by Wandile Sihlobo | Aug 17, 2024 | Agricultural Production
Because of its dominance in winter wheat production, the Western Cape province of South Africa can offer a window into the prospective harvest. Indeed, in my recent drive in the Swartland region of the Western Cape, my fixation was the wheat production conditions. As I drove from the Northern Cape side into the province, I was welcomed by a green, lush, promising sight of the winter wheat crop.
Yes, not all things are rosy in the province. The Western Cape has received excessive rain recently, damaging infrastructure in various regions of the province. In the wheat fields, there are areas where puddles of water are visible from the major roads. Still, the vast sections of the crop look promising.
A few exchanges with some Agribusiness leaders in the area suggest that the southern regions of Swartland may be too wet, and the northern areas should do well. We are yet to have a better view of some wheat regions when we visit the province in the coming months.
Notably, the question of what this means for the national wheat production prospects will also be evident in the coming months. South Africa’s Crop Estimates Committee will release the area planted estimate and first production forecast for this season’s wheat crop on August 28. The Crop Estimates Committee may adjust these figures during the monthly reviews depending on how the production conditions evolve.
The hope is for the Western Cape to have some slightly warmer days to drain the excess moisture so that the crop in puddles of water can recover. The wheat crop in various regions is still in the early growing stages, possibly improving even in excessively wet areas if the weather conditions in the coming weeks warm up somewhat.
I am emphasizing the Western Cape because of its dominance in wheat production in South Africa. Over two-thirds of South Africa’s winter wheat crop is in the Western Cape. The province is a winter rainfall region.
Putting the anecdotal views aside and looking at the data tells a worrying story. The Crop Estimates Committee estimated South Africa’s preliminary area plantings for wheat are at 502k hectares, down by 7% from the 2023/24 season.
This is the lowest area planting in seven years. The sharpest declines in area plantings are in the Free State and Limpopo. These two provinces are among the top four major winter wheat-producing provinces in South Africa, including the Western and Northern Cape.
The Western and Northern Cape provinces show a minor decline in area plantings. Other provinces, which are relatively small producers, such as the Eastern Cape, KwaZulu-Natal and Mpumalanga, also show a mild decrease in area planting prospects.
The major decline in winter wheat plantings in the Free State and Limpopo is unsurprising. The northern regions of South Africa experienced a harsh mid-summer drought, which led to significant crop losses. The farmers in some of these regions are under financial strain and, thus, understandably reluctant to increase the winter wheat plantings.
Moreover, the wheat prices have moderated this year, down by roughly 4% year-on-year. Therefore, in an environment with reduced soil moisture because of the mid-summer drought, lower wheat prices, and some financial pressures, farmers are likely focused on utilizing more area plantings for the 2024/25 summer crop plantings that start in October 2024.
If weather conditions, particularly in the Western Cape, improve for the rest of the season and achieve a five-year average yield of 3,78 tonnes per hectare in 502k hectares, we could have a winter wheat harvest of 1,89 million tonnes. This would also be down 7% year-on-year and well below the five-year average winter wheat harvest of 2,02 million tonnes.
Overall, it will be a while before we know what the 2024/25 wheat harvest will reach. The figures that the Crop Estimates Committee will release at the end of this month will be initial guidance. The observations from our drive already paint a sightly promising picture for some regions of the Western Cape. The improvement in the weather conditions, slightly drier in a few days and moderate rains, would significantly impact the harvest potential.
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by Wandile Sihlobo | Jul 24, 2024 | Agricultural Production
South Africa’s consumer food price inflation slowed to 4,1% in June 2024, from 4,3% in the previous month. There was moderation in price inflation across most products in the food baskets, except for bread and cereal products, as well as meat.
The slight uptick in these particular product prices is unsurprising, as we had signalled in our previous note. For example, the prices of bread and cereals mirror the increases we have long observed at the farm level in the past few months. The challenge arises from the mid-summer drought that led to an 18% year-on-year decline in maize production to an expected 13,4 million tonnes.
White maize production is forecast at 6,3 million tonnes (down 26% year-on-year), and yellow maize at 7,1 million tonnes (down 10% year-on-year). Given the scale of the decline in the white maize harvest and the expected strong demand from the Southern Africa region, we expect white maize prices to remain reasonably elevated for some time and thus sustain the increases in the bread and cereals products prices in the food basket.
That said, we don’t expect this to be strong as the forecasts from the International Grains Council signal the possible higher global wheat and rice production in the 2024/25 season, estimated at 793 million tonnes and 528 million tonnes, respectively. This is well above the long-term production levels.
Given that South Africa imports nearly half of its annual wheat consumption, about 1,5 million tonnes yearly. Furthermore, South Africa imports about a million tonnes of rice each year. Therefore, favourable global grain and oilseed production conditions in the 2024/25 season and the possible subsequent price softening would be welcome developments.
Moreover, we think the meat price increases could be sustained but remain mild in the coming months. Vegetable prices may also show a slight uptick in the coming months following the damage to potato production due to frost in the northern regions of Limpopo. Still, we expect such to be later in the year, mild and temporary, as the area affected may not be as significant.
Overall, we think these possible upside risks to some food product prices may change consumer food price inflation direction from moderation to a possible mild uptick.
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by Wandile Sihlobo | Jul 19, 2024 | Agricultural Production
While we are still at the start of the 2024/25 global grains and oilseed production season, with the southern hemisphere yet to plant in about two months, the International Grains Council (IGC) forecasts a decent harvest.
For example, in their latest update, the IGC placed the 2024/25 global grains and oilseed production forecast at 2,3 billion tonnes, up mildly from the previous season. The stocks are expected to be healthy, around 582 million tonnes, though having declined somewhat from the 2023/24 season because of the expected increase in the industrial use of grains.
A closer look at the figures shows that the IGC forecasts a 1% year-on-year increase in the 2024/25 global rice production to 528 million tonnes. This is based on an anticipated large crop in all the major rice-producing regions, such as India, Vietnam, Thailand, the US, China, Pakistan, Indonesia, Bangladesh and the Philippines. Subsequently, the stocks could also increase by 1% to 175 million tonnes.
The production prospects for 2024/25 global soybeans are also positive, estimated at 415 million tonnes, up by 6% year-on-year.
This is based on the expected large harvest in the US, Brazil, Argentina, India, and Paraguay. Still, given that nearly half of the production is by the southern hemisphere producers, specifically South America, we view these data as tentative until the start of the season in the region in about two months. Assuming the current estimates materialise, the 2024/25 global soybean stocks would lift by 16% year-on-year to 79 million tonnes. Such an increase in the harvest and supplies would add downward pressure on worldwide soybean prices, which is favourable for the animal feed industry.
A less optimistic view is in the major grains such as wheat and maize, though their supplies will still remain at levels above average. For example, the IGC forecasts the 2024/25 global wheat production at 793 million tonnes, slightly lower than the 2023/24 season’s crop of 804 million tonnes. This is due to the expected production declines in the EU, UK, Ukraine and Russia. These overly wet weather conditions in these countries during the season are the reason for the anticipated poor yields.
With food and industrial use of wheat expected to remain strong, the IGC placed the 2024/25 global wheat stocks at 261 million tonnes, down 3% year-on-year. Be that as it may, international wheat prices have not reacted to these expectations and have remained on a moderating path in recent weeks, which is a welcome development from a consumer perspective.
Moreover, while the southern hemisphere major maize producers will only start the season in October, the IGC’s preliminary estimates point to possible large harvests. For example, the 2024/25 global maize production is forecast at 1,2 billion tonnes, down by 0,2% from the previous season and well above the long-term average production levels. The slight crop decline is due to an expected slight harvest decline in the US, Argentina, Ukraine, and Russia.
Subsequently, after considering the slight decline in global maize production and strong usage, the IGC forecasts the 2024/25 global maize stocks to be at 281 million tonnes, down 2% year-on-year. Still, we doubt this would lead to a price surge and that the current moderation may continue.
Overall, while we are still in the early stages of the 2024/25 global grains and oilseed season, with some weather-related risks ahead, the data from the IGC and the US Department of Agriculture, which we didn’t explore in this column, paint an optimistic view of the harvest. Assuming the expected harvest materialises, we can expect global grains and oilseed prices to remain on the moderating path, which is positive for importing countries like SA. The moderating global food price path is precisely what we continue to observe in the FAO’s Global Food Price Index.
