This weekend’s Black Sea grain deal will benefit all wheat and vegetable importing countries and users, as it would result in a downward pressure on prices, says Agricultural Business Chamber(Agbiz) chief economist Wandile Sihlobo.
He said South Africa was one of the wheat importers that stood to benefit from softer global wheat prices.
“Moreover, the animal feed industry will also benefit from general downward pressure on grain prices, which have been elevated in the past year, and added price pressures to their businesses. Ultimately, the events of this past weekend are positive for global food prices, notwithstanding the ongoing uncertainty about what happens after the end of the current extension.
“We think it will be in Russia’s interest to extend the deal further when the current term expires, given that the country has ample wheat supplies that need to be exported to create space for yet another large production to be harvested soon. Hence, we remain optimistic that Black Sea grain exports will continue to supply the world market,” Sihlobo said.
The United Nations representatives and the Turkish government engaged with the Russian and Ukrainian governments to extend the Black Sea grain deal, which would have expired at the weekend. The deal has been extended for another 120 days and would be reviewed after this period.
This initiative started in July last year with its primary goal being to allow grain movement from Ukraine to the world market without military attack by the Russians. Since the deal started, Ukraine is said to have exported roughly 25 million tonnes of grains and vegetable oils.
Notably, global food prices have also moderated considerably over time, partly due to increased shipments of grains and vegetable oils from the Black Sea region to the world market. In February 2023, the FAO Global Food Price Index was at 130 points, down by 8% from July 2022, when the agreement was reached, said Sihlobo.
According to IGC forecasts Ukraine’s 2022/23 wheat exports at 14.5 million tonnes are down by 23% from the previous season. The preliminary projections for the 2023/24 marketing year painted an even bleaker picture of a decline in Ukraine’s wheat exports to 11 million tonnes.
Sihlobo said this reflected the harsh production conditions in Ukraine because of the invasion by Russia and shortages of some farm inputs, all of which have led to a decline in the area farmed and yields.
He said the extension of the grain deal over the weekend was a welcome development, but the period was relatively short.
South Africa is a net wheat importer and its 2022/23 wheat imports currently are at 616 881 tonnes. The seasonal import forecast was 1.6 million tonnes, roughly unchanged from the previous season. The major wheat suppliers in the 2021/22 season are Argentina, Lithuania, Brazil, Australia, Poland, Latvia and the US.
In January, Craig Binnion, the executive director of the South African Chamber of Baking, said the average Safex wheat price prior to the invasion was R5950 a ton. After the invasion the wheat price soared to R8300 a ton, an increase of 34%.
The wheat price remained high until November, thereafter, the price started to reduce and seemed to have stabilised around R6600 a ton - still 11% higher than the pre-invasion wheat price.