agri trends 22 may 2015

Agri Trends 22 May 2015

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

Why USA consumer spending, global bond markets and Greece

impacts RSA producer prices! Each agricultural commodity has its own distinguished global and fundamental factors influencing prices.

Due to the impact of these factors, global grain and oilseed prices appears to be following a deflationary

cycle trending lower. But there are also those fundamental factors that impacts daily on the value of

every commodity produced in general. The volatility of exchange rates such as the USA-$ and the Euro

impacts not only on the daily value of our commodities destined for export but also of those who are

imported. The modest rally in USA corn and wheat prices, after the publication of the USDA report, came

to an end due to developments in the global currency markets. Funds turned bearish and sold

commodities after the USA-$ strengthened. The $ strengthened because the European Central Bank

considers speeding up their asset purchasing program, instead of increasing interest rates, to offset a

sell-off in the global bond markets. An increase in interest rates may harm economic growth in the EU.

On the other hand, if USA economic growth proofs to be sufficient and the core consumer price index

continues to increase, the US Federal Reserve may consider it to raise interest rates sooner than later in

2015. The possibility of this may lead to strength in the USA-$ relatively to a weakening Euro. A strong

USA-$ may impact negatively on global grain and oilseed prices including South Africa. On the other

hand, weakness in the Euro may favor countries who export commodities to the EU. Factors that further

support a weakening Euro and strengthening $ includes the possibility that Greece may fail to meet its

debt obligations by June. The volatility in the Euro and consequently USA-$ may continue until

uncertainty about Greece and sufficient growth in the US economy is removed.

Beef Market Trends

International: New Zealand steers and

cows traded sideways at NZ$461 and

NZ$316 per head respectively. New

Zealand has processed a record number

of cows, exceeding 52 000 head for the

first time, during the week that ended on

the 16th of May. These higher numbers

encouraged exporters to push these high

volumes into the US. Australia on the

other hand is driving huge volumes of

beef, putting further downward pressure

on prices. Record slaughter levels have

been reached in Australia recently as well,

and shipments of beef to the US from that market are set to be very large in May. In the US, beef

traded mostly higher as follows: Top side traded higher at $301,76/cwt, Rump traded lower at

$451,01/cwt and Strip loin traded higher at $740,23/cwt, Chuck traded slightly sideways at

$273,50/cwt, Brisket traded higher at $277,55/cwt which gave us an average carcass price of

$376,13/cwt. The US market this week was driven by the demand that is generated by the big

grilling holiday weekend, (Memorial Day on 25th of May). This demand is further supported by the

fact that as the economy improves, more people can buy meat. Looking at policy, a trade and

investment deal between China and Brazil is expected to result in larger beef exports from Brazil,

posing competition for Australian producers. This is as China was lifting a three year old ban

relating to mad cow disease and opening the door to half a billion dollars of new sales.

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

classes were as follows: Class A prices decreased by 0.88% to 33.96/kg, Class C prices increased

by 1,65% to R27.07/kg and Contract prices decreased by 0,17% closing at R34.39kg with the fifth

quarter included. The weaner prices traded slightly higher compared to last week at R19.62/kg. The

average hide price traded sideways at R18,42/kg.

Outlook

Internationally, prices in the US should continue to be supported by good demand during the US grilling

season; however, higher supplies in both Australia and New Zealand can put some downward pressure

on prices. Reduced supplies out of Australia and New Zealand can support prices in the medium term.

Locally, prices are expected to trade sideways to downwards in line with seasonal trends and on the back

of good supplies.

Mutton Market Trends

International: The New Zealand

lamb and mutton traded sideways this

week compared to last week; lamb

closed the week at NZ$73,3/head for

15kg. Ewes closed sideways at

NZ$51.1/head for a 21kg ewe. Import

parity prices for lamb was slightly

lower at R48.04/kg and for mutton

was slightly lower at R28.23kg

respectively. According to EBLEX,

exports of sheep meat for both New

Zealand and Australia have

decreased during the 1st quarter of

2015, as a result of disappointing

demand. The report indicates that this was mainly the result of lower demand from China. In the

second part of the year, production is however expected to decline, reducing stocks in New

Zealand and Australia. Meanwhile in New Zealand, sales continued to be weak, with inventories

building up, with some sideways to downward pressure on prices. It was also reported that the

New Zealand exporters are facing difficulties in the UK. This is as domestic demand that side is

strong, with less lamb required from New Zealand.

Domestic: The mutton prices traded mixed during the past week. Class A traded slightly lower at

R50.00/kg and Class C traded higher at R39.29/kg compared to the previous week. The price for

feeder lambs traded slightly lower at R24.50/kg. The average price for dorper hides traded

sideways at R94.00/hide and merino also traded sideways at R67.80/hide respectively. The landed

imported price of mutton rib from Australia and New Zealand traded lower at R 23,50/kg compared

to the previous week and mutton shoulders however traded sideways at 43,95/kg according to

(Association of Meat Importers and Exporters) AMIE.

Outlook

Internationally, in the short term, prices are expected to remain soft as a result of soft demand in the

market, especially from China. In the medium to long term, prices are expected to be supported with

expected tight supplies from Australia and New Zealand as nations are rebuilding their herds, which might

result in lower stocks in the market. Locally, prices are expected to trade sideways to upwards in line with

seasonal trends.

Pork Market Trends

International: US pork prices

traded mostly higher over the past

week, despite increases of 11,55% in

loads. Carcass prices traded 2.65%

higher at US$84.77/cwt, Loin traded

slightly higher at US$98.77/cwt, Rib

prices traded 0.43% lower at

US$190,25/cwt and ham traded

higher at US$64.62/cwt. The import

parity price increased slightly due to

the higher international prices. Pork

production has totaled 2.07 billion

pounds in April, which is an increase

of 8% from the previous year. Hog

slaughter has also increased at a total of 9.68 million head, which is an increase of 9% from April

2014. Higher production and slaughter rates in the market continue to put a downward pressure

on prices, with limited upside potential on prices. The lower prices will hopefully encourage

consumers to purchase more during this grilling period.

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

R25.34/kg while Baconer prices were slightly higher at R23.65/kg.

Outlook

Internationally, hog prices are expected to follow a downward trend in the short to medium term on the

back of higher supplies. Domestic prices are expected to move sideways with a possible downward

pressure on the back of good production volumes in the market and in line with seasonal trends. In the

medium to long term, prices could improve as demand improves.

Poultry Market Trends

International: The poultry prices in

the US traded mostly lower over the

week compared to the past week.

Whole bird prices traded 0.13% lower

and at 107.1USc/lb. Breasts traded

0.25% lower at 156,60USc/lb and leg

Quarters traded 0.0% lower at and

35,0USc/lb respectively. Egg prices

have increased in the US, as farmers

have been forced to kill almost 40

million chickens and other birds, as a

result of the avian flu attacks in the

poultry industry. However the general

feel has been that broiler production

has grown as producers continue to expand egg sets and chicks placed.

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

week. Frozen birds traded 1.63% lower at R21.08/kg compared to the previous week. Whole

fresh medium bird prices traded slightly lower at R22.45/kg while IQF traded slightly lower at

R19.16kg. South Africa meanwhile is looking for a solution with the US over renewal of the

African Growth and Opportunity Act (AGOA). This is as there is still no agreement between the

two countries over the quantity of US chicken which should be allowed into South Africa free of

antidumping duties. Christopher Wood, an economic diplomacy researcher has indicated that the

US producers are willing to export brown meat chicken at lower prices, as they are unpopular in

the US market, and that this might threaten local producers as they have to compete with these

shipments.

Outlook

Internationally, prices are expected to continue with the downward trend as broiler production continues

to grow. Locally, prices have declined due to some build-up of stock that needs to be cleared, the market

has reported expectations of imports in June, so prices can follow a sideways to downwards movement in

order for the stocks to be cleared.