Notably, SA imports nearly half of its annual wheat consumption, about 1,5 million tonnes yearly. Furthermore, SA imports about a million tonnes of rice each year. Therefore, favourable global grain and oilseed production conditions and subsequent softening in prices would welcome developments. Still, a lot is yet to unfold in the coming months. We will monitor the monthly updates to ascertain our view of prices and the food inflation path in SA. For now, the indications remain reasonably optimistic.
The risk fact to remember is the impact of the possible La Niña in the 2024/25 summer season on South America’s crop. This weather phenomenon, while it brings rain in Southern Africa, typically leads to below-average rains in South America.
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by Wandile Sihlobo | Jul 18, 2024 | Agricultural Production
We are two months away from the start of the 2024/25 summer crop season. Early indications of weather prospects are encouraging, showing a firm likelihood of a La Niña occurrence. The International Research Institute for Climate Change & Society at Columbia University places the probability of a La Niña occurrence at over 50% between now and April 2025. Such weather events typically bring above-average rainfall across SA and the entire southern region.
There is hope that after a challenging 2023/24 summer production season SA could transition to a favourable period for agriculture, similar to what we experienced four seasons before the 2023/24 season. Given that SA had one of the most prolonged periods of La Niña induced rains from the 2019/20 season to the 2022/23 season, the news of an early end to the 2023/24 El Niño is a welcome development.
That said, the SA Weather Service has maintained a cautious view and not yet declared the start of the La Niña event, as we see with the International Research Institute for Climate Change & Society’s latest reports.
In its update on July 5 the weather service stated that “the El Niño-Southern Oscillation (Enso) is currently still in a neutral state and is predicted to weaken further. However, predictions are mixed in whether it will weaken towards a La Niña state during our next summer season.”
The Australian Bureau of Meteorology has a similar view, as it highlighted in its update of June 25: The Enso outlook is currently at ‘La Niña Watch’, meaning there are some signs that a La Niña might form in the Pacific Ocean later in 2024. A La Niña Watch does not guarantee a La Niña will develop.”
Given that we are early in the season, such cautious optimism is understandable from the SA and Australian weather authorities. But this does not take away from the fact that the El Niño weather event has at least ended, and we are now moving towards a more favourable agricultural production environment.
Moreover, these reports mirror the pattern we have seen in the past, where only in September does one get a clearer view of the possible weather outlook. With the summer grains and oilseed season only intensifying from mid-October in the eastern regions of SA and about mid-November in the western areas, a firm view of the weather outlook in September is still a valuable insight for farmers to plan their planting appropriately.
SA’s 2023/24 summer grains and oilseed were devastated by the El Niño-induced midsummer drought, particularly from February to March. This is at a time when farmers had planted slightly bigger areas for summer grains and oilseeds from the previous season. The impact was severe in various regions because roughly 20% of maize, 15% of soybean and 34% of sugar cane are under irrigation.
The majority of the crop areas are rain fed and exposed to drought stress. Thus, it is unsurprising that SA’s 2023/24 summer grains and oilseed production is projected to be down 20% year on year, at 16-million tonnes. This comprises white maize, yellow maize, sunflower seed, soybeans, groundnuts, sorghum and dry beans.
Still, SA is in far better condition than much of the rest of Southern Africa. For instance, Zambia and Zimbabwe lost over half of their grain harvest because of the 2023/24 midsummer drought. The possibility of a La Niña — provided it brings sufficient and favourable rains — would help improve the agricultural outlook and food security conditions in the region in 2025.
Aside from field crops, SA saw better production conditions in horticulture because of better water levels in the dams. All of SA’s fruit and vegetables are produced under irrigation. The financial effect of the drought on the farming enterprises will be evident in the coming months, but given that the country had four consecutive seasons of good rains and ample harvest when commodity prices were also elevated, the financial stress may not be as severe as in previous droughts.
We thus remain optimistic that SA farmers may again be eager to plant a sizeable area in the 2024/25 summer grains and oilseed season, especially with promising weather prospects.
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by Wandile Sihlobo | Jul 15, 2024 | Agricultural Production
The Southern African region continues to face climate-related challenges that place its agricultural sector and food supply at risk. The mid-summer drought of 2024 has devasted the regional maize supplies, a staple food crop for the region. So far, the focus has been on the losses farmers are experiencing, but soon, consumer pressures will arise.
At the end of February 2024, Zambian President, Mr Hakainde Hichilema, declared a disaster after realizing the country had lost over half of its maize harvest because of the drought. Zambia’s maize production in the 2023-24 season is down by over 50% to an estimated harvest of 1,6 million tonnes. The country now finds itself in a position where it has to import a record volume of one million tonnes to satisfy the domestic maize needs of 2,8 million tonnes.
Zimbabwe faces a similar challenge, with maize harvest down roughly 60% from the 2022-23 production season to an estimated 635,000 tonnes. This is the lowest harvest since the 2015-16 production season, another drought year. Moreover, the drought is not the only reason for the fall in Zimbabwe’s maize harvest; although a significant factor, the decline in fertilizer usage has also contributed to poor yields. The fertilizer prices, while down from the previous year, are remarkably above the pre-COVID-19 levels, thus adding financial strain on poor smallholder farmers, the majority of producers in Zimbabwe. The fertilizer makes up roughly a third of the grain farmers’ input costs.
This significant decline in Zimbabwe’s maize production means that the import needs will increase sharply. Zimbabwe’s domestic maize consumption is typically at about two million tonnes. Thus, the United States Department of Agriculture’s Pretoria-based analysts estimate that Zimbabwe may need to import at least a million tonnes in the new marketing year of 2024-25 is convincing (the 2024-25 marketing year corresponds with the 2023-24 production season). Such an import figure is a significant increase from Zimbabwe’s maize imports of 637,327 tonnes in the 2023-24 marketing year, all from South Africa.
Unlike the 2023-24 marketing year, where South Africa’s overall maize exports were 3,4 million tonnes, in the new 2024-25 marketing year, South Africa’s maize exports will likely fall to 1,4 million tonnes. This is on the back of a poor domestic harvest. South Africa’s maize harvest is down 19% year-on-year, estimated at 13,3 million tonnes, because of the mid-summer drought.
Admittedly, South Africa did not experience a sharp fall in production, unlike Zimbabwe or Zambia, where the domestic maize harvests are down by over 50%. Part of the reason is differences in farming practices and the improved seed cultivars in South Africa, among other factors. The significant difference is using improved seed cultivars, fertilizer, and agrochemicals. Irrigation is not a major factor, as only 10% of South African maize is under irrigation, and the rest is rainfed. This is similar to Zimbabwe’s maize proportion under irrigation.
Still, Zimbabwe will likely be the significant beneficiary if the country’s private sector stakeholders and government place orders promptly. Zambia, another Southern African country with a maize import need of a million tonnes, insists that the imports should only be non-genetically modified. Over 85% of South Africa’s maize is genetically modified, which means that, under the current rules, Zambia may not consider South Africa a supplier of maize.
One would have expected Zambia to ease its regulations in such seasons of major maize needs. But, the government authorities have maintained this prohibition. It is already a challenge to find white maize in the world market regardless of whether it is genetically modified or not, as the primary producers are the Southern African region (South Africa specifically) and Mexico. Most of the world’s maize is yellow maize for animal feed.
The drought has hit the entire Southern Africa region. Therefore, Zambia faces a tough challenge for the months ahead and is another country to watch closely towards the last quarter of this year and into the first quarter of 2025. It is all possible that, confronted with the realities of higher domestic food prices and scarcity of non-genetically modified maize supplies, Zambia may adjust its policy.
We are reading the headlines about the significant decline in Southern Africa’s maize supplies. However, the full impact of the poor harvest on the consumer will likely be more pronounced towards the end of this year and into the first quarter of 2025. This is when the major maize consumers in the Southern African region would have used much of the domestic harvest, which provided a much-needed cushion in the near term. Thus, significant upside risks remain in maize prices, mainly white maize, towards the end of this year and into 2025 because of this possible regional maize demand.
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by Wandile Sihlobo | Jul 14, 2024 | Agricultural Production
I know we are two months away from the start of South Africa’s 2024/25 maize production season. The focus in the industry is still on finalizing the harvest of the current crop. But I was delighted that the International Grains Council sees South Africa’s maize harvest bouncing back by 20% year-on-year in the next season to 16,5 million tonnes (see the table). They base their view on the expected La Nina rains in the next season and the belief that farmers would plant the typical area for maize (around 2,4 million hectares or so).
While we haven’t come up with any estimates and will only do so when we have a sense of the area plantings, the International Grains Council’s view is aligned with what some of us believe, assuming the expected La Nina materializes.
In such a season, South Africa’s maize exports increase again, which would be broadly positive for the agricultural trade balance. These data are also positive for food inflation path going into 2025.
Again, we are still a long way from the start of the 2024/25 season, where farmers in South Africa’s eastern regions will only start planting in October and western areas in November 2024. Still, such optimism from influential observers of agricultural markets, such as the International Grains Council, is always uplifting.
Let’s keep our eyes on the current season and hope and pray the La Nina rains materialize (in a favourable way) — some indications or forecasts are promising such eventuality.
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by Wandile Sihlobo | Jul 7, 2024 | Agricultural Production
South Africa’s agricultural sector has various institutions, organizations and committees that all play specific roles in supporting the sector’s growth and sustainability. One of the vital committees housed at the Department of Agriculture, Land Reform and Rural Development is the Crop Estimates Committee. This Committee benefits on skills from government, academia, and the private sector. Its main task is to provide production forecasts for winter and summer grains and oilseed. These data are crucial to understanding the country’s food security conditions and often influence the market prices of grains and oilseeds in season. For each season, the Crop Estimates Committee typically releases about ten reports. From the fourth monthly report, there is generally some certainty about the expected crop.
We are now at the end of the 2023/24 summer grains and oilseed season. This comprises white maize, yellow maize, sunflower seed, soybeans, groundnuts, sorghum and dry beans.
On June 27, the Crop Estimates Committee released its fifth production estimate for the summer grains and oilseed season. The current data is more reliable and unlikely to change much in the coming weeks. In the fifth release, the Committee lifted the 2023/24 summer grains and oilseed harvest by 0,6% from the May 2024 report to 16,0 million tonnes. Still, this is down 20% year-on-year, reflecting the severe impact of the mid-summer drought.
The monthly slight upward adjustment of the summer grains and oilseed harvest size is mainly because of the notable uptick in the yellow maize production estimate, while other crops remained roughly unchanged from last month.
If we zoom into the main crops, white and yellow maize harvest could be 6,3 million tonnes (up 0,1% month-on-month) and 7,1 million tonnes (up 1,3% month-on-month). These revisions place the total maize production estimate at 13,4 million tonnes (up 0,7% month-on-month).
When viewed annually, white maize harvest is down 26%, with yellow maize down 10% from the 2022/23 season. The disparity in the crop decline is due to regions where each crop variety is planted, with white maize predominantly in the western areas of South Africa while yellow maize is in the east.
Moreover, yellow maize is typically planted a month earlier than white maize. Rainfall impacts These regions and timeframes differently, ultimately affecting the expected harvest sizes. The expected harvest of 13,4 million tonnes is down 18% from the 2022/23 season.
I am optimistic that this harvest may materialize and meet South Africa’s annual maize consumption of roughly 12,00 million tonnes, leaving the country with roughly 1,4 million tonnes for exports (there is also support from the carryover stocks from the previous season). About 840 000 tonnes will likely be white maize, with 600 000 tonnes likely to be yellow maize. Still, the estimated exports of 1,4 million tonnes are down notably from 3,4 million tonnes in the previous season.
With that said, maize prices will likely remain elevated for some time because of potentially tighter supplies later in the season and into the first quarter of 2025. Admittedly, in recent weeks, white and yellow maize prices have moderated from the levels we saw last month because of the relatively stronger domestic currency and the harvest pressure, amongst other factors. Still, white maize prices are over 30% higher than the levels we saw a year ago. The white maize spot price closed at R5 185 per tonne on June 27, 2024. Meanwhile, the yellow maize prices currently are down roughly 4% from a year ago. The yellow maize spot price was at R3 825 per tonne.
Yellow maize prices have not increased much, as the supply risk could be manageable through imports. There are ample yellow maize supplies in the world. This also explains the decline in the yellow maize prices compared with the surge in white maize prices, which is scarce in the world market and primarily produced in Southern Africa and Mexico.
Regarding oilseeds, the 2023/24 soybean harvest was unchanged from last month to 1,7 million tonnes (down 36% y/y). Moreover, the sunflower seed harvest estimate was unchanged from last month at 649 250 tonnes (down 10% y/y). This annual decline results from poor yields.
Overall, these data illustrate the scale of damage caused by the mid-summer drought to the South African summer grains and oilseed harvest.
Still, from a consumer perspective, South Africa is not in a crisis regarding supplies of grains and oilseed. With that said, there are upside risks to white maize prices, especially considering the potentially ample demand from the Southern Africa region later in the year and into the first quarter of 2025 when their domestic supplies are depleted.
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by Wandile Sihlobo | Jul 4, 2024 | Agricultural Production
On 03 July, I was at the South African Society for Animal Science 2024 Congress in East London. The livestock and poultry industries account for nearly half of South Africa’s agricultural economy. Themes covered at the congress included animal diseases, reproduction, nutrition, climate change and animal welfare.
My task was to kickstart the day with reflections on the South African agricultural economic conditions and policy options to boost growth in the sector.
I view South Africa’s agricultural economic performance in the first half of 2024 as mixed. One can broadly categorise our farming economy into three subsectors: horticulture, livestock and field crops.
Horticulture — fruits and vegetables — had a reasonably positive start to the year, benefiting from improved dam levels for irrigation and a stable electricity supply. All of South Africa’s fruit and vegetables are under irrigation.
The livestock industry is recovering after an intense period of animal diseases (although there remain cases of foot-and-mouth disease in some regions of the country). The better grazing veld due to early rains in the season and late rains in April have helped somewhat. The poultry industry is also recovering following an intense avian influenza spread at the end of 2023.
Meanwhile, the field crops have suffered from the midsummer drought. For example, South Africa’s 2023/24 summer grains and oilseed harvest is estimated at 16.0 million tonnes, down by 20% year on year.
Considering the developments in these subsectors, it is unsurprising that South Africa’s agricultural gross value grew by 13.5% quarter on quarter (seasonally adjusted) in the first quarter of 2024. Indeed, the base effects also contributed to the robust performance as South Africa’s farming economy contracted in 2023. The trade figures were also strong in the first quarter, a signal for a better harvest of fruits and improvements in port performance.
Still, we worry that the poor harvest of summer grains and oilseed may suppress the figures for the third-quarter performance in the sector. Perhaps the slowdown may even show in the second-quarter figures when they become available.
Farming jobs
Also worth noting is that employment in primary agriculture remained robust, increasing by 6% year on year to 941,000 in the first quarter of 2024. This is also up, by 2%, from the last quarter of 2023.
Admittedly, the significant drought damage has been concentrated on the summer grains and oilseed regions, not across all agricultural subsectors, which somewhat explains the resilience in job data. Moreover, there could also be a lag in fully accounting for agriculture’s financial pressures and the impact on employment after that.
Quite remarkably, the sentiment in the sector paints a contrasting picture of these economic realities. For example, the Agbiz/IDC Agribusiness Confidence Index remained depressed in the second quarter of 2024, reaching 38 points from 40 in the previous quarter. This is the lowest level since Q3 2009, which was the global financial crisis, and implies that agribusinesses remain downbeat about business conditions in the country.
Reviewing the survey respondents’ comments, we found that the midsummer El Niño-induced drought’s impact on summer grains and oilseed production was one of the major factors that weighed on the sentiment. The drought coincided with the long-standing challenges of inadequate road infrastructure and municipal service delivery.
The lingering animal disease challenges and heightened geopolitical tensions are also the primary concerns for the sector. Moreover, while the farming community recognises the improvements in Transnet’s operations, they highlight the need for continuous work to address the inefficiencies of the ports and rail network.
The uncertainty about the formation of the government at the time of the survey may have added to the downbeat mood among the agribusinesses. This survey was conducted between 10 and 19 June, covering businesses operating in all agricultural subsectors across South Africa.
The path ahead
Looking ahead, we remain optimistic about South Africa’s agricultural conditions. The weather forecasters tell us that we have exited the El Niño drought period and are transitioning into a La Niña event, which typically brings rain. Such a weather outlook would boost agricultural production and performance in the sector.
Admittedly, some farmers will face financial pressures because of the 2023/24 mid-summer drought. Still, the overall picture looks promising.
In terms of sentiments, while the farming sector may have worried about the political outlook during the Agribusiness Confidence Index survey, the reaction to the newly formed government of national unity has been widely positive, and the financial markets’ reaction reflects that optimism.
I have written about agricultural policy matters here.
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