By Dr Penny Byrne, Investment analyst: ESG and Climate change, Standard Bank
The local soft commodities outlook has given us whiplash this season. We started out rather bearish on the summer crop outlook since El Niño usually results in dry conditions over the summer rainfall regions across southern Africa. However, rainfall was merely average across most of the crop-growing regions in South Africa in the early part of the season – yet we were optimistic that South Africa would see another bumper crop. That is, until February, when a flash drought set in during a crucial time in the growth of the summer crops. The dry conditions have been worse across the western part of the maize belt, which has resulted in a spike in SAFEX white maize prices.
The Crop Estimates Committee (CEC) will release its second estimate for this season’s production on 26 March. It is feared there will be a downward revision of the current estimates, which might well see SAFEX prices spiking further. Still, the last three summers resulted in bumper crops in South Africa largely due to the impact of La Niña, which brought good rainfall over the country. This means solid carry-over stocks to buffer a potentially poor harvest this year. Nevertheless, higher white maize prices might still impel higher food inflation this year.
In the CEC’s first estimate, South Africa is projected to produce 14,3 million tons of maize, compared with 16,4 million tons in 2023 (the second-largest crop on record). Domestic consumption of maize is below 12 million tons, so, even though yields are expected to be lower this year, South Africa should still have enough maize to cover local consumption, and with some in hand to export. This would support many of our northern neighbours, having had a trying growing season due to adverse weather.
Much of southern Africa this season experienced the typical dry conditions associated with El Niño, and the exceptionally dry February has exacerbated an already poor situation, with swathes of Zambia, Botswana and Zimbabwe having had their driest February in five decades. Further, alongside below-average rainfall, much of southern Africa has seen extreme heat stress this season.
Zambia has declared a national disaster as the country battles with drought conditions. The drought has negatively impacted the summer crops, copper production, and energy production. Zambia generates around 87% of its electricity from hydropower – but the Zambezi River Authority (ZRA) now has reduced its allocation of water for electricity generation to Zambia and Zimbabwe to 16 billion cubic litres in 2024, down from 30 billion cubic litres in 2023 and 40 billion cubic litres in 2022. Zambia is now having to handle as much of eight hours of loadshedding daily as the drought digs in its heels. Almost half of the maize crop has been lost, and maize prices have rocketed in recent months.
The good news is that the global grains market is in very good shape, with record global production across many grains resulting in lower prices internationally. Further, the current El Niño-Southern Oscillation (ENSO) forecasts suggest a high likelihood that El Niño will end in the coming months, with La Niña resurging for the 2024/25 summer season. La Niña conditions typically result in above-average rainfall over South Africa, which holds promise.