On September 19, the International Research Institute for Climate and Society at Columbia University presented an update of its seasonal weather outlook, which remained somewhat unchanged from the previous month’s outlook. By this, I mean there is over 60% chance of El Niño developing over the 2018-2019 summer season. This corroborated the message shared on September 11 by the Australian Bureau of Meteorology which indicated a 50% chance of El Niño developing. 

I spent the last Saturday of the month in Rayton – a small town located in north-eastern Gauteng. I attended a farmers’ day where I was asked to present on the upcoming 2018-2019 summer crop production season in the context of rising farm input costs, changing climate and land reform.

Many of the farmers Aaron Bobeck works with see a return-on-investment from using precision technology. But the 31-year-old says he also encounters many who are frustrated and on the verge of turning their backs on it.

1. MORE CORN, FEWER BEANS
About 3 million acres of crop production in the U.S. will shift to corn in 2019, with a 15-billion-bushel corn crop and record-setting corn production worldwide. “This big-crop phenomena is set for years, and it's not just here in the U.S.,” says Chad Hart, crop marketing specialist at Iowa State University. While the U.S. continues to be number one in corn worldwide, we will lose our number one position in soybeans to Brazil in 2019, due to tariffs. “We're going to pull back in acreage, and they're going to add, so they will be the dominant producer for the world,” says Hart. “It's a pattern that has been building for some time. The trade dispute just reinforces it.”

 
2. MORE SPRING WHEAT
Nearly 7 million acres will come out of soybean production in 2019. That loss will happen mainly in the Dakotas, Nebraska, and Minnesota. Some land will switch to corn, but expect a jump in spring wheat and a return to fallow in parts of the Dakotas. Overall, the USDA is projecting we'll have 1 million less acres in row-crop production. North Dakota will transform, says Hart. The state expanded in soybeans rapidly the past 10 years, but all those beans were going to China. “They could catch a train west and find that great big market. Now, that great big market is shut down,” he explains. “We're going back to what is more traditionally grown in the Great Plains after an incredible run in the soybean market.”

3. CORN PRICES TICKING UP
Corn prices should improve in 2019 to around $3.90 a bushel due to three years in a row of strong international demand, says Hart. “What’s driving this is the meat side of the equation. You import corn when you have something to feed. The light at the end of the tunnel is the global demand for meat.” On the domestic side, the demand for corn is not growing as fast. “Livestock producers are very efficient now,” says Hart. “I'd love for them to use a bit more corn. Same thing with ethanol plants. They're getting more efficient.” We are starting to put in a few new ethanol plants due to international demand, he says. “India is a player now for our ethanol exports. We're finding those new markets.”

4. MORE STORAGE
Two years ago, a pie chart of our soybean exports looked like Pac-Man, with China gobbling up everyone else. Since then, we've seen a half-billion-bushel drop to China due to retaliatory tariffs. We have found a new home for about 45% of those beans, says Hart. “Eventually, we'll find a home for almost all of them, but it takes time. Until then, it's hard for prices to move much. That's why we're seeing soybean stock levels build dramatically.” Producers are storing soybeans and waiting for a seasonal rally. “Traditionally, we do get one,” says Hart, “but I'm worried about the quality of the crop. 2018 was a slow year getting the crop out. Rain makes grain until that grain is made.”

5. TRADING PARTNERS SHIFTING
We've doubled sales to Mexico and the European Union in the past year, and they are now our top two soybean export markets. Number three is Argentina, which used to import zero. “When the tariffs went into place, China turned to South American and bought beans as fast as and as hard as it could,” explains Hart. “That caught the soybean crushing industry in Argentina off guard. It went out on the world market and said, ‘Who's got some cheap beans for sale?’ We did.”

 6. TRADE WARS GET WORSE. OR BETTER.
Who's our customer in agriculture? The world. “Everybody on this planet is our potential customer,” says Hart. “If you're going to feed them, you've got to trade with them. Half of our soybean crop and 21% of our corn leaves the country. The tariff’s impact will overhang the market until we get an agreement.” There is good news. “Just as quickly as we got into this mess, it's possible to get out again,” he says. “That’s what farmers are waiting on."

7. COSTS FLAT, PROFITS FLAT
What do we expect on the production cost side compared with 2018? Fuel and fertilizer prices will be a little higher, says Hart, but cash rents will be down a little. “In the end, the 2018 number of $3.60 production costs for corn is not a bad number to use for 2019. That’s positive news. For soybeans, it is more like $9.50.” As for profits, “It looks like 2019 will be a replay of 2018, which was a replay of 2017, which was a replay of 2016, which was a replay of 2015,” says Hart.     

8. MORE MEAT
Livestock production has been growing in the U.S. for five years and won’t stop this year. “We expect continued expansion,” says livestock economist Lee Schulz, Iowa State University. He predicts record production of beef in 2019. Beef exports are the primary reason why prices are as strong as they are, he says. We export almost 12% of our beef and about 23% of our pork on a carcass weight basis.

Schulz predicts hog prices to be about $7/cwt higher than 2018. “We’re at record hog inventory, so it's pretty remarkable that prices are where they are,” he says. “That is a bullish sign for the hog industry.” He is projecting about $5 above breakeven for 2019 compared with $5 below breakeven in 2018. “Some producers lost a significant amount of money in 2018, but it won’t alter many expansion plans already in place.” There's been incredible investment in coordinated ownership throughout the supply chain, he explains. The pork industry has increased slaughter capacity almost 10% over the last four years. “They’re going to keep investing in this system. This is a well-oiled machine.” The demand for hog manure as fertilizer and the desire to diversify row-crop operations has helped fuel the expansion, says Schulz.

Tariffs are troublesome, but not a game changer, he says. “We're picking fights with the major market for pork variety meats – China. South Korea is our best friend right now. We have increasing exports to that country.” The diverse portfolio of markets and our competitive cost of production have helped insulate the pork industry from a much larger impact from the retaliatory tariffs, he says. “It's difficult for competitors to overcome our cost-of-production advantage. On the world market, we're going to remain very competitive even with some of these tariff rates that have been invoked.”

As for sheep and lamb, 2019 looks to be a rebound from the much softer prices we saw in 2018, says Schulz.

9. DAIRY MARKETS IMPROVE
Because they can’t get worse, says Schulz. “Prices can't go much lower, so we're likely to see an improvement in 2019. Unfortunately, a 5% gain does not offset the large losses we've seen over the last several years. The dairy industry has been in tremendously tough times.”

10. MORE FARMERS SELLING ASSETS, RETIRING, FILING BANKRUPTCY
Charles Brown, farm management specialist with Iowa State University, gives this example of a crop farmer he has worked with for four years: In 2015, Joe had a net worth of $2.6 million and $272,000 in working capital. “Any lender would have liked to have Joe as a client,” says Brown. By the end of 2017, Joe’s working capital had dropped to $56,000; today, it is zero. “This is common for many farmers. It’s not a net worth problem,” says Brown. “Working capital is disappearing.” Many farmers are refinancing their debt to lengthen out loans and to improve cash flow, but Joe decided to sell assets and retire.

Sullivan Auctioneers in Hamilton, Illinois, has 76 farm auctions the last two months of 2018. “It’s not as much fun farming today as it was in 2012,” says Brown. “For some farmers, it’s better to sell out, take the money, cash-rent the farm out, and look forward to winter.”

If you have to improve your cash flow and you don’t have the ability to refinance, sell assets. Check the back of your machine shed, make a list of nonproductive assets, and sell those first.

