On October 11, I wrote a column on Business Day challenging the view which suggested that ‘SA farmers have stopped planting’, possibly due to uncertainty caused by land reform.
At the time, I used SA Agricultural Machinery Association data which indicated that in the first nine months of the year SA tractor sales amounted to 5 001 units, up 7% from the corresponding period in 2017, as a basis of my argument.
This afternoon, the SA Crop Estimate Committee provided further tentative evidence indicating that SA farmers intend to increase the area plantings for summer grains and oilseeds by 5% to 4,03 million hectares in total from the 2017/18 production season. To dive into the details, maize and soybeans are amongst the crops set to record a notable uptick in plantings, whilst sunflower seed plantings could decline marginally (see chart below).
One way of explaining this farmer optimism is the favourable commodity prices. Yellow and white maize prices are up by more than 20% from levels seen in October 2017. In terms of soybeans, the growing demand from the animal feed industry is the source of optimism.
To further refute the claims – farmers have stopped planting – between May and August this year SA farmers planted 508 350 hectares of winter wheat, up 3% year on year, and 119 000 hectares of barley, up 30% year on year. There is also fairly good activity in other field crops, horticulture and the livestock sector.
But this is not to suggest that all is rosy in SA agricultural sector. In third quarter of this year, the Agbiz/IDC agribusiness confidence index fell below the 50 neutral mark to 46 index points, suggesting that agribusinesses are somewhat downbeat about business conditions in the country. The root cause of the pessimism was the lingering uncertainty around land reform policy and weak economic growth, amongst other issues.
The recent ‘intentions of farmers to plant’ and tractor sales data are, therefore, an encouraging barometer of the activity on the ground and investment path in general in SA agricultural sector following a slowdown in agribusiness confidence. Of equal importance is that even though the recent tractor sales and intentions to plant data paint a fairly optimistic picture about activity in the sector, the decline in confidence remains a concern. As the Agricultural Business Chamber pointed out in its official statement in September, “the deterioration in confidence could potentially undermine investment and long-run growth prospects in the agricultural sector”.
Above all, I have cautioned about the medium-term risk of a possible El Niño event later in the summer. Aside from land reform policy developments, this will be a key determinant of whether South Africa achieves a good harvest in the planned area plantings or gets to suffer due to possible dryness. I am slightly at ease as some weather forecasters suggest that this could be a light El Niño event, and possibly occur later in the season (hoping after pollination of major grains, we shall see).
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