Written for and first appeared on Fin24, October 12, 2020

We are just over two weeks before the Crop Estimates Committee (CEC) releases data on South African farmers’ intentions to plant summer crops for the 2020/21 season. The available data such as tractors sales, weather outlook, and commodity prices, which could be read as ‘leading indicators’, suggests that this could be yet another good season for South Africa’s agricultural sector. The focus on 28 October 2020, which is a day when the data will be released, will mainly be on maize, sunflower seed, soybeans, groundnuts, sorghum and dry beans, which are all major summer grains and oilseeds.

The aforementioned tractors sales, which are an important early indicator of farmers’ expectations for the upcoming season, have been robust since June 2020. The recent sales for September 2020 showed a 23% y/y increase, with about 529 units sold. Importantly, the available data for the first nine months of the year already show that South Africa’s tractors’ sales amounted to 3 924 units, up slightly by 0.1% y/y. This was boosted, to a certain extent, by improved farmers’ financial position following a large summer grains harvest in 2019/20 production season and combined with higher commodity prices.

Another factor that is likely to buoy farmers is crop prices. On 08 October 2020, South Africa’s white and yellow maize spot prices were each up by 21% y/y, trading at R3 394 per tonne and R3 498 per tonne, respectively. At the same time, domestic soybean and sunflower seed spot prices were up by 36% y/y and 34% y/y respectively trading at R8 206 per tonne and R7 633 per tonne. The key drivers of prices are mainly the weaker domestic currency, rising demand for South African grain products in key markets such as the Far East, and generally higher global grains prices on the back of growing demand from China. Although these price increases present various challenges for grain users, primarily, the livestock industry, millers, and ultimately consumers, they have improved farmers’ finances. This has offered some of the support for the solid agricultural machinery sales.

In addition to boosting the agricultural machinery sales, the higher commodity prices could provide an incentive for farmers to maintain or even increase area plantings where possible. This is likely to be the case as we expect South Africa’s grain prices to remain at fairly higher levels for the rest of this year. This is on the back of an anticipated uptick in Southern Africa maize demand in the coming months. This is specifically the case for Zimbabwe, whose maize stocks will likely be depleted towards the end of the year into 2021.

The favourable weather outlook for 2020/21 production season is one of the aspects we have discussed these past few weeks. The South African Weather Service forecasts a La Niña event, which should bring above-normal rainfall between November 2020 and February 2021. The start of the season this month could experience below normal rainfall in some areas, but the tide should change in the coming month. This too adds to optimism about the 2020/21 summer crop production season.

While the CEC will release the farmers’ intentions to plant data this month, the production estimates for the 2020/21 grain season will only be released in February 2021. Still, with the area plantings estimates and weather outlook, one should be able to make rough yields estimate, leaning on the previous years’ data, which should ultimately provide a view of the size of the crop for the season. Other institutions such as the United States Department of Agriculture (USDA) have already released their estimates on South Africa’s 2020/21 maize crop. This past week, the USDA placed its estimate at 14.0 million tonnes, which is down by 14% from the 2019/20 season. Importantly, the USDA’s estimate encompasses both the commercial and non-commercial production estimates, while the CEC releases these numbers separately and market players attention tends to be focused on the commercial estimate.

With the aforementioned favourable weather outlook and price levels, we think the USDA’s estimate might be slightly conservative and South Africa could harvest a slightly larger harvest than the forecast 14.0 million tonnes. This USDA’s production forecast is slightly lower than South Africa’s average total maize production for the past four seasons, which is 14.6 million tonnes. Also, worth noting is that a good season on maize will most likely be the same for other summer crops such as sunflower seed, soybeans, groundnuts, sorghum and dry beans.

Going forward, the one factor that will need constant monitoring, albeit currently positive, is the weather. For the forecast of a large maize crop to materialize, the expected rainfall from now going into February 2021 will need to materialize. It is only when there is confidence about the 2020/21 season harvest that South Africans could see a reprieve on the current higher grains’ prices. As things stand, the grain prices are an upside risk to food price inflation, particularly into next year. With that said, we do not expect the food price inflation for the year to exceed 5.0% y/y.

Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za

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