by Wandile Sihlobo | Sep 24, 2020 | Daily Notes
The Western Cape, which is a major producer of South Africa’s winter crops – wheat, barley and canola – has had favourable rainfall over the past couple of months and the crop in the province is in good shape. The benefit of the rainfall is even clear on dam levels in the province, which on 21 September 2020, averaged 78% compared to 67% in the corresponding period last year (see here).
On 29 September 2020, the Crop Estimates Committee (CEC) will release its second production forecast for winter crops, which will be un update from last month’s assessment. Last month, the CEC data showed that South Africa’s 2020/21 wheat, barley and canola production could increase by 28% y/y, 46% y/y, and 29%, respectively, to 1.96 million tonnes, 505 215 tonnes and 122 820 tonnes, as illustrated in Exhibit 1. This is the largest wheat harvest in a decade and a record harvest in the case of barley and canola.
In this month’s assessment, the CEC will likely keep these estimates roughly unchanged from August 2020 as the weather conditions have remained generally favourable since the release of the first production estimate. In fact, parts of the Western Cape received good rains this past weekend and will likely receive additional rains in the coming week, according to near-term weather forecasts (see here).
Moreover, the weather outlook for the coming months for the Western Cape remains favourable. In its Seasonal Climate Watch released on 24 July 2020, the South African Weather Service indicated an increased likelihood for above-normal rainfall over the south-western regions of South Africa through October. The winter crop planting was delayed this season due to a late start of rains. This means the crop will require moisture for a longer period than the usual months. Fortunately, the Western Cape and other winter crop-producing provinces could have sufficient moisture until the end of October, as the local weather bureau forecast rainfall for that province through to October.
Exhibit 1: South Africa’s winter grains production
Source: CEC and Agbiz Research
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by Wandile Sihlobo | Sep 22, 2020 | Daily Notes
The move to ‘level 1’ of the lockdown is a welcome step from a broader macroeconomic perspective, as this ensures that economic activity in the country continues to normalize gradually across more sectors of the economy. Within agriculture, the only segment that will likely benefit the most from this move is agritourism, which has been hard hit by the pandemic due to restrictions in international and local travel, along with the wider tourism industry.
The agritourism industry comprises, amongst others, hunting tourism, rural tourism, wine tourism, nature-based tourism, cultural heritage tourism, and adventure tourism. These activities provide additional income to farming businesses and create jobs in rural areas.
One of the most common forms of tourism in South Africa has mainly been wine tourism and hunting tourism. The former has been hard hit not only by the temporary ban on interprovincial and international travel during various stages of the lockdown but by the temporary prohibition on alcohol sales which has recently been lifted. Wine producers and farmers, specifically small farms, rely to a certain extent, on agritourism to diversify income and to boost the sales of their produce. Hence, the impact of the temporary ban on sales and limited movement of people was quite pronounced despite exports having been permitted for the greater part of the lockdown.
Rural Limpopo also stands to benefit from the increased wider opening of the economy through hunting and wildlife tourism (game-farms and game-lodges). While there is no clear measurement of the value of agritourism in South Africa, studies from the Western Cape Department of Agriculture suggest that accommodation, wine cellars, tours and tastings, restaurant, hiking, conferences and functions, weddings, picnics and fishing are amongst the key offerings in that province. Accommodation, hiking and hunting are likely to be some of the common offerings in other provinces in the country.
Although international tourists, who generally have a higher average spend when compared to local tourists, might remain limited, even with the move to level 1 of the lockdown, we suspect that there might be an uptick of locals exploring the country. This is partly because consumers’ confidence and appetite are likely to slowly return as the spread of the pandemic continues to slow. With respect to international tourists, studies from the Western Cape’s Department of Agriculture show that 29.8% of the international market’s average spend on wine tourism was between R501 to R1000 per day in 2017. The local tourists will most likely spend less than that, especially during the current tough economic times.