One key tip: Before you sell assets, contact your accountant about the tax consequences. Make arrangements to withhold enough money to pay your taxes. “Don’t be stuck giving all the proceeds to the lender with no money left to pay the taxes,” says Brown. If you are going to need to file Chapter 7 bankruptcy, do not sell the assets before you take the bankruptcy. “If you sell it before, you are going to incur the income tax liability. If you sell them in the bankruptcy estate, you may pay little or no taxes on the sale of those assets.”

Agricultural technologies could help to obviate the effects of climate change and ensure the planet’s population growth doesn’t lead to a global hunger epidemic. 

In Augustus 2018 het die Suid-Afrikaanse suiwelindustrie in terme van massa 14 639 ton uitgevoer, terwyl invoere 4 872 ton beloop het. Dit beteken dat die netto uitvoere vir Augustus 9 767 ton beloop het, teenoor 8 346 ton in Julie. Dit verteenwoordig ʼn styging van 17% in Augustusmaand en teen die agtergrond van die swak rand in September word verwag dat netto uitvoere verder sal styg.

Global agricultural food commodity prices fell in September due to growing inventories of key staples. The FAO Food Price Index declined 1,4% from August and is now 7,4%below its level during September 2017.

Arable farming systems across South Africa are going through a change. Forced by a variable climate and financial pressure, regenerative farming models are increasingly being implemented on cropping, dairy and beef operations as a result. Ethical motivations and issues of family succession are also reasons for adopting the principles of Regenerative Agriculture (RA).

Recent research that I conducted in Northern Kwa-Zulu Natal and the Eastern Free State in South Africa explored the RA concept and investigated how widely it is being applied and why. The initial line of questioning posed to 59 farmers across this part of South Africa focused on weather data, its utility and how farmers are handling the climate-associated challenges. For these farmers, climate change is their primary concern, over and above political and economic issues. Of the 59 farmers who participated in the study, 42 were employing the principles of RA, to some extent, to mitigate the effects of variable and extreme weather. Farm sizes ranged from 500 to 25,000 acres and included combinations of dairy, ranching and cropping operations, with game, fruit, forestry and vegetable production often practised on diversified farms.

Across this region of South Africa climate patterns are changing. Rainfall is more intense and isolated with dry spells occurring more and more regularly. The number of days with temperature highs of over 30 degrees centigrade is rising, and the winter frosts which control ticks and the diseases they carry are less regular. Unreliable rainfall is, however, the chief challenge. One farmer stated that in the 2016/2017 season, he received a third of his annual rainfall in less that 48 hours. This has severe consequences for arable farms which need to maximise the capture and storage of rainfall as it arrives.

As a result of changing weather patterns, capturing rainfall where it lands and retaining it in the soil as green water has become of paramount importance to both cropping and ranching systems. The primary determinants of rainfall infiltration rates are land cover and soil health, and this is why farmers are turning to the regenerative model. RA preaches almost constant diverse vegetative cover on the surface which slows runoff and encourages infiltration, while healthy, living and structurally intact soils have a greater capacity to hold moisture in the root zone. Rebuilding the structure of soils that had been routinely pulverised by heavy tillage for decades, became the first step taken by farmers experimenting with the RA concept. A zero-till approach and the use of multi-species cover crops are now seen by farmers as critical in efforts to combat a variable climate; however, economic forces have driven the regenerative agenda further.

Since 1994 agricultural subsidies have been steadily withdrawn in South Africa to a point where farmers currently receive almost no government assistance whatsoever. While this has led to a decline in the total number of farmers, productivity and efficiency have increased markedly. In essence, it has been a case of survival of the fittest with the most capable farmers, the majority of which still run family farms, buying out those around them who failed to adapt to declining state support. At present, financial pressure is higher than ever with the rising costs of agricultural inputs and depressed global food prices. Regenerative agriculture has helped farmers reduce production costs.

With less or no soil disturbance, diesel bills are being slashed as life returns to the soil. At the time of interview, one farmer was selling off his 400+KW tractors in favour of machines half as powerful. “To work my soil, my tractors used to work in first gear, and I had to use a pick to break the surface. Now they fly along and I can use my hand to dig out clods of living soil.” The integration of livestock into cropping regimes, often using a mob grazing model, along with diverse covers and near permanent soil cover is re-injecting organic matter into the soil and optimising the liquid carbon pathways that feed the microbial communities helping make nutrients available to the plant. This can result in a declining need for synthetic fertilisers, greater moisture availability and critically, substantial financial savings.

While min-till has been the defining characteristic of the Conservation Agriculture (CA) paradigm for decades, combining it with year-round diverse ground cover and livestock is a relatively new phenomenon in this part of the world. Gabe Brown’s operations in Bismarck, North Dakota were often cited as the inspiration for this trend in South Africa. It appears that education about the RA model has not come down through formal channels. Experience and ideas have instead been circulated informally through farming communities by word of mouth. An extraordinary characteristic of farmers in these parts of South Africa is their willingness to share knowledge and experience. As little formal research is investigating the topic, experimentation and the sharing of results is key.

The experimentation aspect is well worth dwelling on. Each farmer included in the study has had to experiment with the principles of the concept in his or her own physical context. Geographies were highly variable in the study area and so tailoring the adoption of RA to specific contexts and allowing time and space for experimentation is vital. For example, at one point a farmer was using a 31 plant species mix in his multi- species dairy pasture, but through experimentation and careful monitoring, he found an optimal mix of 14 species for his lands. For cropping systems, it was repeatedly stated that it took four to ten years for yields to recover to pre no-till levels as life and structure in the soil was regenerated. The variation in experience required farmers to adopt different implementation strategies, with some slowly changing practice one field per year while others opted a wholesale change in their farming systems far more rapidly.

The final point to make concerning RA adoption in South Africa is to do with succession and ethics. A number of those interviewed stated that they wanted to hand down viable farms to their children and the next generation. There is a general consensus that conventional agricultural systems are detrimental to environmental functioning and are not compatible with sustainable soil management and biodiversity. Fortunately, RA does appear to be an alternative that could mitigate the climatic and financial pressures being applied to farmers while also meeting environmental agendas.

One farmer commented, “My greatest satisfaction has come from wildlife returning to the farm en masse, from dung beetles to sparrow hawks. This has only happened by seeing the farm as part of a wider agro-ecosystem.”

There are challenges to adopting this form of farming. Farmer experience indicates that as regenerative agriculture is adopted, yields will initially decline and then recover to, or exceed, previous levels over a four- to ten-year period as the soil recovers. This initial drop in production is a cost that needs to be absorbed. A greater spraying requirement, to terminate cover crops and control weeds, is a further obstacle that has yet to be fully negotiated. Rolling, crimping and mowing are developing alternatives to spraying. However, it is abundantly clear that farming systems respond to these challenges and that, as custodians of the vast majority of our landscapes, farmers can maintain livelihoods while positively interacting with the ecosystems that supply the goods and services which agricultural systems ultimately rely on.

South Africa is divided into a number of farming regions according to climate, natural vegetation, soil type and farming practices.

“Agriculture holds the key to the future of this country. It has the potential to resolve and unlock many of our most pressing problems, such as land reform, food security, job creation, and how to manage climate change, to name but a few.

Perth, October 2018 – Demonstrating their commitment to transformation and diversity, United Exports Group has appointed two A-team business women to lead their strategic initiatives on sustainability and transformation. Core to this strategy is the OZblu Academy which will focus on education on many levels. 

This week, we will commemorate World Food Day on Wednesday, 16 October 2019. This event also presents an opportunity to review South Africa’s standing in the food security ladder. 

Food security is achieved when three objectives are met: when food is available, accessible in the right quantities and at the appropriate nutritional levels for all citizens at all times. In 2018, South Africa was ranked 45th most food-secure country out of 133 countries measured in The Economist Global Food Security Index. This was relatively good, compared to other BRICS countries. For example, although South Africa’s average income was 25 spots behind Russia, 23 behind China and 19 behind Brazil, the county’s food security status was a relatively closer match-up, ranking just six spots behind Brazil, three spots behind Russia and one spot ahead of China (see Table 1 in the attached file).

What is worth reiterating is the fact that despite South Africa’s relatively lower average income, the country still manages to punch above its weight in terms of food security. This is a testament to the country’s competitive agricultural sector, and its ability to supply food at a relatively low cost.

Although the Food Security Index indicates South Africa is food-secure, there are pockets of food insecurity within the country when you consider a household-level perspective. This speaks to the general inequality in the country, where some households are food secure, and a sizable portion of other low-income households are not, primarily due to affordability. This scenario is more prevalent in Limpopo, KwaZulu-Natal and the Eastern Cape.

While there are a number of interventions that can assist in supporting households’ access to nutritious food, one form of intervention that can boost rural households’ income is through job creation in the agricultural sector. There is anecdotal evidence that in areas where government and private sector have collaborated in agricultural development, some level of success in terms of job creation could be achieved.

With agriculture having gained prominence as one of the sectors that could bring about rural economic development and job creation in South Africa, the government’s approach to realising this vision should be regionally focused. Meaning, the aforementioned provinces should be the key priority in resource allocation, as the frontiers of agricultural expansion. Such an approach not only makes sense in terms of reducing poverty but also in exploiting the potential of underutilised land. Limpopo, KwaZulu-Natal and the Eastern Cape arguably have about 1.6 million to 1.8 million hectares of underutilised land which can be sustainably farmed for increased food security over the long term. This is according to a 2015 study by McKinsey Global Institute.

Admittedly, the current land governance system -- communal land -- has been cited as one of the hindrances in agricultural development in these provinces, as it limits investment. But, solving such matters can take a long time and land reform policy is still being debated across the country.

The near-term practical approach that can make a difference is structuring an innovative agricultural finance instrument -- such as blended-finance -- which pulls in the capital and human capital from both private and public sectors. In parts of the Eastern Cape, agribusinesses such as The Co-op, are currently engaged in such arrangements with the provincial government and in areas where projects have been implemented there has been some level of success. These are some of the approaches that are needed for boosting households’ income so they can have access to nutritious foods in the near term, while broad development policies are yet to be operationalised or implemented.

Large global grains supplies

The United States Department of Agriculture (USDA) reaffirmed the view that the world has relatively large grains supplies this year. In its October 2019 update, the agency maintained its 2019/20 global wheat production estimate at 765 million tonnes, which is 5% higher than the previous season. As a consequence of this, the stocks could increase by 4% y/y to 287 million tonnes. This will essentially keep global wheat prices are relatively lower levels, which is beneficial for consumers in importing countries such as South Africa.

Moreover, the USDA left its 2019/20 global maize production estimate roughly unchanged from September 2019, at 1.1 billion tonnes. Admittedly, this is 2% less than the previous season because of a poor harvest in parts of the US and Argentina amongst other countries, but these are still comfortable levels in covering the world’s maize needs. The reduction in production, while consumption is relatively strong, means that the stocks could fall by 7% y/y in 2019/20 season.

Unlike the aforementioned grains, the 2019/20 global soybean production was revised down by 1% from levels seen in September 2019 to 324 million tonnes. This was largely on the back of anticipated poor yields in the US and Paraguay. The current estimate is now 6% less compared to 2018/19 production season. The poor harvest in the US because of wet weather conditions at the start of the season is central to this anticipated reduction in global soybean harvest.

Another important factor that we continue to monitor in the soybeans space is its consumption, specifically because of fears that African swine fever could have a negative impact. So far, however, global soybean demand remains solid. The consumption trend and a decline in production could be supportive of soybeans and its by-products prices in the near term. Similar to wheat, South Africa is a net importer of soybeans and a notable importer of soybean oilcake (see Figure 1 in the attached file), then an uptick in global prices could influence the domestic market and business.

Harvest activity picking up momentum in parts of the Western Cape winter crop regions Not much has changed in the Western Cape weather conditions since our previous note. But rainfall at this point would rather cause damage in some winter crop growing areas rather than help boost yields as we would have liked to see in the past couple of weeks. Farmers in parts of the Southern Cape and Overberg are in full swing with canola harvesting and at initial stages of wheat and barley harvesting. This means drier weather conditions will be ideal for the next couple of weeks, which is precisely what the forecasts for the next two weeks show – see Figure 2 in the attached file.

With that said, the drier weather conditions and heat experienced over the past couple of weeks within the Western Cape has caused yield losses. As previously highlighted, the Western Cape is a major producer of winter crops, accounting for 61% of area plantings in winter wheat and nearly all canola, hence we placed greater emphasis on crop conditions within this province.

Other major winter crop producing provinces -- Northern Cape, Free State and Limpopo, amongst others -- are mainly under irrigation and can, therefore, withstand harsh conditions as dams are at levels over 50% on average as of 07 October 2019. Farmers’ reports out of the Free State suggest that the wheat crop in the province generally appear very good. The same is true for the Northern Cape.

South Africa’s Crop Estimates Committee (CEC) currently forecasts the 2019/20 wheat, barley and canola production at 1.81 million tonnes, 389 260 tonnes and 88 800 tonnes, which is 3%, 8% and 15% down from the previous season.

Looking ahead, we see a risk that the CEC might revise down further its winter crop production estimates when the next update comes out on 24 October 2019 given that weather conditions have been harsh in parts of the Western Cape, and in turn, resulted into yield losses.

From a data front

The data calendar is quite light this week. On Monday, the US Department of Agriculture will release its weekly update of the US crop conditions data. This will give us a sense of the US crop-growing conditions, and thereafter the potential size of the harvest.

On Wednesday, SAGIS will release the grain producer deliveries data for the week of 11 October 2019. This covers both summer and winter crops. In the coming weeks, the deliveries data will give us a sense of the pace of the winter crops harvest activity.

On Thursday, we will get the weekly grain trade data (wheat and maize) for the week of 11 October 2019. In brief, maize exports for the 2019/20 marketing year have thus far amounted to 495 645 tonnes. Looking ahead, we expect South Africa to remain a net exporter of maize this marketing year, although the volume will most likely fall by half from 2018/19 to about 1.1 million tonnes. At the same time, we expect maize imports of about 450 000 tonnes, all yellow maize, mainly for the coastal provinces of the country. This is up from an estimated 171 500 tonnes in the 2018/19 marketing year. The country has thus far imported 251 708 tonnes of yellow maize, all from Argentina.

In terms of wheat, South Africa remained a net importer in the 2018/19 marketing year, although the recovery in the country’s domestic wheat production led to a decline in the volume of imports. South Africa’s 2018/19 wheat imports fell by 36% from the previous season to about 1.4 million tonnes. Looking ahead, South Africa’s 2019/20 wheat imports could increase to 1.6 million tonnes because of expected lower harvest on the back of unfavourable weather conditions in the Western Cape. The first import consignment of the 2019/20 marketing year was 32 841 tonnes, from Germany, Russia and Poland. This week we will receive data for activity in the week of 11 October 2019, which is the second week of this marketing year.

A stable, predictable and conducive policy environment is crucial for developing any sector and the economy at large. The expansion in South Africa's agricultural output, which since 1994 has now more than doubled in real terms, has mainly been achieved despite the lack of substantive support to commercial agriculture and various inconsistencies in policies. We have witnessed sustained output growth across South Africa's agricultural subsectors at a more micro level – horticulture, field crops and livestock. The improved production has been supported by technological innovation to improve seed yield and agrochemicals and post-harvest technologies. South Africa's open trade policy approach since 1995 has connected the country's value chains to the global economy, which subsequently boosted global demand for agricultural products and incentivized domestic farmers to increase production. 

 The start of every year presents an opportunity for business to review strategies, and some government departments to review policies. In 2020, the Department of Agriculture, Land Reform and Rural Development focused on four broad policy-guiding themes for driving agricultural expansion, inclusive growth, job creation, an integrated rural area and eradicating hunger, namely;

1.    Transformation and redistribution;

2.    Addressing inefficiencies;

3.    Growth and expansion; and

4.    Coordinating policies and investments for the integrated rural economy.

 First, the transformation and redistribution pillar encompassed the land reform programmes, with notable progress in 2020 being the announcement of 700 000 hectares of state-owned land available for use by the public. While this is not all new land, some already occupied by beneficiaries, the decision nevertheless shows progress in releasing the land on government hands using clear and transparent policies such as the recently adopted Beneficiary Selection and Land Allocation Policy. Our criticism of this has been that the government should have released the land with tradable leases or offer the beneficiaries an option to buy the land after a minimum of five years of working the land. Moreover, the land release should simultaneously go with a farmer support programme to ensure newly settled farmers have access to working capital.

 Another significant development on the land reform front was the new Expropriation Bill which was gazetted towards the end 2020, outlining a uniform process for all expropriations to take place and a uniform means to calculate just and equitable compensation. Moreover, the National Policy on Comprehensive Producer Development Support and Blended Finance programmes also saw some progress in 2020 and should be completed and launched early this year. Lastly, the development of the Land Donation Policy, which encourages private landowners to participate in the redistribution of land voluntarily, is one of the policy changes that could accelerate the transformation process and redistribution of agricultural land. The process will require incentives to be aligned appropriately as detailed in the Presidential Advisory Panel report on Land Reform and Agriculture.

This "transformation and redistribution" pillar is likely to gain momentum in 2021 as the majority of these land policies will be introduced to Parliament for endorsement. We are likely to see progress on the release of the land, and this will be an important area to watch as it promised transparency this time around and that there will be bias towards the youth, women and other vulnerable groups; unlike the past where a disproportionally higher number of older men benefited on land reform. Another critical area worth keeping an eye on is the broader discussion about the amendment of Section 25 of the Constitution to enable land expropriation without compensation. There was little discussion on this point in 2020 as the work of the committee that was tasked to "make explicit what is implicit" in the current wording of the Constitution was interrupted by the pandemic. This year there will likely be momentum on this discussion. Our view has always been that the concept of 'expropriation without compensation' is not the desired path for agricultural development because of various economic risks outlined in the past. As an organization, we are not in support of it.

Second, the government promised to address the inefficiencies that exist in both legislation and infrastructure. Addressing the legislative inefficiencies will mean increasing human capital within the Department of Agriculture, Land Reform and Rural Development, and working closely with the private sector and broader social partners. This will entail leveraging the social partners' networks, capital, know-how, and good will to bring about the sector's growth and transformation. The interventions to address the inefficiencies will differ from subsector to subsector. For example, some subsectors might require improvements on export-related and water-efficiency matters, while others might need increased efficiencies on the registration of certain input products to increase productivity. An essential requirement here will be for government to be proactive in engaging with the private sector and broader social partners about their specific needs. On the infrastructural matters, we are less optimistic that there will be notable progress in the near term given the fiscal constraints and continued pressure to contain the spread of the pandemic and secure the vaccines. Importantly, this is not a task carried out by the Department of Agriculture, Land Reform and Rural Development per se, but by other line departments. Perhaps, a better barometer on this will be through monitoring progress on the national infrastructure programme headed by the Infrastructure Office in the Presidency.

 Lastly, the government's growth and expansion policy focus is a positive step. While there were no tangible results on this point in 2020, the government and social partners' progress on the Agricultural Master Plan thus far is positive. We expect the Master Plan's launch in the first quarter of the year. After the launch, the material work on growth and expansion in the sector will begin. The two points mentioned above are also the key pillars of change in the industry. The general Master Plan theme will likely dominate and provide direction to the Department of Agriculture, Land Reform and Rural Development's approach on broader farmer development initiatives this year.

Trade will also continue to be a part of the policy discussions as the South African agricultural sector will seek access to additional markets and attempt to improve access to the new markets. Moreover, an increase in production will need to be anchored on increased export potential and domestic agro-processing capacity to replace food imports, where it is feasible. Aside from the recently launched African Continental Free Trade Area, other South African markets should seek increased access to India, China and others, including Eastern Europe.

Other essential points that did not dominate the policy discussion in 2020, but will likely be on the agenda in 2021 are; agricultural finance and commercialization of black farmers and the development of rural areas. The agricultural finance discussion will probably build from the Land Bank’s liquidity challenges and broaden in search of new and efficient financing methods. In terms of the commercialization of black farmers, this could gain momentum, but not necessarily at the expense of smallholder farmers’ support and initiatives. The government could support commercialization of the land released to various individuals as part of the 700 000 hectares announced in 2020. The microfinance, targeting the most vulnerable subsistence and household farmers, announced by the department at the end of 2020, is fresh thinking. This will build a group of new smallholder farmers that can later be financed by private financial institutions and agribusinesses. The progress or success in this point, however, will hinge on the improvement in the financing discussion and mechanisms put in place to distribute these funds in an efficient and corruption-free manner, especially at provincial and district levels. Perhaps the Land Reform Fund raised in the Presidential Advisory Panel for Land Reform and Agriculture could offer a solution in creating affordable blended finance instrument.

 In summary, South Africa's agricultural policy focus will likely not deviate much from the path set out in various speeches by the Minister of Agriculture, Land Reform and Rural Development, Ms Thoko Didiza, which is what we have outlined above. Financing, which is the lifeblood of any success in the policy priorities and programmes mentioned above, could become a prominent issue of the policy discussion, in a broader sense than the narrow focus of the blended finance instrument discussions of the past year.

The above text benefited from discussions with Prof Johann Kirsten and Dr Sifiso Ntombela. Any errors, are however, exclusively my responsibility.

Weekly highlights

After a solid performance in 2020, SA agricultural machinery sales to cool off in 2021

Higher agricultural output gains in 2020, coupled with relatively higher commodity prices, improved farmers' finances, which subsequently benefited the allied industries. A case in point is South Africa's agricultural machinery market which registered a notable improvement from the previous year. Tractor sales amounted to 5 738 units, up by 9% from 2019, with combine harvester sales up by 23% from the same year, amounting to 184 units. These sales are nearly as high as in 2018, which was also supported by higher grains output in the 2016/17 production season.

As recorded in the 2020 fourth quarter results of the Agbiz/IDC Agribusiness Confidence Index (ACI), the agricultural market sentiment remained positive. The ACI rallied to 61 from 51 points in the third quarter, which is its highest level since the third quarter of 2014. A level above the neutral 50-point mark implies that agribusinesses are optimistic about business conditions in South Africa. The optimism is on the back of both the above-mentioned higher agricultural output in 2019/20 production season, coupled with higher commodity prices and optimism about the production conditions in 2020/21 production season.

Ordinarily, in a year of higher agricultural output, commodity prices would soften. But in 2020 and into the beginning of this year, the rising demand for grains in China provided support to global prices, which influenced the domestic market. Most recently, an added factor is the persistent dryness in parts of Argentina and Brazil, which has also supported the rally in grains prices. The rising demand for South Africa's grains in Southern Africa and the Far East markets, coupled with the relatively weaker domestic currency, also supported domestic grain prices. Farmers were on the right side of having supplies, in an environment with favourable prices, and thus the slight improvement in the finances that supported the increased machinery sales.

The higher sales were also a sign of confidence about the 2020/21 production season's planting conditions. As early as October 2020, farmers already intended to increase the area plantings for summer crops by 5% year on year to 4.15 million hectares. These planting data comprise yellow and white maize, sunflower seed, soybeans, groundnuts and dry beans. There is an expected increase in area plantings of most of these crops, except for sunflower seed, where the area plantings were set to decline by 4% y/y to 480 500 hectares, which would be the smallest area planted in nine years. This likely decline in sunflower seed planting is mainly on the expected shift in some hectares to white maize, in part, due to attractive prices.

As best as we can tell, farmers have followed through with these planting intentions, and the crops are in good shape across South Africa. The preliminary indications suggest that the 2020/21 season might be better than the previous season, at least for certain crops such as maize. At the end of February, the Crop Estimates Committee will release its first production estimates which will provide insights to this view.

However, the large harvest in 2020/21 production season might not lead to another year of higher agricultural machinery sales. Typically, a relatively good sales year is likely to be followed by a somewhat lower sales period as the replacement rate of machinery with new ones would ordinarily be down from the previous years. Moreover, there will likely be pressure from weak exogenous macroeconomic fundamentals such as the weaker domestic currency, which will lead to higher prices for imported agricultural machinery.

 In sum, while a sizeable agricultural output supported the allied industries such as farm machinery in 2020, another essential factor is that it followed a year of reasonably low sales, which meant that a need for replacement of some machinery was slightly higher. These fundamentals are different this year. We also think that stock of machinery imported at a weak exchange rate will be more available this year, pushing prices higher and discouraging buying by some farmers. We are therefore not optimistic about the near-term agricultural machinery sales. However, the agricultural output promises to be a good harvest, and the sentiment in the sector is generally positive as illustrated in the ACI results.

Recent developments in the global grains market

 The key feature of the global agricultural markets, particularly grains, at the end of 2020 and into the beginning of 2021 are the rising prices. The FAO Global Cereals Price Index reached 116 points in December 2020, which is the highest level since June 2014. The higher prices were evident across major commodities and underpinned by various factors. In the wheat case, the unfavourable weather conditions in parts of the US and Russia were the primary drivers. In sorghum and maize, China's rising demand was the main driver of prices, along with dryness that threatened growing conditions in Argentina and Brazil.  In the rice market, the tight supplies in Thailand and Vietnam led to higher prices which spilt over to January 2021.

 Nevertheless, while there are various regional specific production challenges, the global grains supplies are still in fairly good shape on aggregate. For example, the latest estimates from the United States Department of Agriculture (USDA) placed the 2020/21 global wheat production at 772 million tonnes, up by 1% from the previous season. The ending stocks are estimated at 313 million tonnes, up by 4% from the 2019/20 season in the same season. The relatively higher ending stocks suggest that increases in wheat prices could be temporary as there are sufficient supplies in the global market. The 2020/21 maize production estimate has been revised down notably from estimates released at the start of the marketing year, but the expected harvest is still sizable. The 2020/21 global maize harvest could amount to 1.13 billion tonnes, which is a 2% annual increase. An uptick has compensated for the expected decline in Argentina's maize production in supplies in other geographies. The growing demand, specifically from China, which boosts global maize consumption means that the stocks could be lower than in the previous seasons. The USDA estimates a 6% year-on-year decline in global maize stocks to 283 million tonnes in 2020/21. The relatively lower ending stocks mean that global maize prices could remain slightly elevated in the near term.

In rice, the 2020/21 production could amount to 501 million tonnes, up marginally by 1% from the previous season. The stocks are also set to lift by 1% from the 2020/21 season to 180 million tonnes, which means the recent price rally could be temporary, as there are expectations of large supplies. These developments are essential for South Africa, both as an importer of some products such as wheat and rice and exporter of maize. The global effects influence the domestic price trends.

DATA RELEASES THIS WEEK

We start the year with a fairly quite week on the agricultural calendar. On the global front, on Thursday, the USDA will release the US weekly export sales data. In recent weeks, China has been buying large volumes of both maize and soybeans, and the demand is expected to hold as the country continues to rebuild its pig herd which was devastated by African swine fever in 2019.

On the domestic front, on Wednesday, the South African Grain Information Service (SAGIS) will release the weekly grain producer deliveries data for the week of 15 January 2021. This data cover both summer and winter crops. But the focus has shifted towards winter crops whose harvest is under way. In the week of 08 January 2021, about 9 042 tonnes of winter wheat were delivered to commercial silos. This placed the 2020/21 wheat producer deliveries at 1.83 million tonnes, which equates to 85% of the expected harvest of 2.15 million tonnes. Also, on Wednesday, Statistics South Africa will release the Consumer Price Index (CPI) data for December 2020. For background, South Africa’s food price inflation accelerated to 5.9% y/y in November 2020 from 5.6% in the previous month.

On Thursday, SAGIS will release the weekly grain trade data also for the week of 15 January 2021. In the previous week of 08 January 2021, South Africa’s 2020/21 total maize exports were at 1.92 million tonnes, which equates to 77% of the seasonal export forecast (2.50 million tonnes). In terms of wheat, South Africa is a net importer, and in the week of 08 January 2021, imports amounted to 429 964 tonnes. This equates to 28% of the seasonal import forecast of 1.54 million tonnes.

The international agriculture sector is a dynamic world and South Africa an esteemed player – with world-class products complying with the strictest quality and food safety standards for very discerning consumers.

We  will never forget how shocked my friends were when I boldly announced my intention to study Agricultural Economics at Stellenbosch University.

November 1, 2018 - Datacentrix, a provider of high performing and secure ICT solutions, recently focused on the topic of digital adoption within the local agriculture sector, at its second annual Agri Indaba held at Zebula Golf Estate in Limpopo.

South African agribusinesses aiming to expand their operations into the rest of the continent in the coming years will face different environments compared to realities in South Africa. This includes the commonly cited factor of poor infrastructure, and also a much less talked about problem, which is low levels of agricultural productivity. With respect to the latter, a recent study by agricultural economists Thomas Jayne and Pedro Sanchez argued that sub-Saharan Africa’s agricultural output growth in the recent past has been through area expansion rather than improvement in productivity or yield per hectare.   A case in point is maize, which shows a striking difference in yield levels between South Africa and the rest of sub-Saharan Africa. Consider maize yields between 2015 and 2020 in Zimbabwe, Nigeria, Kenya, Malawi and Tanzania, which averaged 2 tonnes per hectares for most of these countries with the exception of Zimbabwe, where the yields averaged one tonne per hectare over the observed period. By contrast, South Africa’s maize yields averaged 5 tonnes per hectare over the observed period as illustrated in Exhibit 1 (in the attached file).

One of the reasons for this difference in yield levels is the difference in input use between South Africa and most countries in the continent. South Africa has an advanced and highly mechanized largescale commercial farming sector, which has easy access to fertilizers, improved seed varieties, agrochemicals. By contrast, most sub-Saharan African countries are dominated by micro, small and medium-scale farmers – a majority of whom are resource poor and lack access to fertilizers and hybrid seeds.  Intensive maize production systems typically require relatively higher input costs, which, with a lack of access to credit and finance, limits small-scale farmers’ uptake of these technologies. Another point to consider is that in countries such as Zimbabwe, smallholder farmers tend to limit the area planted to food crops in favour of tobacco and other lucrative crops in various seasons. Still, the point of lower productivity in food crops in sub-Saharan Africa remains. A 2019 study by McKinsey researchers made a similar point that Africa’s potential lies in improving the crop yields, and not land expansion, which has been the dominant practice in the recent past.

 Improving productivity should not be the only focus for sustained improvement in Africa’s agriculture. When farmers have improved their productivity, there must be a place to safely store their maize crop and reach the markets to ensure a decent return on investment. This once again is a dominant feature of the South African agricultural sector, where the value chains are mature and well-integrated, with access to markets that operated within a liberalized environment. Meanwhile, in much of the sub-Saharan African countries, the agricultural value chains are fragmented, and maize markets are subject to ad-hoc government interventions that distort market signals. Poor storage infrastructure has seen high post-harvest losses (ranging anywhere between 17% and 30% of total national maize output). Under conditions of such systemic market flaws, improved yields would not make a significant impact on markets. To some extent, Zimbabwean farmers tend to substitute maize for tobacco in certain seasons because the latter has a well-functioning marketing system than maize.

 In essence, sub-Saharan Africa’s agriculture sector remains underdeveloped and has various challenges. But these could also be viewed as opportunities for expansion by agribusinesses in countries that have fairly developed agricultural sectors, notwithstanding the infrastructure constraints already mentioned. If South African agribusinesses intend to expand their activities beyond the border in the continent, their strategies and approaches have to be markedly different. Productivity improving techniques are one part of the solution, but this will need a “ground-up” approach. This means working with farmers to understand value chains region by region within each country because of their fragmentation. This will enable various agro-dealers to be closer to their customers – farmers – and also aware of the off-takers or large buyers of the produce so that farming could be sustainable.

 Importantly, there is a need to lobby sub-Saharan African governments to prioritize network industries investments such as roads, electricity, water, and investment on agriculture infrastructure such as silos. With that said, this is unlikely in the near term because of fiscal constraints in a number of countries. Perhaps, a workable approach would be for African governments to be open to partnerships with private sector players. An important pre-requisite for creating public-private partnerships is a strict adherence to the rule of law so that private sector firms can be assured that their investment is protected, and that corruption is reduced. Notably, the African governments will also have to relax regulations that hinder the adoption of improved seed varieties which are crucial for productivity enhancement.

In sum, the sub-Saharan Africa region holds potential for expansion for South African agribusinesses, but the approach to doing business will have to adapt to country-specific practices at the start. The South African model cannot be copied as is because of differences in farming and market structures, seed and food regulations, and network industries underdevelopment. This also means that the returns to investments in agriculture in the continent will likely be long term, and at the start, lower than what could be achieved in well-functioning agriculture markets. With that said, given the expected increase in population in the coming decade, rising urbanization, large, underutilised land in sub-Saharan Africa, and the increased connectedness through the African Continental Free Trade Area, collaboration and long-term investment in the continent will be key. The African governments should also improve infrastructure and land governance and the aforementioned regulatory matters to attract private sector investments into the content’s agricultural sector.         

Weekly highlights

SA’s summer crop production forecasts were left roughly unchanged in June 2021’s assessment

Last week, the South African Crop Estimates Committee (CEC) released its fifth production estimates for the 2020/21 season, which left most crop estimates roughly unchanged from the previous assessment in May. This is with the exception of commercial maize, whose forecast was lifted marginally by 0,3% from the previous month to 16,2 million tonnes. Meanwhile, the non-commercial maize saw a much larger revision of an 8% increase from the previous month to 586 650 tonnes. This placed South Africa’s overall maize production for the 2020/21 season at 16,8 million tonnes. This is up by 6% from the 2019/20 production season, and the second-largest harvest on record. Moreover, the groundnuts production estimate was also lifted by 2% from May to 58 900 tonnes (up 18% y/y).

Soybean’s production estimate was left unchanged at a record 1,9 million tonnes (up 54% y/y), sorghum at 195 035 tonnes (up 23% y/y) and dry beans at 56 577 tonnes (down 13% y/y). Whereas the sunflower seed is the only crop that was lowered from the May assessment, down by 5%, and currently estimated at 677 240 tonnes. This is down by 14% from the 2019/20 production season.

The broadly large summer grain and oilseeds production estimate this season is on the back of increased area plantings for summer crops and favourable rainfall since the start of the season. The harvesting process is at completion stages for oilseeds, with maize in full swing. We continue to receive reports of generally higher yields across the country from farmers.

If we focus on the major grains, the current maize production data essentially means South Africa would remain a net exporter in the 2021/22 marketing year. South Africa's annual maize consumption is roughly 11,5 million tonnes, which means there will likely be over 2,8 million tonnes of maize available for export markets, all else being equal (the official estimates, however, are that exports could amount to 2,6 million tonnes in 2021/22 marketing year, down 10% y/y because of expected weak demand in the Southern Africa region). Importantly, the increased soybeans production also means there could be a decline in soybean oilcake imports, which in a typical year is just under half a million tonnes a year.

These developments, however, will have minimal impact on prices. South Africa’s maize prices are at relatively higher levels compared to the previous year, not because of supply constraints in the domestic market, but the surge in global maize prices. South Africa has its second-largest grains harvest on record, and maize prices are at export parity levels. The second-largest maize harvest on record in the 2020/21 production season has not led to a decline in domestic maize prices. This is mainly because of the 56% increase in export parity prices in the 2020/21 production season. Export parity prices are derived from the global maize price multiplied by the exchange rate minus transaction costs and can be regarded as a "floor price" for domestic maize prices. As domestic prices trade closer to export parity levels, South African maize becomes more competitive in international export markets, triggering an increase in volumes of exports or demand by foreign buyers.

An important point to emphasize is that the global grains prices have rallied, reaching multi-year highs in the past few months because of supply concerns. Such concerns include the consistent downward revision of Brazil and Argentina's maize and soybean harvest because of dryness there and the drier weather conditions in Russia, Ukraine, and the United States at the start of the 2021/22 production season. The production conditions have since improved in Russia, Ukraine, and the United States, pointing to a reasonably good crop this season.

 Perhaps, the central point to make here is that while production conditions for the 2021/22 global harvest are promising for all major crops, there are generally lower stocks. The lower stocks are a catalyst for the knee-jack reactions we have observed on prices whenever there is news of unfavourable weather conditions in major grains and oilseeds production countries. Such price fluctuations happen even if the weather-related news has minimal impact on actual crop conditions. These fluctuations tend to influence also the South African market; hence the prices haven’t softened in the face of a large domestic harvest.

