Agricultural Market Viewpoint with Wandile Sihlobo The Xchange Platform

South Africa has experienced two months of extremely dry and hot weather —
February and March. The impact of harsh weather conditions on agriculture across
the country is visible through crop failures. The 2023/24 summer grain and oilseed
production is down 21% year-on-year, estimated at 15.8 million tonnes.

We are now at an advanced stage of crop development where there would be
minimal to no improvement, even if it rains. Indeed, if one reflects on the past few
days, we have received some excellent rainfalls in various regions of South Africa,
but this has had minimal benefit on crops.

The soil moisture is enhanced, but this will unlikely improve our summer grain and
oilseed production outlook. However, the grazing veld for the livestock will be
improved somewhat.

The map below illustrates the increased soil moisture levels in the central and
eastern regions of South Africa following the recent rains. The improved moisture will help in the winter crop season, which starts at the end of this month in most regions of the country.

Regarding summer grain and oilseed production prospects, South Africa is in a
better condition than the rest of the southern African region, where there are massive crop failures and countries have to rely on grain imports.

South Africa has sufficient grain for domestic consumption; if the forecast crop
materialises, we hope it does.

Listen to the podcast for more insights.

My writing on agricultural economic matters is available on my blog:
https://wandilesihlobo.com/

Podcast production by Nelisiwe Tshabalala, Lwandiso Gwarubana, Richard
Humphries, and Sam Mkokeli

The past two years presented major challenges for the South African livestock industry. The spread of the Foot-and-Mouth Disease (FMD) and higher feed costs were the two major factors that weighed on their business.

As farmers, various feedlots, and the government worked to control the spread of the FMD, the impact was deepening on the revenues of farming businesses as they suddenly had to limit the movement of animals, and various export markets were temporarily closed. In the case of the beef industry, in 2022, the exports fell below the prior five-year average, totalling 26 881 tonnes, down 16% year-on-year, according to data from Trade Map. The exports recovered slightly in 2023, up 3% year-on-year to 27 675 tonnes.

Even as the beef industry confronted these challenges, it had already resolved that widening the export market would catalyze its long-term growth. There was evidence pointing to the expansion of exports. For example, between 2017 and 2021, South Africa's overall beef exports averaged 31 169 tonnes.

This was notable progress as the beef exports had averaged 26 670 tonnes five years prior, and the years before that were less than 15 000 tonnes. The spread of animal diseases threatened this export growth.

Between 2017 and 2021, the exports comprised, on average, 49% fresh beef and 51% frozen beef. The export markets were also diverse. For fresh beef, Kuwait, Jordan, United Arab Emirates, Mozambique, Lesotho, Qatar, Zimbabwe, Mauritius, and the Netherlands were some of the largest and most consistent markets. Similar markets and new ones were at the top of the list for frozen beef.

These included Lesotho, Mozambique, China, the United Arab Emirates, Jordan, Egypt, the Netherlands, Qatar, Hong Kong, and Kuwait. Fortunately, while some regional markets had temporarily closed off the red meat products from South Africa, some remained open. Thus, the exports did not collapse in 2022 and 2023, when animal disease was a major challenge.

This challenge was not limited to the cattle industry. Although the wool industry was not directly affected by FMD, some export markets temporarily closed due to concerns related to the disease. China, which accounts for more than two-thirds of South Africa's wool exports, temporarily closed for various periods in 2022 and 2023.

The impact of those temporary closures is visible on export volumes of wool. For example, in 2022, South Africa's wool exports fell by 19% year-on-year to 42 239 tonnes. The major decline in volume was in the Chinese market.

Fortunately, the engagements between the South African and Chinese authorities to reassure them of the safety measures in place to ensure that there is no spread of disease led to the resumption of exports. In 2023, South Africa's wool exports recovered 18% year-on-year to 49 715 tonnes.

The higher feed costs were a factor outside the control of the farmers and regulators. This was also not unique to South Africa but a global phenomenon. The rise in Chinese demand for grains, coupled with drought in South America, higher shipping costs, and the Black Sea war, were major drivers of grain prices in the past two years.

