This essay first appeared on Business Day, October 29, 2020
The good news keeps pouring in for SA’s agricultural sector, at least from a production perspective. Figures released on October 28 by the Crop Estimates Committee (CEC), a government crop forecasting body, show that SA farmers intend to increase the area planting for summer grains and oilseeds in the 2020/2021 production season 5% year on year to 4.15-million hectares.
This comprises maize, sunflower seed, soybeans, groundnuts, sorghum and dry beans. There is an intention to increase most of these crops’ plantings except for sunflower seed, whose area could fall 4% year on year, in part because of an anticipated shift to white maize planting.
With weather forecasts generally favourable for the summer rainfall regions from expectations of a La Niña weather event, SA appears set for another large harvest in 2021.
If we zoom into the main summer crops — maize and soybeans — the outlook is positive. This bodes well for the livestock subsector as these crops are also key inputs for feed manufacturing.
Starting with maize, if one applies a five-year average yield estimate of 5.3 tonnes per hectare to an area of 2.75-million hectares (up 5% year on year), as reported by the CEC, SA could have a harvest of 14.58-million tonnes in the 2020/2021 season (compared with 15.42-million tonnes in 2019/2020). This would be the fourth-largest maize harvest on record.
A realistic high road scenario could also be constructed by assuming a possible yield of six tonnes per hectare on the back of the expected higher than average rainfall. When we had good rains like in the 2016/2017 production season, the average yield in SA was 6.4 tonnes per hectare. Therefore, a six tonne per hectares yield assumption would not be far-fetched.
Such a yield on an area of 2.75-million hectares would potentially lead to a 16.5-million tonnes harvest. That would be the second-largest maize harvest on record.
The CEC will release its first production forecast on February 25. It is only then that we will have a better sense of where the crop will be. Still, if the intended maize area planting of 2.75-million hectares materialises and the weather remains favourable, as we expect it to, then SA’s maize harvest should be within the range I have provided.
This will be measured against an annual maize consumption of roughly 11-million tonnes, which means SA will remain a net exporter of maize. Some might ask what the implications of this data will be on crop prices — after all, white and yellow maize prices are both hovering at about R3,700 per tonne as of October 28, which is up by more than 20% year on year.
I’ve previously discussed in these pages the reasons for this notable increase in prices in a year where we had the second-largest harvest on record. These include the weaker domestic currency, rising demand from the Far East maize buyers and spillover support from generally higher global maize and other crop prices.
Going forward we are likely to have an additional factor to these upside price drivers, namely Zimbabwe’s growing maize demand. Zimbabwe has a shortfall of about one-million tonnes in the 2020/2021 marketing year. So far it hasn’t imported much of what is needed. I anticipate that Zimbabwe will accelerate its maize import activity towards the end of 2020 going into 2021, which will provide support to domestic maize prices for the coming months.
SA maize prices are therefore likely to remain at these elevated levels for some time, despite the increased availability from the ample current, and potentially from the new, crop.
The higher maize prices have also provided an incentive for farmers to increase maize plantings, which is evidenced by the expected 5% year on year uptick to 2.75-million hectares. Regardless, I suspect prices could begin to somewhat soften in about mid-February, once there is clarity about the size of the harvest in 2020/2021 season.
In terms of soybeans, if one works on the assumption of an average five-year yield of about 1.82 tonnes per hectare and an area of 785,800ha that farmers intend to plant, the overall harvest could amount to 1.43-million tonnes. This would be up by 13% year on year and be the second-largest harvest on record. Similar to maize, I think a harvest of this size is plausible under the expected rainfall.
This, however, would not necessarily result in prices cooling off from current highs, as of October 28, of about R8,500 per tonne, which is also up more than 20% year on year. This comes despite 2019/2020 having seen the second-largest soybean harvest on record. The key price drivers are somewhat similar to those I highlighted in the case of maize.
Unlike maize though, an increase in harvest in soybeans will still not change the fact that SA imports about 500,000 tonnes of soybean meal. We will still be dependent on imports even at these harvest levels to meet the growing demand for soybean meal, mainly by SA’s poultry sector.
This, of course, also comes at a time when China is aggressively rebuilding its pig herd after the devastation caused by the African swine fever in 2019, according to estimates from Paragon Global Markets.
In a nutshell, SA’s agricultural production outlook remains positive thanks to anticipated good rains and higher commodity prices that have lifted farmer sentiment to increase plantings. I had feared that the liquidity constraints faced by the Land Bank and agribusinesses linked to the bank would cause production challenges, as various conversations with farmers suggested. However, I am relieved to see that farmers have signalled a positive message of increasing crop area plantings in the 2020/2021 production season.
A word of caution would be that these are still “intentions” to plant and not actual activity on the ground. This means there is still room for adjustment, although I expect these to be minimal. We will only know the hectarage with certainty on February 25, when the CEC releases the first production estimates. In the near-term, a responsible thing to do would be to monitor activity in the farms through high-frequency notes that we and other agricultural organisations continue to release about farming conditions.
The planting season has started in the eastern and central regions of SA, but that should gain momentum from the coming week or around mid-November when I anticipate that soil moisture would have improved more broadly. November is also a month when the SA Weather Service anticipated that the La Niña induced rainfall would begin to gain momentum across the summer crop regions.
This intended increase in area planting is ultimately good news for the consumer and other grain users, although the benefits through pricing could only reflect from the end of February for the reasons I have explored in the greater part of this essay. To this end, all else being equal we still think SA’s food price inflation for 2020 will not exceed 5% and we hold a similar view for 2021.
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