Wheat-Grade Easing May Boost South Africa Sowing at 1931 Low

South Africa’s wheat industry wants grading and planting rules for the cereal relaxed to help increase yields and revive production after farmers sowed the smallest area since 1931 this season, the biggest grains lobby said.

Possible changes to grading terms and to a voluntary agreement that stipulates which wheat varieties producers will plant, known as release criteria, are among proposals the industry is considering, Grain South Africa Chief Executive Officer Jannie de Villiers said in a March 18 interview.

“The quality requirements of the milling and baking industries are too stringent,” he said in Bloomberg’s Johannesburg office. Allowing farmers to plant cultivars that focus on higher yields will help their profitability, “and then hopefully they’ll start planting again. Hopefully we can produce more than half of what we need at the moment,” he said.

While South Africa is the sub-Saharan region’s largest grower of wheat after Ethiopia, it is a net importer of the cereal and the region’s biggest buyer after Nigeria and Sudan, U.S. Department of Agriculture data shows. While farmers in some South African provinces have substituted the grain for more-profitable, higher-yielding crops such as corn, those in the Western Cape, responsible for 61 percent of wheat output in 2013, have fewer alternatives, De Villiers said.

“The Western Cape farmers have no option,” he said. “We need to help them, help them dig out of that hole.”

Crop Alternatives

While barley and canola are considerations for farmers in the south of the region, many growers don’t have viable alternatives, he said. In some cases, a switch to wine-grape production is possible, he said.

Free State province-based farmers, who in the 1980s were the biggest wheat producers and planted the cereal on 1 million hectares (2.5 million acres), reduced this to 69,500 hectares in 2014, Wandile Sihlobo, an economist at Grain SA, said on March 18. The region is now the largest corn producer, also known as maize, accounting for 44 percent of the country’s total last year.

“Wheat in the Free State will never revive unless it is economically feasible for farmers to grow it because maize is strong enough,” De Villiers said.

Growers planted wheat on 476,570 hectares in 2014, the smallest area in more than 80 years and 76 percent below the 1989 peak, South African Grain Information Service data shows.

Crop Estimate

The final estimate for last year’s harvest is 1.78 million metric tons, the smallest since 2011. While the yield per hectare is forecast at the highest on record at 3.73 tons, this needs to increase by at least 1 ton to help profitability, De Villiers said.

Wheat has declined 3.4 percent in Johannesburg this year, with the contract for May delivery dropping 0.1 percent to 3,865 rand a ton by midday on Tuesday, the lowest for a most-active contract since March 3.

The wheat-reference grade now traded on JSE Ltd.’s South African Futures Exchange is B1, which has a minimum protein content of 12 percent and is the highest quality available. Poorer grades of wheat are being imported. The reference is place until Sept. 30, 2016, the JSE said in a Feb. 26 statement.

The industry, through the Wheat Forum, and the JSE are in discussions about amending this. Should consensus on the various proposals be reached and support a separate futures contract, this will be introduced later in the year, the forum said in a Feb. 27 statement.

Since the start of the wheat-marketing year on Sept. 27, South Africa has imported 969,796 tons of the cereal. Russia was the biggest supplier, comprising 27 percent of the total, while Ukraine is second-largest at 19 percent.

“The moment we get consensus, we might list a separate contract that is at a lower quality,” De Villiers said. “We are positive about it.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE