Production Growth Prospects Looking More Uncertain
BMI V iew: We have revised down our forecast for South Africa's 2013/14 corn production to 12.2mn tonnes (compared to 12. 8 mn tonnes previously). We believe South Africa will continue to struggle to expand corn area in the coming years, and we believe most growth will come from expansion in yields, even though the ongoing land reforms are putting downside risks to this view over the medium term. The country's corn export potential will suffer as a result of these dynamics.
We have revised down our forecast for South Africa's 2013/14 corn production to 12.2mn tonnes (compared to 12.7mn tonnes previously). This forecast is based on initial 'intention to plant' surveys released in October, which show that farmers are planning to plant 3.1mn hectares (ha) of corn (2.6mn ha for commercial farmers and 500,000ha for subsistence farmers). This is in line with recent averages but lower than between 1990 and the 2000s, when 3.9mn ha of corn was planted on average each year. Yields are set to be strong in 2013/14 as soil conditions recover from several years of droughts. The US Department of Agriculture (USDA) forecasts yields to reach 3.9-4.1 tonnes/ha in 2013/14, from 3.1 tonnes/ha on average over the past 20 years.
|South Africa - Area Harvested ('000 ha, LHS) & Yields (tonne/ha)|
We believe South Africa will continue to struggle to expand corn area in the coming years, and we believe most growth will come from expansion in yields even though ongoing land reforms are putting downside risks to this view over the medium term. South African farmers have tended to favour oilseeds, especially sunflower seeds, as they are the most drought-tolerant crop and their profitability has increased in recent months, especially compared with corn. Corn yields have progressed quite significantly in recent years as more and more of the country's farmers have planted genetically modified (GM) seeds. The USDA reports that 86.0% of the 2012/13 commercial corn crop (or around 2.4mn ha) was planted with GM seeds, compared with 72.0% in 2011/12. Still, corn yields in the country are much lower than other key exports such as Argentina and the United States, and we believe they have room to increase further.
|Select Corn Producers - Corn Yields (tonne/ha)|
Over the medium term, ongoing land reforms could limit productivity and yield growth in the South African corn industry. The new Expropriation Bill Of 2013 is seeking to take a slightly more aggressive approach to land redistribution than its predecessor of 2008. Land reform in the country, where the black majority only owns 7.0% of total farmland, has been focusing on a 'willing buyer, willing seller', system, under which white farmers were not compelled to sell their land. This meant that the redistribution progress was very slow, with only 10.0% of land owned by white farmers handed over. The country will therefore fail to meet its target of transferring 30% of South Africa's land to black farmers by 2014. The new bill will expand the potential for expropriation. This could decrease productivity in the country's major crops, including corn, as new farmers lack capital, training and skills to run their farms properly. Also, some farms could be taken out of the market altogether, with 167 land-reform beneficiaries from a sample of 301 farms deciding to leave their land unfarmed in 2013 according to the Human Sciences Research Council.
|Lower Production Surpluses|
|South Africa - Corn Production & Consumption ('000 tonnes)|
We believe the country's corn export potential will suffer as a result of these dynamics. We forecast an improvement in the corn production surplus out to 2017/18, but surpluses will remain largely below previous levels. We forecast the country's corn production surplus to reach 1.4mn tonnes in 2017/18, compared with 2.3mn tonnes on average over the past 10 years. This will mean that the country will be a less reliable exporter for its major trade partners, namely Japan, Taiwan, South Korea and Mexico. Nevertheless, it will remain a significant player in the region's corn export markets.
|Front-Month CBOT Corn (USc/bushel, LHS) & South African White Corn (ZAR/tonne)|
Because significant global corn demand was left unsupplied after the US drought in 2012, and given low global stocks at the start of the 2013/14 season, we believe South Africa will export more than its current potential, tightening the domestic market. We forecast a 1.2mn tonnes surplus for South African corn in 2013/14, and the USDA expects corn exports to reach 2.0mn tonnes on strong demand. In addition, global corn prices are low, and the weakening South African rand has made the country particularly competitive. This has pushed domestic corn prices at a strong premium over global prices.
|Corn Production, '000 tonnes 1||12,417.0||11,400.0||12,200.2||12,566.0||12,930.4||13,292.0|
|Corn Consumption, '000 tonnes 1||10,700.0||10,700.0||10,991.1||11,292.4||11,604.3||11,927.2|
|Notes: f BMI forecasts. Sources: 1 Department of Agriculture, Forestry And Fisheries .|