Nevertheless, we are already starting to observe anecdotal evidence on social media and other platforms such as various establishments offering special prices and local tourists showing updates of such offerings. While local tourists might not boost the rural economy to vibrant levels as before the pandemic, there will nonetheless be an improvement from weeks of limited business activity. The key challenge is that local tourists will likely be cautious about spending given the poor domestic economic outlook, which means that various businesses that generally derived great value from agritourism will remain under pressure, to a certain extent, over the near-to-medium term. We also suspect that establishments with hiking and hunting facilities will most likely gain from local tourists as individuals may prefer nature which offers social distancing.
Aside from the agritourism, the broader agricultural sector has been open from the onset was classified as essential and did not close during the strict lockdown period. As we have repeatedly pointed out, the wine, tobacco and floriculture are amongst the products whose sales were temporarily banned and therefore hard hit by the lockdown relative to other products and broader subsectors of agriculture. The vibrancy of the sector is evident from the recent GDP data which showed that agriculture’s gross value-added expanded by 15.1% q/q on a seasonally adjusted and annualised basis following an expansion of 27.8% q/q in the first quarter.
In a nutshell, the shift to level 1 of the lockdown will have limited impact on a sector that was already largely open – agriculture. But related industries such as agritourism and small farms that depend on agritourism stands to benefit. This will largely be in provinces such as the Western Cape, Limpopo and other provinces that have various rural offerings that we have listed above, which is accommodation, wine cellars, hunting, restaurants, wedding venues, fishing, and camping, amongst others.
Note: I prepared this text as part of Agbiz weekly Agri-market Viewpoint
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by Wandile Sihlobo | Sep 21, 2020 | Daily Notes
This must be a challenging year for the animal feed companies and by extension the livestock and poultry industry. The years of a large harvest like the 2019/20 season are typically followed by a notable decline in commodity prices which is beneficial to the livestock and poultry industry. We had the second largest maize harvest on record, about 15.5 million tonnes (yellow maize at 6.5 million tonnes and white maize: 9.0 million tonnes) and the third-largest soybean harvest on record (about 1.26 million tonnes); yet prices didn’t reflect this increased production.
On 21 September 2020, soybean spot price reached a record R 8 090 per tonne, up by 40% y/y. Meanwhile, yellow maize, which is also a key input along with soybeans in animal feed, traded at R3 284 per tonne, up by 22% y/y. The weaker domestic currency, coupled with growing demand from China and other Asian markets, are amongst the key factors underpinning the uptick in maize and soybean prices. China is rebuilding its pig herd, the world’s largest, which was devasted by the deadly African swine fever last year. This process has led to a notable increase in global soybean imports in the recent month, and in turn, prices.
South Africa as a net importer of soybean products generally follows the global prices, which have been on the upside. Hence, we are witnessing these relentless increases in prices. In the case of maize, South Africa is a net exporter, which means that the global market developments tend to have a smaller impact than in soybeans. But the likes of South Korea, Vietnam, Japan and Taiwan, to name a few, have been relentless in buying the domestic maize (primarily yellow maize). In the week of 11 September 2020, South Africa’s 2020/21 total maize exports were at 1.4 million tonnes, which equates to 52% of the seasonal export forecast (2.7 million tonnes). Yellow maize exports accounted for 76% of the volume already exported.
These dynamics are unlikely to change in the near term, which means that soybeans and maize prices could remain at fairly higher levels for some time, at least within the 2020/21 marketing year. This will subsequently lead to increased costs to the users of the grain and oilseed, mainly the livestock industry. On the question of how much of this and when will it be passed on to consumers, it’s unclear. My sense is that the current environment of lower consumer demand, the South African retailers might not have the ability to easily pass on the price increase which will emanate from these higher grains and oilseeds products to consumers that are focusing on resilience in the face of job and income losses. With that said, the data so far doesn’t suggest that this is already the case as illustrated in Exhibit 1 below. Producer price inflation has over the past few months remain at lower levels than the consumer price inflation.