South Africa is interlinked to the global market; thus, the rise in international grain prices was also a reality here at home. For this reason, the livestock farmers had to contend with higher feed prices while simultaneously being squeezed in export markets.

My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/

Podcast production by Nelisiwe Tshabalala, Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli

This month, we will have farmers in the Western Cape likely begin to prepare the soil for the 2024/25 winter crop production season by the end of April into May. Other major winter crop-producing provinces, such as Free State, Limpopo and the Northern Cape, will likely start around the end of May.

The production of winter crops outside the Western Cape has sizable irrigation support. These regions should benefit from the relatively higher dam levels from the early summer rainfall.

In major winter grains such as wheat, nearly half of the production in South Africa is produced under irrigation. The irrigation share in overall wheat production is essential in an environment where drier weather conditions and heat waves are causing significant damage to summer grains and oilseed regions.

The weather outlook remains uncertain for rainfed regions, which could negatively affect the planting in the 2024/24 season.

Listen to the podcast for more details and our outlook.

My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/

Podcast production by Nelisiwe Tshabalala, Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli

Since the release of the previous report of South Africa's Crop Estimate Committee (CEC) at the end of February 2024, the weather conditions across the country have remained unfavourable. Thus, we are not surprised that the CEC further lowered its production forecasts for South Africa's summer grain and oilseeds this afternoon.

The CEC now forecasts South Africa's 2023/24 total grain and oilseeds production at 15.8 million tonnes, down 9% from last month and 21% lower than last season's harvest. This year's overall decline in production prospects is primarily due to poor yields, not the area reduction, as farmers tilled more land than in the 2022/23 season.

In essence, while we started the 2023/24 summer crop season with optimism and even estimated that harvest would be decent at above-average levels, the outlook is now challenged by the excessive heat and limited rainfall across the major crop-growing regions.

Notably, this week marks nearly two months since some regions of South Africa last received adequate rainfall. Throughout February and March, the rainfall has been scant across South Africa, with an intense heatwave that made the summer crop growing conditions difficult. These months are also critical for crop pollination, a growth stage that typically requires higher moisture levels. We have gone through pollination with limited moisture, reinforcing fears of a potentially bad summer crop in South Africa this year.

Another challenge of the 2023/24 season is the difficulty of forecasting the size of the summer crop as we face a moving target and continuous unfavourable weather conditions. The crop forecasts for later in the year will likely show a more realistic picture of the crop conditions.

From a consumer perspective, the current drought presents upside risks to food price inflation. But the major issue is white maize. The favourable supplies of other grains in the world market, mainly yellow maize (also rice and wheat), and the moderating prices mean South Africa could be slightly cushioned in these commodities.

Still, the exchange rate will be an important consideration when assessing the possible imports of wheat and rice (and possibly yellow maize) into South Africa, assuming we see further downward revision of the crop forecasts.

The Southern African maize-producing countries such as Zambia, Zimbabwe and Malawi are also under pressure because of the drought. This means tight white maize supplies in South Africa could also face regional demand, further presenting upside price risks.

My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/

Podcast production by: Nelisiwe Tshabalala, Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli

While the summer grain and oilseeds production prospects for the 2023/24 season seem bleak in Southern Africa because of the excessive dryness and heatwave, the global production conditions remain reasonably optimistic. On March 14, the International Grains Council (IGC) released its monthly update of the 2023/24 global grain and oilseeds production, with some upside adjustments for significant crops.

For example, the 2023/24 global maize harvest forecast at 1,2 billion tonnes, up 6% year-on-year. This improvement is due to better crop expectations in the US, Argentina, Ukraine, China, the EU, and Russia. Consequently, the stocks will also lift by 5% year-on-year to 294 million tonnes.