Livestock Prices

(R/kg)

22 May 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 33.96 34.26 54.00 54.39 25.34 25.38 22.45 22.68

Class C/

Baconer /

Frozen birds

27.07 26.63 39.29 39.19 23.61 23.65 21.08 21.43

Contract /

Baconer/ IQF 34.39 34.45 55.02 55.24 24.50 24.50 19.16 19.69

Import parity

price

47.80 48.51 28.23 28.64 25.32 24.63 13.09 13.18

Weaner Calves /

Feeder Lambs/ 19,62 19,57 24,50 25,53 - -

Specific

Imports: Beef

trimmings

80vl/b/Mutton

Shoulders/Loin

b/in /chicken

leg1/4

44,50 46,95 43,95 43,95 33.00 37.50 19.60 19.50

Yellow Maize Trends

International: When compared to

the previous week, the average US

Fob Gulf maize price closed the week

0.41% lower at US$167.41. The US

maize market has been pressured

upward due to the current weather

conditions. Maize planting is still

progressing well and was 85%

complete on 18 May. According to the

US Climate Prediction Centre there is

now an 80% chance of El Nino

occurring in the upcoming months in

the US. With El Nino occurring in the

summer month’s very heavy Midwest rainfall is anticipated in some areas.

Domestic: The local maize market for yellow maize traded 0.96% higher at an average of

R2419.40/ton over the past week. The average exchange rate for the week was stronger at

R11.85/US$ compared to R11.96/US$ the previous week. The futures prices traded mostly

higher as follows: May-15 contracts increased by R37/t to R2440/t, Jul-15 increased by R25t to

R2449/t, Sep-15 contracts increased by R32/t to R2485/t, Dec-15 also increased by R25/t to

R2522/t, Mar-16 increased by R25/t and traded at R2510/t, May-16 decreased by R8/t to

R2374/t, while Jul-16 increased by R50/t to R2280/t. The weekly price changes of the Safex

white maize contracts outperformed the yellow maize market which caused a colour spread to

open up relatively quickly. Over the last week 33 138 tons of yellow maize was imported from

Argentina according to the weekly South African grain trade figures, this is the 1st import for the

current season to date.

Outlook

Internationally above average rainfall is anticipated for most regions in the US which includes the main

maize growing areas. Locally the smaller harvest of maize is still expected to improve the maize price.

The local market is starting to feel the pressure as the deliveries of maize increase. There is much

anticipation with regard to the 4th crop estimate to be released on the 26 May.

Yellow Maize Futures:

22 May 2015 Jul-15 Sep-15 Dec-15 Mar-16 May-16

CBOT ($/t) 153.72 156.32 160.65 164.83 167.58

SAFEX (R/t) 2449.00 2485.00 2522.00 2510.00 2374.00

Sep-15 Dec-15 Mar-16

Ask Put Call Ask Put Call Ask Put Call

2,520 162 127 2,560 200 162 2,540 229 199

2,480 140 145 2,520 178 180 2,500 207 217

2,440 120 165 2,480 157 199 2,460 186 236

White Maize Trends

International: The US white

maize spot market traded 0.60%

lower at an average of US$ 153.76/t

over the past week. In the southern

US there were flash floods of up to

10 inches (25cm) of rain in some

areas over a 24-hour period, with

more predicted across the region.

Domestic: The rand has

strengthened slightly against the

dollar during the week. The local

average white maize spot price

traded 1.85% or R51.20/t higher at R2816.60.40t compared to the prior week. The futures prices

all traded higher as follows: May-15 contracts increased by R43/t to R2830/t, Jul-15 increased by

R19/t to R2836/t, Sep-15 contracts increased by R92/t to R2851/t, Dec-15 also increased by

R17/t to R2868/t, Mar-16 increased by R30/t and traded at R2919/t while July-16 traded R5/t

higher at R2458/t. The maize price remained strong over the week with deliveries increasing. The

imports of white maize have been spoken about and are due to come in.

Outlook

Internationally the good planting progress and weather along with the strong dollar are expected to put

pressure on the maize price. Globally the prices will be pressured due to the substantial increase

expected for the 14/15 Brazilian maize production export estimates. Locally, on the 26 of May the 4th crop

estimate will be released for the 2015 season which could affect prices. The estimates could be similar or

even lower than the 3rd

crop production estimate. Preliminary feedback from the different production

regions indicated before the publication of the fourth estimate that the total maize crop may yield up to

150 000 tons less than the 3rd

estimate. Ultimately, the actual size of the crop will be revealed as harvest

progresses. The probability of having to increase white maize imports may influence prices. The market is

sceptical of the size of the white maize crop in the western production areas.

White-Maize

Futures

22 May 2015

Jul-15 Sep-15 Dec-15 Mar-16 Jul-16

SAFEX (R/t) 2836.00 2868.00 2929.00 2919.00 2458.00

Sep-15 Dec-15 Mar-16


2,900 186 154 2,960 224 193 2,960 270 229

2,860 164 172 2,920 203 212 2,920 248 247

2,820 144 192 2,880 182 231 2,880 227 266

Wheat Market Trends

International: The average weekly wheat

spot price traded 5.65% higher compared to

the previous week at US$217.7/t. Soft red

wheat traded 6.52% higher at US$210.59,

while hard red wheat traded 4.84% higher at

US$224.87. Import parity traded 3.2% higher.

Due to excessive rainfall and expected dry

conditions for Canada, Australia and Russia,

the wheat market has responded well to the

potential quality issues at harvest time. Due to

the weak euro and the possible crop damage

in the United States and Russia the European

wheat prices increased at the end of the week.

Domestic: The average SAFEX wheat spot price increased from last week’s levels of

R3827.40/t and traded at R3810.00/t. The May-15 futures decreased by R17/t to R3815, Jul-15

futures traded lower by R3/t to R3843/t, Sep-15 traded R21/t higher at R3866/t while Dec-15

futures traded R12/t lower at R3798/t. The week ending 15 May wheat exports were small and no

imports were documented. Most of the wheat exported went to Botswana then Zambia which was

2092 and 1501 respectively.

Outlook

International prices will continue to be pressured due to the continuous good winter wheat conditions and

the rapid spring planting in the US. Locally the stronger rand is applying pressure the domestic wheat

price.

Wheat Futures


SAFEX (R/t) 3843.0 3866.0 3798.0 n/a n/a

CME ($/t) 204.30 207.17 212.31 217.60 220.84

Jul-15 Sep-15 Dec-15


3,880 98 61 3,900 132 98 3,840 172 130

3,840 76 79 3,860 110 116 3,800 150 148

3,800 57 100 3,820 91 137 3,760 130 168

Oilseed Market Trends

International: Soybean prices week on

week traded lower at US$ 339.59/t. Soya

meal traded at US$305,58/t, which is lower

compared to the previous week while soy oil

traded 2.4% lower at US$32.21/t compared to

last week US$33.01 Import parity decreased

by 1%. US soybeans were unable to increase

this last week due to the record harvest of

soybeans in South America even though the

USDA reported good exports. There are

anticipations of the Chinese cutting down on

Sorghum imports to increase the demand for

its large local maize stocks. Further export

delays in Argentina are a possibility until 1 June due to an increase in labour union strikes that

are occurring at some of the crushing plants. Demand shift to the USA which may temporarily

support soybean prices

Domestic: The average soybean spot prices traded 1.95% lower at R4607.20/t in comparison

to the previous week. The average sunflower spot prices for the week traded 1.21% higher at

R4915.80/t compared to the previous week. The harvesting of soybeans and sunflowers is mostly

complete in South Africa. Turkey, South Africa and China are expected to have smaller sunflower

seed harvests.

Outlook

Internationally the strikes in Argentina and reserved farmer selling could increase the demand for the US

soybeans. Locally the markets await the fourth production estimate which will be released by the National

Crop Estimate Committee (CEC) on the 26 May 2015.