Exhibit 1: SA’s CPI at fairly higher levels then the PPI in recent months
Source: Stats SA and Agbiz Reserach
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by Wandile Sihlobo | Sep 21, 2020 | Daily Notes
Regular readers of this blog may remember that on Mondays, I provide an update of South Africa’s weekly grain data, also at times with a highlight of various events in the agricultural data calendar for the week ahead. With a data calendar for the week ahead fairly quiet, I thought it might be good to use this blog post to also provide an update on the local wheat import tariff adjustments, which occurred at the start of this month.
SA weekly grain data
There are two major grains weekly data releases that we monitor in the domestic market – (1) producer deliveries and (2) grain trade.
First, the producer deliveries data for the week of 11 September 2020 showed that roughly 86% of the expected maize crop of 15.5 million tonnes had been delivered to commercial silos, and the quality of the crop is mainly good. A greater share of the 2019/20 soybean and sunflower seed crop had already been delivered to commercial silos. This is clear from the producer deliveries data, which have slowed in recent weeks, while the sum nearly equals the expected harvest in both crops.
Second, South Africa exported 110 550 tonnes of maize in the week of 11 September 2020. About 80% to South Korea, and the rest to Southern Africa markets (primarily Eswatini, Mozambique, Zimbabwe, Botswana and Lesotho). This placed South Africa’s 2020/21 total maize exports at 1.4 million tonnes, which equates to 52% of the seasonal export forecast (2.7 million tonnes). The leading markets thus far are the Southern African countries (Zimbabwe, Botswana, Mozambique, Lesotho, Eswatini and Namibia), mainly for white maize, and Japan, Taiwan, Vietnam and South Korea for yellow maize. About 76% of all maize exports thus far is yellow maize, with 24% being white maize.
Moreover, South Africa is a net importer of wheat and brought in 67 270 tonnes in the week of 11 September 2020. About 54% from Russia and 46% from Ukraine. This placed South Africa’s 2019/20 wheat imports at 1.72 million tonnes, which equates to 96% of the seasonal import forecast (1.80 million tonnes). The 2019/20 marketing year ends this month. The leading suppliers of wheat to South Africa thus far include Poland, Germany, Lithuania, Russia, Ukraine and Latvia, amongst others.
SA wheat import tariff lifted
South Africa’s wheat import tariff was lifted to R832.10 per tonne on 04 September 2020 from R516.60. This is after a prolonged delay in the adjustment of the tariff as it triggered on 24 March 2020, following a decline in global wheat prices on the back of expected large supplies.
The conditions have somewhat changed now, at least from a global wheat price perspective, but for certainty in the market, it was key that the tariff was adjusted as the formula dictates. Ideally, the government should ensure the tariff is implemented immediately whenever the trigger occurs. The delay is not always good for policy certainty. For background, the adjustment on this rate occurs when the international wheat prices deviate by US$10 per tonne for three consecutive weeks from the base price (which is part of the standard formula).
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by Wandile Sihlobo | Sep 17, 2020 | Daily Notes
At the outset of the Covid-19 lockdown, agriculture and the food sector were classified as essential services to avoid disrupting the nation’s food supply. But there were always concerns about whether the agricultural value chains and logistics could work efficiently when most other sectors of the economy had ground to a halt.
Industry leaders quickly met, and with the help of the Bureau for Food and Agricultural Policy (BFAP) created a weekly value chain tracker covering all aspects of the sector. This proved an essential tool as challenges emanating from it were elevated to the legislators to be tackled swiftly and ensure the continuity of the sector.
Through the BFAP Covid-19 tracker, we also began to pick up challenges at the ports that led to delays in shipment and had various interactions with industry players. The delays were a great concern as SA’s agricultural sector is export-orientated. As the 2019/2020 production season was bountiful, we had greater volumes of field crops and horticultural produce to export than in previous years.