A similar phenomenon is true for soybeans regardless of the recent uptick in domestic production. A key point on the global soybeans market is also the rising demand by China and also a potential increase in renewables energy users, which too is contributing to an increase in global prices. In sum, the domestic market is awash with grains supplies, but the prices are unlikely to ease notably. The guiding point for local prices is not what is happening in the fields domestically, instead it is the global events.

Data releases this week

We start the week with the US Crop Progress Report on the global agricultural data calendar, which will be released by the United States Department of Agriculture (USDA) on Tuesday. The previous report of 27 June 2021 showed that 73% of the US maize crop was rated good/excellent, well above the corresponding period last year where roughly 65% of the crop had such a rating. In soybeans, planting was also completed, with 96% of the crop having emerged. Importantly, 71% of the crop that has emerged was rated good/excellent, compared with 60% in the corresponding period last season. The US Weekly Export Sales data is due for release, also by the USDA, on Friday.

On the domestic front, on Wednesday, SAGIS will release the Weekly Grain Producer Deliveries data for 2 July 2021. This data cover summer and winter crops, although we only focus on summer crops for now where harvesting is at completion. To recap, on 25 June, about 4 490 tonnes of soybeans were delivered to commercial silos. This placed the soybean producer deliveries for seventeen weeks of the 2021/22 marketing year at 1,79 million tonnes, which equals 93% of the expected harvest of 1,92 million tonnes. Moreover, 525 911 tonnes of sunflower seed for the 2021/22 season had already been delivered to commercial silos in the same week, out of the expected crop of 677 240 tonnes. In maize, the marketing year is different from oilseeds; we are still in the seventh week of the 2021/22 marketing year, which began at the start of May. The producer deliveries currently amount to 8,6 million tonnes, which equates to 53% of the expected crop of 16,2 million tonnes.

 On Thursday, SAGIS will release the Weekly Grain Trade data for the week of 2 July 2021. In the week of 25 June, which was the eighth week of South Africa's 2021/22 maize marketing year, total maize exports amounted to 605 023 tonnes. The seasonal export forecast is 2,6 million tonnes, slightly below the previous season because of an anticipated decline in regional demand. In terms of wheat, South Africa is a net importer. On 25 June, imports amounted to 1,2 million tonnes, equating to 75% of the seasonal import forecast of 1,6 million tonnes.

 At a time of an abundant harvest, the high agricultural commodity prices have been a windfall for South African farmers, particularly the grain and oilseed growers. But farmers shouldn't celebrate and spend too quickly. The rising input costs – oil, herbicides, and fertilizer – could erode these gains when farmers embark on the 2021/22 production season, starting in October this year. 

 At the end of the first week of July 2021, Brent crude oil price was up 72% y/y, trading around US$74 per barrel. The oil price has a close correlation with fertilizer prices and various agrochemicals inputs. As such, herbicides prices show similar increases in US dollar terms, with glyphosate up 144% y/y in June 2021. Importantly, South Africa imports all of its annual agrochemicals’ consumption. This means that not only the rise in prices should be a concern but also the logistics on the back of disruption in supply chains and continuous reports of container shortages. The same is true with fertilizer, with potash, urea, monoammonium phosphate (MAP), and diammonium phosphate (DAP) prices, for example, up by 32% y/y, 52% y/y, 67% y/y, and 69% y/y, respectively, in the first week of July 2021.

 The tight global supplies, strong demand and geopolitical uncertainties in crucial producing countries have been the primary driver of prices in all these commodities. Recently, OPEC's failure to reach a deal to increase global oil production is one example of factors causing tight oil supplies in the global market and ultimately driving up prices. The expectations from various analysts globally are that fertilizer prices could remain elevated for some time.   Now, South Africa is just three months away from the new season's planting period, which means that the country's farmers are unlikely to be spared the higher input costs.

 Consider grain and oilseed farmers, who are the main subject of our discussion; fuel generally accounts for between 11% and 13% of production costs. The consumption is generally throughout the year, with the highest periods being during planting and harvesting. In terms of annual fuel usage, it is worth noting that South Africa transports by road roughly 81% of maize, 76% of wheat, and 69% of soybeans. On average, 75% of national grains and oilseeds are transported by road. This means farm managers and agribusinesses will have to plan for an environment different from last year, when input costs were relatively low, increasing cost this time around. 

South Africa imports about 80% of its annual fertilizer consumption and is a minor player globally, accounting for a mere 0.5%. Local prices tend to be influenced by developments in the major producing and consuming countries, such as India, Russia, the USA and Canada. Hence, the higher global fertilizer prices will be a reality here in South Africa as well. Much of the fertilizer imported by South Africa is utilized in maize production, accounting for 41% of total fertilizer consumption in the country, the second-largest consumer being sugar cane at 18%. Fertilizer constitutes about 35% of grain farmers' input costs and a substantial share in other agricultural commodities and crops.

In essence, the higher grain prices and harvest might look good on the financial books in the near term, but farmers and agribusinesses will have to plan for a slightly challenging environment of rising costs in the coming months. Even worse, if the grain prices could soften somewhat from the current higher levels, which is all too likely on the back of an expected sizeable global harvest in the 2021/22 season, then the farmers' finances could be in an even slightly tighter environment in the coming months. Another critical factor for the domestic farmers will be the performance of the Rand to the US dollar, which is key in determining the ultimate prices that farmers will pay to their various suppliers of production inputs when planting begins in October. So, the current higher grain prices are a welcome development from a farmers' perspective, but more trouble lies ahead from potentially higher input costs.         

Weekly highlights

Farmers high spending on machinery a vote of confidence in the 2021/22 season 

In a normal summer season, where there are favourable weather conditions, South African farmers plough roughly four million hectares for summer grains and oilseeds. This comprises maize, sunflower seed, soybeans groundnuts, sorghum and dry beans. While there remains some level of uncertainty about the weather conditions for the upcoming summer crop production season which begins in October, it is fair to say farmers are optimistic and are gearing up for it. The earlier indicator we have thus far is tractor sales which have remained robust since mid-2020. 

Just last week, the data from the South African Agricultural Machinery Association showed that tractor sales were up by 43% y/y in June, with 633 units sold. If we consider the total tractor sales for the first half of this year, we are already 27% ahead of the corresponding period in 2020, with 3 385 units. However, it is worth noting that sales in the first half of last year were negatively affected by lockdown restrictions, so the base is slightly distorted. Still, 2020 was also a good year in South Africa's tractors sales, and so surpassing it means that we are witnessing some good momentum this year. In 2020, the tractor sales amounted to 5 738 units, up by 9% from 2019. 

The large summer grains and oilseeds harvest in 2019/20, and yet another good agricultural season in 2020/21, both of which coincided with higher commodities prices boosted farmers finances and subsequently, the tractor sales. The relatively stronger exchange rate has also been a positive buffer for the imported agricultural machinery, particularly this year. 

 Earlier in the year, we were somewhat pessimistic that the robust 2020 tractor sales’ momentum would extend into 2021. We viewed the large grains and oilseeds harvest of the 2020/21 season as not a sufficient condition to support the sales. This train of thought was that; typically, a relatively good sales year, such as 2020, would likely be followed by a somewhat lower sales period. This was in anticipation that the replacement rate of machinery with new ones would usually be down from the previous years. Another factor to keep a close eye on was the exchange rate. Although the current firmer levels supported the sales, we felt that any changes into a weaker domestic currency would likely lead to higher prices for imported agricultural machinery and discourage sales. 

 Still, while there is always uncertainty about the exchange rate due to numerous domestic and global factors influencing it, farmers improved finances seem to be continuously supporting the exuberance in tractor sales. We are now inclined to revise our view and take a more optimistic one that the tractor sales could maintain a generally positive path this year compared to levels of last year. 

In fact, we see a similar pattern with combine harvester sales, which in June 2021 were up by 76% y/y with 30 units sold. In the first half of the year, we have seen 154 units of combine harvesters sold, which is a third higher than a corresponding period last year. The previous year was also as favourable as in the tractor sales, with combine harvester sales up by 23% from 2019. The tractor and combine harvester sales tend to go in tandem in times of optimism – large area plantings typically lead to a large harvest. Hence, we hold a similarly optimistic view about the harvesters’ sales this year. 

 These numbers show us a picture of optimism about the following season and general agricultural conditions from farmers’ part. After all, we cannot doubt the optimistic picture as this was clear also from agribusiness confidence levels in the second quarter of the year. The Agbiz/IDC Agribusiness Confidence Index, which measures the sentiment amongst agribusinesses and major farming entities, reached a record high (since its inception in 2001) of 75 in the second quarter of this year, from 64 in the first quarter of 2021. These results were reflective of favourable conditions for all subsectors of agriculture, with various crops set to reach record output levels in the 2020/21 season.

The planting season begins in three months for summer grains and oilseeds, as such the sales for the next two or three months will be worth watching. Where we are somewhat pessimistic about the sales in the last quarter of the year. We fear that the rising input costs, such as fertilizers, herbicides and fuel could add pressure on farmers finances and thus lead to a change in machinery-buying decisions. Also, the planting will be in full swing and there would be limited incentive to bring more new machinery. Still, the pace of sales in the first half of the year convinces us that in aggregate, the annual sales for 2021 could still be larger than the previous year.

 Importantly, we believe that the 2021/22 season with the optimism of a possible slight increase in planting. The current season of 2020/21 was 4,2 million hectares to be exact, a 5% increase from the previous year. We will likely remain at such higher levels or even see a slight inch up in the area. The one factor that we all look forward to right now is the weather outlook. To this end, a positive note is that there aren’t prospects of an El Niño or La Niña. The data from the Australian Bureau of Meteorology paints prospects of a neutral season. This is a view also held by the local weather authorities, who noted on the 28th of June 2021 that “the El Niño-Southern Oscillation is currently in a neutral state and the forecast indicates that it will most likely remain in a neutral state for the remainder of winter and most of the spring.”

In sum, farmers are spending more on agricultural machinery and we view this, not merely as the result of improved finances, but also confidence in the coming production seasons.

Global food price index declined for the first time in 12-month 

 The improved weather conditions in the US and parts of Europe, along with harvest pressure in South America has led to a slight cooling of global grains and vegetable oil prices. This is evident in the FAO Global Food Price Index which fell by 3% in June 2021 from the previous month to 125 points; the first drop in 12 consecutive monthly increases. The decline in grains and oilseeds was a major driver of this development. With that said, the index is still 34% higher than the corresponding period last year. 

 While grains and oilseeds price direction going forward will be influenced by the stock levels, which are fairly tight and leading to a continued knee-reaction on prices whenever there is news of unfavourable weather conditions, the production prospects are positive. For example, on 24 June 2021, the International Grains Council (IGC) released its monthly update of the global grains and oilseeds production forecasts for the 2021/22 season. The Council’s view is broadly optimistic pointing to an annual uptick in production of all major grains and oilseeds. The drier weather conditions in parts of the US and Canada, along with extreme cold in parts of Europe, which had slowed the planting and threatened the 2021/22 season have all subsided. 

 As such, the IGC forecasts the 2021/22 global maize production at a new peak of 1,2 billion tonnes, up by 6% y/y. This is on the back of an expected large crop in the US, Brazil, Argentina, Ukraine, China, EU, and Russia. Similarly, the global wheat production conditions have improved. The IGC now forecasts the 2021/22 global wheat production at a record 789 million tonnes, up 2% y/y. This is boosted by expected large crops in the EU, the US, Ukraine, Argentina, China, India, and the UK. 

Also, worth noting is that the global rice supplies and stocks are also at comfortable positions, well above the 2020/21 production season. The IGC forecasts the 2021/22 global rice production at a record 512 million tonnes, up 2% y/y. This is on the back of possible expansions in area plantings in Asia, combined with expected better yields as a result of favourable weather conditions. The observations are similar in the global soybeans production prospects, with the 2021/22 harvest estimated at 383 million tonnes, up by 6% y/y. The beneficial weather conditions will likely boost the yields in the US, Brazil, Argentina, India, Paraguay, Russia, Ukraine, and Uruguay. 

These production forecasts suggest that global crop prices from the second half of the year could continue softening, slightly, from the recent months' levels. If such transpires, the South African grain prices could follow a similar path, which bodes well for consumer food price inflation. The only major upside risk on grain prices, as we have noted in various writings are the lower grains stocks, and progressively also the growing consumption from the renewable energy industry. With that said, the data so far points to a positive direction for a consumer than much of the first half of the year.

Data releases this week

 We start the week with a global focus, as the United States Department of Agriculture (USDA) will release the US Crop Progress Report and the World Agricultural Supply and Demand Estimates report today. Our interest in these reports will be to view the crop growing conditions in the US, and also a broader view of the global grains and oilseeds production estimates. We know from the aforementioned IGC estimates (discussed above) that the global grains and oilseeds production prospects are generally positive. We look to see if the USDA will confirm such a view.  The US Weekly Export Sales data is due for release, also by the USDA, on Thursday.

 On the domestic front, on Wednesday, SAGIS will release the Weekly Grain Producer Deliveries data for 9 July 2021. This data cover summer and winter crops, although we only focus on summer crops for now where harvesting is at completion. To recap, on 2 July, about 2 759 tonnes of soybeans were delivered to commercial silos. This placed the soybean producer deliveries for seventeen weeks of the 2021/22 marketing year at 1,79 million tonnes, which equals 93% of the expected harvest of 1,92 million tonnes. Moreover, 563 310 tonnes of sunflower seed for the 2021/22 season had already been delivered to commercial silos in the same week, out of the expected crop of 677 240 tonnes. In maize, the marketing year is different from oilseeds; we are still in the ninth week of the 2021/22 marketing year, which began at the start of May. The producer deliveries currently amount to 9,6 million tonnes, which equates to 59% of the expected crop of 16,2 million tonnes.

 On Thursday, SAGIS will release the Weekly Grain Trade data for the week of 9 July 2021. In the week of 2 July, which was the ninth week of South Africa's 2021/22 maize marketing year, total maize exports amounted to 712 488 tonnes. The seasonal export forecast is 2,6 million tonnes, roughly 10% below the previous season because of an anticipated decline in Southern African demand, a region that is typically a key importer of maize from South Africa. In terms of wheat, South Africa is a net importer. On 2 July, imports amounted to 1,3 million tonnes, equating to 81% of the seasonal import forecast of 1,6 million tonnes.  

Africa’s demographic changes and pressures are immense.

The nitrate sensor developed by TNO may be used for monitoring nitrogen mineralisation in soil. Nitrogen is important for grass growth and the development of proteins in grass.