Oilseeds Futures


CBOT Soybeans (US $/t) 339.59 333.41 336.06 338.26 339.88

CBOT Soy oil (US c/b) 31.64 31.73 31.89 32.12 32.39

CBOT Soy cake meal (US $/t) 304.20 297.10 295.80 295.20 295.40

SAFEX Soybean seed (R/t) 4640.00 4710.00 4,802 n/a n/a

SAFEX Sunflower seed (R/t) 5015 5105 5195 n/a n/a

SAFEX Sorghum (R/t) 2660.00 2587.00 n/a n/a n/a

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

Jul-15 Sep-15 Dec-15


5,060 199 154 5,140 290 255 5,240 393 348

5,020 177 172 5,100 268 273 5,200 371 366

4,980 157 192 5,060 248 293 5,160 350 385

Fibres Market Trends

International: The Australian wool

moved 0,57% higher for the week in the

market and closed on Au 1242c/kg. The

Australian wool prices closed the week

higher, as the product became cheaper

in US dollars for exporters. Volumes

are expected to be lower next week, as

shearing starts to slow down. Prices

have improved recently, giving the

industry a boost. Cotton has traded

1.13% lower over the past week and

closed at US62,88c/lb. Many producers

in West Texas continue to wait for fields

to dry so they can begin planting their crops. This is as many fields are soaked following almost

daily rainfall events across the region. Meanwhile, farmers in India may plant fewer acres of cotton

as slumping demand from China cuts exports to the lowest level in six years. A smaller harvest in

India would reduce global surplus.

Domestic: The last wool auction took place on the 13th May 2015. The local market traded

higher and closed 8.50% higher to close at R132.02/kg (clean). The increases were reportedly

resulting from strong demand from the Chinese and Indian buyers, which drove the market higher.

SA cotton prices traded lower or a 2.27% decrease to close at R18.86/kg. The Australian mohair

market was also strong this week, on the back of good demand. The biggest demand was from a

client from the South African Mohair Industries Limited from South Africa. The big volumes bought

were on the back of the fire which has devastated a South African mohair combing plant last month,

according to Mr Jim Stanley from the Australian Mohair Marketing Organization (AMMO). He further

highlighted that the big demand took some competition out of the market.

Outlook

Internationally, prices in Australia are expected to improve due to improved demand and lower supplies.

Cotton’s prices have improved over the last few months. In the medium to long term, prices might be

supported by the expected lower world production and improved consumption following lower prices in

the market. Local wool prices are expected to continue with the upwards trend in the next few weeks due

to improved demand from the Chinese and Indian buyers.

Fibres Market Trends

Week ending 22 May 2015

Wool prices SA prices

(c/kg)

Australian

prices

(SA c/kg)

Australian

Future Jul -

2015 (AU$/kg)

Australian

Future Sep –

2015 (AU$/kg)

Wool market indicator 13202 11553 - -

19μ micron 13826 12871 13.00 12.70

21μ micron 13047 12161 12.60 12.30

Cotton prices

SA derived

Cotton

(R/kg)

New York A-

Index (US$/kg)

New York

future Jul-2015

(US$/kg)

New York

future Oct-2015

(US$/kg)

Cotton Prices 18.86 1.60 1.40 1.45

Vegetables Market Trends

Cabbage: Cabbage prices

decreased this week by 8,5% week

on week to R2698/t. The price

decrease was due to a 1,3%

increase in volumes. Prices are

expected to move sideways to lower

in the short term in line with

seasonal trends, but move sideways

to upwards in the medium term.

Carrots: Carrot prices decreased

by 26,4% week on week to R2911/t.

The price decrease was due to an

increase of 15,6% in the volumes of

carrots. Prices are expected to move sideways to downwards in line with seasonal trends and on

the back of higher volumes.

Onions: Onion prices decreased by 2,9% week on week to R3504/t. The price decrease was

due to an increase of 9,7% 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, however,

month end buying might give some support to prices.

Potatoes: Potato prices decreased by 4,6% week on week to R2510/t. The decrease in prices

was as a result of increases in volumes of 2,4% compared to the previous week. Prices are

expected to follow a sideways movement in winter, and carry on with that trend until the end of

winter. Good yields have been realised in the Eastern and Western Free State, which may

counter the effects of drought in the Eastern Free State. Prices that were realised during January

to April were higher than those the same time last year.

Tomatoes: Tomato prices increased by 5.1% week on week to R7400/t. The price increase

was due to a decreases in volumes of 13,1% during the past week. Prices are expected to move

sideways to downwards in line with seasonal trends.

Vegetable Prices: Fresh Produce Market

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

Week ending

22 May 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 2698 2950 1301 1285

Carrots 2911 3957 1586 1372

Onions 3504 3608 5686 5181

Potatoes 2510 2629 12587 12296

Tomatoes 7400 7044 3078 3543

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 22 may 2015

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