The IGC forecasts that the 2023/24 global wheat harvest will reach 789 million tonnes, well above the long-term average levels (albeit down 2% year-on-year). A poor harvest in parts of Russia, Canada, Ukraine, Australia, the United Kingdom and Kazakhstan underpins the decline in the overall harvest. Still, the global wheat consumption will likely remain strong, particularly in Asia. As such, the IGC forecasts a 5% decline in stocks to 267 million tonnes. But from a long-term perspective, these will still be healthy stocks.

There is a lot of rice globally, with the 2023/24 global harvest forecast at 511 million tonnes, well above the long-term average (but down 0,6 year-on-year). The minor decline in the harvest is primarily in India, Thailand, China and Indonesia. The global rice consumption will likely remain stable this marketing year, and thus, the IGC also left the ending stocks roughly unchanged from the 2022/23 marketing year at 43 million tonnes. These stock levels are broadly favourable for rice price moderation in the months ahead, which had started softening since the beginning of the year. This followed an uncomfortable price surge at the end of 2023 when India decided to limit the exports of the product.

It is also worth noting that the 2023/24 global soybean harvest is estimated at 391 million tonnes, up 5% year-on-year. The robust harvest in Argentina, China, Canada, Russia, Ukraine, and Paraguay significantly drove this expected uptick in the global soybean harvest. With global soybean consumption reasonably stable, the increase in production resulted in an improvement in the global soybean stocks, now forecast at 66 million tonnes, up 12% year-on-year.

The global agricultural prices already reflect this environment of improved supplies. For example, the Food and Agriculture Organization of the United Nations (FAO) recently released its Food Price Index for February 2024. This index measures the monthly change in international prices of agricultural commodities, not final food products. The FAO Food Price Index averaged 117.3 points in February 2024, down 1% from its revised January level and 11% from last year's corresponding period. The broad decline in grains and oilseed prices underpinned this moderation, again underscoring the importance of improved supplies in the 2023/24 season.

My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/

Podcast production by: Nelisiwe Tshabalala, Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli

The damaging effects of persistent dryness and heatwave in South Africa's summer crop-growing regions have raised concerns about a possible rise in consumer food inflation in the coming months. With South Africa's food price inflation averaging 11% in 2023 (from 9.5% in 2022, 6.5% in 2021, and 4.8% in 2020), which was relatively high compared with recent periods, talk of further upside pressure in inflation comes as an unwelcome development.

However, the underlying drivers of the increase in food inflation in the past two years were mainly the international agricultural commodity prices and, to a much lesser extent, idiosyncratic domestic factors. Still, towards the latter part of 2023, local factors such as animal diseases, weaker domestic currency, and load-shedding-related costs were some of the key drivers of food inflation.

The drought in South America, China's strong demand for grains and oilseed, rising shipping costs, higher energy prices, and the Russia-Ukraine war were some of the factors that were behind the higher global agricultural producer prices, which, in turn, boosted the domestic prices, and thus leading to relatively elevated consumer food price inflation in 2022 and 2023.

Also worth noting is that South African food manufacturers had to absorb some of the increases and did not pass on the full increases to consumers who were already under pressure because of weak economic conditions and higher unemployment in the country. For example, in 2022, while consumer food inflation averaged 9.5%, the producer price inflation for agricultural products was 15.0%, and the food manufacturers inflation was 12.3%. This means manufacturers did not pass on the total costs to consumers, contrary to what some regulators have argued.

The factors that underpinned higher consumer food inflation in 2022 and 2023 have somewhat subsided. There are ample grain supplies in the global market.

Aside from the international factors, other major factors driving South Africa's food inflation this past year was the increase in vegetable and poultry products prices. The poor harvest caused the vegetable price increases after load-shedding at the start of the year, undermining crop quality. Things have changed this year. While it has been quite dry across the country since the beginning of February 2024, vegetable production has not taken a strain because all commercial production in South Africa is under irrigation and load-shedding, while risk has not been hard since the start of 2023. Some farmers are better prepared this year for possible regular power cuts.

Considering the above developments, the major risks to consumer food inflation in South Africa in 2024 will primarily be white maize products, while other products within the food basket may moderate or show sideways movement in prices.

My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/

Podcast production by: Nelisiwe Tshabalala, Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli