The effects of changing the climate, which is, of course, a global challenge, have been felt in Sub-Saharan Africa and parts of Asia in the recent past. This has been through erratic rainfalls and more frequent occurrences of droughts and floods.
For countries whose economies are largely dependent on agricultural fortunes, the impact of climate change has largely been felt through smaller harvests, poorer grazing conditions for livestock and ultimately food price inflation.
However, less discussed but equally important is the impact of climate change on value-chain industries such as agricultural inputs and equipment providers, agricultural financiers, and food processing companies amongst others. We are witnessing this in South Africa, albeit thus far at a fairly marginal scale. To single out one industry – the agricultural equipment – its performance has been subdued since the start of the year.
There are a number of factors that have led to this trend, but chief amongst them is the poor performance of agricultural production, which is caused by unfavourable weather conditions.
When the 2018/19 summer grains and oilseeds season started in October 2018, only parts of Mpumalanga, KwaZulu-Natal, Gauteng, Eastern Cape and Limpopo received light showers which enabled plantings. Other provinces, specifically the Free State and North West only received good rainfall in late December 2018. This meant that plantings had to be delayed by roughly a month from the normal schedule. And this subsequently led to a 4% year-on-year reduction in summer grains and oilseeds area planted to 3.7 million hectares in the 2018/19 production season.
Furthermore, the crop yields in areas that planted also took a knock. The 2018/19 sunflower seed, soybean and maize harvested are expected to fall by 29%, 21% and 13% from the previous season to 611 140 tonnes, 1.2 million tonnes, and 10.9 million tonnes, respectively. All of this weighs on farmers’ finances, and thus the agricultural equipment sales.
Admittedly, we cannot attribute the poor performance on the agricultural equipment sales solely on unfavourable weather conditions. This is a year that follows 2018 where sales were relatively robust, which implies that the rate of replacement will likely be down in 2019.
South Africa’s total tractor sales for 2018 amounted to 6 680 units, up by 4% from the previous year. In terms of combine harvester sales, the year 2018 presented a good performance, with 200 units sold, up by 2% from 2017.
Another important point that we continue to monitor, through the Agbiz/IDC Agribusiness Confidence Index, is the influence on policy discussions on agricultural investment. Sentiment in the sector has generally been subdued since the second quarter of 2018. But what we found rather comforting is that fixed investments in the sector did not decline notably in 2018.
However, the subdued confidence levels in the second quarter of 2019 suggest some urgency in moving the policy leavers to ensure that, at least matters that are in the South African policymakers’ reach are well addressed for the interest of sustainable growth of the agricultural and agribusiness sector.
In closing, the changing climate will continue to be the key driver of the performance of the agricultural sector and inter-linked industries in the near term and for many years to come. We expect a generally subdued performance in terms of tractor purchases over the coming months, with a potential turning point being around October 2019 when the 2019/20 summer grains and oilseed production season starts. But this is if weather conditions improve.
SA Summer grains and oilseed harvest process underway
The harvest process for summer grains and oilseeds – maize, sunflower seed, soybeans, groundnuts, sorghum and dry beans is underway in some parts of South Africa. Unsurprisingly, the yields are generally below average in most areas owing to the unfavourable weather conditions during the season that we explained in the aforementioned section of this report.
The data point that helps us get a sense of the area harvest thus far is SAGIS’s producer deliveries data which is updated every Wednesday of the week. In the case of maize, about 4.1 million tonnes had already been delivered to commercial silos in the week of 28 June 2019. This means that roughly 38% of 2018/19 maize crop has already been harvested. The progress has, however, largely been in the eastern parts of the country which planted on time relative to the western parts of the country which saw a month-long delay. About 69% of the maize delivered thus far is yellow, which is predominantly planted in the eastern regions, with 31% being white maize.
Soybean is another crop where harvest has advanced. In the last week of June, about 1.1 million tonnes had been delivered to commercial silos. This equates to 85% of the 2018/19 soybean crop. The notable progress is partly because soybean is grown in the eastern parts of South Africa where weather conditions were relatively favourable.
The clear picture of a late season in the western parts of South Africa is not only demonstrated by white maize slow harvest progress but also sunflower seeds which are mainly planted in this region. In the week of 28 June 2019, about 388 918 tonnes of sunflower seed had been delivered to commercial silos. This means that roughly 64% of sunflower seed had been harvested that week, which is far behind other oilseeds like soybeans.
Overall, this is likely to be good progress in harvesting over the next country of weeks with minimal disturbance from the weather front. The weather forecast for the next two weeks shows clear skies over the summer crop growing areas of the country.
U.S. Crop progress remains a focus
About a few weeks ago agricultural analysts across the world were concerned that the excessive wet weather conditions in the U.S. would lead to fewer plantings and poor yields. This would have subsequently led to tight global maize supplies and higher maize prices. And the latter was beginning to be a reality.
But when the U.S. Department of Agriculture (USDA) released its acreage report on 28 June 2019, there was soon a realization that the market misread the situation on the ground.1 The U.S. government indicated that farmers planted 37.1 million hectares in 2019/20 season, up by 3% year-on-year. It appears that farmers switched a few soybean hectares to maize due to attractive prices in June 2019. As a result, soybean plantings are down by 10% year-on-year to 32.4 million hectares in 2019/20 season.
Since this data came out on 28 June 2019, the U.S. maize prices have retracted from levels seen over the past few weeks when there were still concerns of slow plantings. On 04 July 2019, the U.S. maize spot price was about US$200 per tonne, down from levels seen in June when there were still fears of slow plantings. With that said, this price level is still 23% higher than 04 July 2018, which means that there is still some nervousness in the market about the global maize supplies.
For South African maize farmers and maize-users, developments in the U.S. market are important and have strong influences on our local market, which is generally linked to the global agricultural markets. In line with developments in the U.S., South African yellow maize prices also pulled back somewhat from levels seen over the past few weeks.
Overall, we think that U.S. maize yields and the actual area that will be harvested at the end of the season are key things to keep an eye on. Planting is one thing, but what is key are yields. On Sunday, 30 June 2019, only 56% of the U.S. maize was rated as being in good or excellent growing conditions, compared with 76% in the corresponding period in 2018. This alone tells us that it is not all rosy in the U.S. corn belt, just as it is not all bad. Later today we will receive an update of crop conditions for the week of 07 July 2019.