Continuous co-operation between industry players and the government reduced delays at the ports as the lockdown progressed. Another worry was the logistical challenges at receiving ports and general uncertainty about global trade due to disruptions caused by the pandemic to global supply chains and the debilitating effect lockdowns had on demand.
Yet against all odds, SA has managed to maintain vibrant trade, as illustrated by the agricultural trade surplus, which expanded 32% year on year in the second quarter of the year to $1.1bn, according to data from Trade Map. Exports were little changed compared with the same period in 2019, at $2.4bn, while imports declined notably to $1.3bn. The decline in imports can be attributed to slower domestic demand and large domestic crops.
The growth in agricultural exports was underpinned by citrus, wine, maize, apples, sugar cane, pears, avocados, grapes and macadamia nuts. These products will continue to support SA’s agricultural exports in the remaining two quarters of 2020. Citrus features prominently throughout the year and exports for 2020 are expected to reach a record 142.6-million cartons, up 12% year on year according to data from the Citrus Growers Association of Southern Africa. Similarly, we at the Agricultural Business Chamber estimate SA’s maize exports will reach 2.7-million tonnes this year, up 89% year on year due to a bumper domestic harvest.
The African and Asian continents were the largest markets for SA’s agricultural exports in the second quarter of the year, respectively accounting for 33% and 29% in value terms. Europe was the third-largest market, taking up 28%, and the balance of 10% by value was spread across the rest of the world. The main imports were wheat, palm oil, rice, poultry meat, sunflower oil and sugar. For the rest of the year, rice, wheat and palm oil will likely continue to dominate the imported agricultural product list.
Overall, though the pandemic will result in lower incomes in most world regions due to a decline in demand for goods, the agricultural sector is one of the few that might not be as hard hit. SA’s agricultural exports could increase in 2020 from 2019’s $9.9bn to more than $10bn. The catalyst will be the increase in grains and horticultural output, and the weakening domestic currency.
This all builds from great work various stakeholders in the agriculture, agribusiness, logistics and government sectors have done to ensure the continuous functioning of the sector throughout the lockdown period.
Written for and first appeared on Business Day, September 15, 2020
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by Wandile Sihlobo | Sep 16, 2020 | Daily Notes
This morning’s blog post is co-authored with fellow agricultural economist, Tinashe Kapuya. Our aim is to briefly reflect on the recent 2020/21 global grain and oilseed production forecasts from the United States Department of Agriculture and further draw implication for South Africa.
Discussion
We have recently reflected on 2020/21 global grain and oilseed production estimates from the International Grain Council (IGC). These painted a positive picture of the supplies although there were a few minor downward revisions. We are now increasingly convinced that the recent unfavourable weather conditions in parts of Europe, Asia and even the US will not have a severe adverse effect on global production estimates. The United States Department of Agriculture (USDA) released its monthly update of World Agricultural Supply and Demand Estimates report on 11 September 2020, which painted a somewhat similar picture of abundant supplies as the IGC.
The 2020/21 global maize harvest was revised down marginally by 1% from last month to 1.16 billion tonnes, primarily on expectations of lower yields in the US, Ukraine, EU and Russia, amongst others. Nonetheless, the total projected output is still 4% higher than in the previous season. These slight reductions in monthly production estimates, coupled with the growing demand for maize, specifically in China, have in the past couple of days supported global maize prices. Also, it is worth noting that it is only in the northern hemisphere where production has advanced. The planting is only commencing this month in parts of the southern hemisphere. This means the production estimates for the latter are tentative and much will depend on the weather conditions for the coming month.
The implications of this for South Africa have been through price transmission, as the uptick in global maize prices adds, to some extent, support to domestic maize prices, even though South Africa is generally a net exporter of maize. The USDA has also maintained a fairly positive outlook of 14.0 million tonnes for South Africa’s 2020/21 maize production, although this would be 13% lower than the 2019/20 harvest. This projection accounts for both commercial and non-commercial maize.
Admittedly, it is too early to know where the maize harvest will be in 2020/21 as the planting intentions data for the season will only be released next month. That said, 14.0 million tonnes harvest is plausible in an environment that might present above-normal rainfall, coupled with higher commodity prices to encourage increased planting. Moreover, the expected harvest is well above the 10-year average total maize production of 12.9 million tonnes in South Africa, and domestic annual usage of about 11.2 million tonnes.
In the case of wheat, the USDA is more optimistic than the IGC, having lifted its 2020/21 global production estimate by 1% from last month to 770 million tonnes (compared to 768 million tonnes of the IGC). This is primarily underpinned by prospects of a large harvest in Canada and India, amongst other countries. This new production estimate is now 1% higher than the 2019/20 season. The increase in the harvests of these countries will compensate for the expected slight crop declines in the US, EU, UK and Ukraine. The estimates of a slight uptick in global wheat production bode well for wheat-importing countries like South Africa, which could continue to enjoy relative contained prices in the medium term. As previously stated in our notes, over the past 10 years, South Africa has imported on average about 51% of its annual wheat consumption of about 3.1 million tonnes. The figure, could, however, decline somewhat in the 2020/21 season as the domestic wheat harvest is set to be the largest in a decade, estimated at 1.96 million tonnes.
The USDA is rather a bit more pessimistic than the IGC is on 2020/21 global rice production, which is estimated at 499 million tonnes, slightly lower than the previous month. This is 1% lower than the IGC estimate for the same season, while above the previous season’s harvest of 495 million tonnes. The USDA sees a notable decline in rice production mainly in Thailand, which also happens to be the key supplier of rice to South Africa. On average over the past five years, 65% of South Africa’s rice imports originated from Thailand. The other key supplier was India, whose 2020/21 harvest is set to increase marginally from the previous year. The IGC estimates South Africa’s 2020 rice imports at 1.1 million tonnes, up by 10% y/y.
In terms of soybeans, the USDA lowered its 2020/21 global production estimate only slightly by 0.2% from last month to 369 million tonnes. This downward revision was mainly in the US following an expectation of lower yields in states such as Iowa after the recent windstorms. With that said, this is still 10% higher than the previous season’s harvest. The prices, however, are not reflective of a year of an abundant harvest because of growing demand, specifically in China. This is a similar case as in maize. The price increases in soybean products such as soybean meal increase the cost of animal feed for importing countries such as South Africa. The country currently imports nearly half a million tonnes of soybean meal a year.
Overall, the USDA’s monthly report reinforces the view that the IGC had already painted, which is that there will be large supplies of grain and oilseed in the global market in 2020/21. The price increases of the past couple of weeks are not caused necessarily by fears of a decline in supply, rather the shifts in demand in markets such as China. These developments have implications for South Africa as briefly explained above, although the country is a net exporter of major grains such as maize and barley. For commodities where South Africa is a net importer, the implications are even more significant. Therefore, we continue to keep a close eye on these global developments.
Wandile Sihlobo is Chief Economist of the Agricultural Business Chamber of South Africa (Agbiz) and the author of Finding Common Ground: Land, Equity, and Agriculture. Dr Tinashe Kapuya is head of Value Chain analytics division at the Bureau for Food and Agricultural Policy (BFAP).
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by Wandile Sihlobo | Sep 15, 2020 | Daily Notes
Some analysts, myself included, did not anticipate that the 2019/20 harvest and agricultural performance would be as robust as we have witnessed. This is clear from one of the essays I wrote for Business Day on December 10, 2019, which was titled – Another grim year ahead for the despondent agricultural sector (see here).
At the time, there was a high probability of drought in midsummer and the fresh outbreak of the foot-and-mouth disease in Limpopo which had reintroduced all the risks of export bans of animal products and meat. This was overwhelming evidence to convince one that we were perhaps heading towards another fairly bad season. Some regions which were supposed to have planted by December 2019 hadn’t progressed much because of dryness.
