. Locally the slower white maize deliveries are expected to increase local

prices.

White-Maize

Futures

3 July 2015

Sep-15 Dec-15 Mar-16 May-16 July-16

SAFEX (R/t) 3102.00 3168.00 3165.00 2595.00 2564.00

Dec-15 Mar-16 Jul-16


3,200 224 192 3,200 257 222 2,640 244 199

3,160 202 210 3,160 235 240 2,600 222 217

3,120 181 229 3,120 214 259 2,560 201 236

Wheat Market Trends

International: The average weekly

wheat spot price traded 12.82% higher

compared to the previous week at

US$222.8/t. Soft red wheat traded

15.12% higher at US$230.05, while

hard red wheat traded 10.46% higher at

US$215.55. Import parity traded 9.4%

higher. The rainfall in the western

prairies of Canada is well below their

average which is putting pressure on

their wheat plantings.

Domestic: The average SAFEX wheat

spot price increased from last week’s

levels of R3871.00/t and traded at R3897.00/t. The Sep-15 traded R17/t higher at R3907/t while

Dec-15 futures traded R7/t lower at R3815/t and Mar-16 traded R10/t lower at R3868/t. Since the

weekly US Nr2 HRW fob-price declined from $235/ton to $$220/ton in May triggering an increase

in the wheat tariff from R561/ton to R800/ton, the weekly price increased by more than 18% to

trade at $260/ton. If the global wheat price continues to trade above $237.67/ton until 14 July it

can be expected that role players in the secondary market will apply for a reduction in the wheat

tariff. Depending on the value of the Rand and the US wheat price on the 14th of July the wheat

tariff may lower to R700/ton or more by the end of August.

Outlook Internationally the Wheat prices in the United States may enjoy additional support to increase. Especially

if the weather conditions in Germany, Canada and eastern Australia turn out drier than expected. The

trade is not currently very bullish on wheat but negative headlines in papers on possible negative weather

conditions in other wheat producing areas of the world offer opportunities for wheat producers to sell at

higher prices. Locally the rand has weakened week on week which could pull prices us should it persist.

The international market is expected to provide support to the local prices as it strengthens.

Wheat Futures


SAFEX (R/t) 3907.0 3815.0 3868 n/a n/a

CME ($/t) 231.93 235.17 238.40 240.39 238.48

Sep-15 Dec-15 Mar-16


3,940 95 62 3,860 149 104 3,900 178 146

3,900 74 81 3,820 127 122 3,860 157 165

3,860 56 103 3,780 107 142 3,820 137 185

Oilseed Market Trends

International: Soybean prices

week on week traded higher at

US$384.05/t. Soya meal traded at

US$354.65/t, which is 6.1% higher

compared to the previous week

while soy oil traded lower at

US$33.25/t. Import parity

increased.

o Canola: Global canola

prices continue to rally due

to severe production losses

in Canada due to drought

conditions. Production

losses in the EU and CIS

countries add to the latest price rallies. Shipments from Australia reached a three year

high of 240 000 tons in May 2015 which is almost double the exports compared to a year

earlier. The weekly rapeseed price in Rotterdam increased by 1.9% to $435/ton.

o Soybean: US soybean prices ignored the past weeks bearish world supply

fundamentals. It is expected that the total old season US soybean supplies will be

smaller than expected until end of August but also for the US marketing year from

September 2015 until August 2016. However, supplies from South America will be more

than ample from the start of July thereby easing the demand for US soybean supplies.

The South American soybean stock aims to reach up to 93 million tons which is

unusually high and an estimated 17 million tons above a year earlier. Keep in mind that

due to the expected sharp rise in South American exports the demand for US soybeans

may be severely affected for the next 6 – 9 months until end of March 2016. Global

soybean prices may decline from now onwards lowering import parity prices for both

soybean oilcake and soybeans in South Africa.

o Sunflower: If favourable weather conditions permits the combined sunflower seed crop

in the Ukraine and Russia may reach a combined 20 million tons or even more. It will be

the second largest production on record. The new crop outlook seems to be favourable

in the major producing countries of the Soviet Union as current weather conditions and

soil moisture supports crop growth and development. Nevertheless, it is still expected

that the combined world production and crushing of sunflower seed and canola will

sharply decline in 2015/16. Consequently, the dependence on soybeans and soybean oil

will increase globally.

Domestic: The average soybean spot prices traded 1.96% lower at R4781.00/t in comparison

to the previous week. The average sunflower spot prices for the week traded 1.27% higher at

R5371.40/t compared to the previous week. South African oilseed production declined by 7% due

to drought and it is expected that South Africa may harvest 612 000 tons of sunflower seed.