This depressing picture only changed from January 2020 when most regions of the country suddenly received good rainfall which enabled plantings. Thereafter, good growing conditions which led to the recent bumper harvests. This delay in plantings is evident through the maize harvest and producer deliveries, which was delayed by nearly a month this year because of the late start of the season on the back of dryness.
So, why am I bringing this up?
My intention is not to introduce doubt to the current favourable rainfall forecasts for the 2020/21 production season, but rather to reflect on the scars of the previous year. While most regions received late rains and proceeded well, parts of the Eastern Cape did not get sufficient rains to improve dam levels. This was muted until recently, with now increasing reports of a potential “day zero” in Port Elizabeth and surrounding areas.
While the average provincial dam level is 51% as of September 14, 2020 data; which is marginally higher than 2019, a closer look at various dams in the province is frightening. The water levels are too low (see here).
In various conversations I had with farmers in the province yesterday, I learned that the critical areas, at least from an agricultural perspective, are around the Amathola mountain watershed and on the Keiskamma dam where water levels are very low; and of course, Port Elizabeth. The aforementioned dam levels data corroborates this view. Also, I am told that Gamtoos farmers have very little water.
With this worrying picture, I am hoping that the forecast of La Niña rains could be a relief to the province (see here). The recent indications from the South African Weather Service suggested that we could receive the first rains towards the end of this month, specifically the eastern and southern regions of South Africa. So, aside from the government interventions that are needed in the province; one looks up with a hope of rains to ease conditions to the Eastern Cape.
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by Wandile Sihlobo | Sep 14, 2020 | Daily Notes
My aim in this morning’s blog post is to discuss briefly the sentiment conditions in South Africa’s agriculture and agribusiness sectors. This follows the release of the third-quarter results of the Agbiz/IDC Agribusiness Confidence Index (ACI). For full disclosure, I lead the compilation of this Index.
Slight optimism
We ran the third-quarter survey in the first two weeks of September, covering all major agribusinesses operating in all agricultural subsectors – livestock, field crops and horticulture – across the country. This helps one to get a good feel of sentiments across the country, and not be swayed by one subsector or region in their assessment.
The ACI showed a rebound from 39 points in the second quarter to 51 points in the third quarter. A level just above the neutral 50-point mark implies that agribusinesses are only marginally optimistic about business conditions in South Africa.
I wasn’t surprised by these results as they corroborate various high-frequency data – from production (see here), agricultural machinery sales (see here) to agricultural trade (see here) – which show that most of South Africa’s agriculture and agribusiness sectors have not been severely affected by the ongoing COVID-19 crisis, as the sector was classified as essential and largely did not close down throughout the lockdown period.
With that said, the picture wasn’t broadly rosy from the survey responses we got. We noticed that the sentiment from business operating within the wine, floriculture and tobacco were not as positive as other subsectors. This was unsurprising as these particular subsectors were severely affected by the lockdown regulations, with sales prohibited for certain periods.
Broadly, the ACI is a composite index with about 10 sub-indices; namely, the turnover, net operating income, market share, employment, capital investment, export volumes, economic growth, general agricultural conditions, debtor provision for bad debt and financing cost.
These subindices mostly showed improvement from the second quarter except for employment, debtor provision for bad debt and financing cost. I wasn’t as surprised about the pessimism in employment even though we are in a boom agricultural year from a volumes perspective (and favourable commodity prices). The various health protocols, such as social distancing and limits on movement, that had to be adhered to, as an attempt to limit the spread of the coronavirus might have negatively influenced employment. This ha probably affected the most those who are typically involved in seasonal employment in agriculture.
But the decline in sentiment regarding the debtor provision for bad debt and financing cost subindices did surprise us given that the South African Reserve Bank has cumulatively cut interest rates by 300 basis points thus far this year. We think that the lenders may have become more risk-averse due to COVID-19-related uncertainty.
You can read more about the ACI and also access the headline data here.
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