Consequently sunflower seed prices trade 1,7% higher for September and 3,2% higher for

December. Note that South Africa imported for the past eight months until end of May 2015 349

000 tons of vegetable oils (including palm oil, sunflower seed oil and soybean oil) compared to

461 000 tons over the same period last year – a reduction of 25% in imports. The combined

soybean and sunflower seed oil imports dropped by 58% to 94 000 tons. Since January until

May 2015 South Africa exported 6000 tons of sunflower seed oil compared to imports of 34 000

tons the previous year. Sunflower seed prices are derived to a large extend from oil prices.

Consequently the drop in production support sunflower seed prices to trade 1,7% higher for

September compared to July and 3,2% higher for December. The expected increase in the

supply of South American soybeans may lead to lower domestic import parity prices for soybean

and oilcake. However, the domestic prices for soybean trades 23 % lower than the import

parity. South Africa does not produce sufficient quantities of soybeans and it is expected that

domestic prices will not be impacted by the expected lower international prices. US soybean

prices is expected to decline by up to 2,6% by March 2016 but domestic prices show potential to

increase from now until March 2016 by 4,6%.

Outlook Internationally the soybean prices are expected to carry on receiving support from the all the rain in the

US even though a large crop is expected from South America. The unplanted soybeans can affect the

market however South America has sufficient soybeans. Locally the weaker rand is expected to support

local prices. The strong international market due to the rains in the US is expected to support local prices.

The improved CEC production estimates are the main driver behind the drop in local soybean prices.

Oilseeds Futures


CBOT Soybeans (US $/t) 378.97 380.52 377.95 372.21 372.07

CBOT Soy oil (US c/b) 33.56 33.92 34.17 33.98 33.86

CBOT Soy cake meal (US $/t) 346.10 343.90 339.10 333.00 332.30

SAFEX Soybean seed (R/t) 4855.00 4,940 4,995 4,900 n/a

SAFEX Sunflower seed (R/t) 5530 5612 5505 n/a n/a

SAFEX Sorghum (R/t) 3040.00 2925.00 n/a n/a n/a

Sunflower Calculated Option Prices (R/t) Absa Capital Trading Desk: 011 – 895 5524

Sep-15 Dec-15

Ask Put Call Ask Put Call

5,580 224 174 5,660 357 309

5,540 203 193 5,620 336 328

5,500 182 212 5,580 315 347

Vegetables Market Trends

Cabbage: Cabbage prices

decreased this week by 2,5% week

on week to R3546/t. The price

decrease was due to 3,2% increase

in volumes. Prices are expected to

move sideways in line with seasonal

trends.

Carrots: Carrot prices increased by

0,3% week on week to R2339/t. The

price increase was in spite of an

increase of 15,1% in the volumes of

carrots. Prices are expected to

continue to move sideways to downwards in line with seasonal trends.

Onions: Onion prices decreased by 3,7% week on week to R3180/t. The price decrease was

as a result of an increase of 13,2% in volumes compared to the previous week. Prices are

expected to trade sideways to downwards in the short to medium term in line with seasonal

trends, and limited demand.

Potatoes: Potato prices decreased by 0,83% week on week to R2546/t. The increase in prices

was due to increases in volumes of 18,4% compared to the previous week. Prices may move

sideways until the end of the month, with a possible upward potential in August in line with

seasonal trends.

Tomatoes: Tomato prices decreased by 34.9% week on week to R7391/t. The price decrease

was due to increases in volumes of 35,9% during the past week. Prices are expected to move

sideways to downwards in line with seasonal trends and due to limited demand.

Vegetable Prices: Fresh Produce Market

(Averages on the Pretoria Bloemfontein Johannesburg Cape Town and Durban markets)

Week ending

03 July 2015

This week’s

Average

Price (R/t)

Previous

week’s

Average

Price (R/t)

This week’s

Total

Volumes (t)

Previous week’s

Total

Volumes (t)

Cabbages 3546 3638 1446 1401

Carrots 2339 2332 2202 1914

Onions 3180 3304 6660 5882

Potatoes 2546 2567 16036 13549

Tomatoes 7391 8957 4042 2997

Enquiries: Karabo Takadi/Julie Hayward Absa Agri-Business E-mail:[email protected]/ [email protected]

Disclaimer: Although everything has been done to ensure the accuracy of the information, Absa Bank takes no responsibility for actions or losses that might occur due to the usage of this information.

Agri Trends 03 July 2015

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Transcript of Agri Trends 03 July 2015