As South Africa's 2022/23 summer cop season draws to a close, the focus is shifting towards the 2023/24 production season, which commences in October. As we stated in our previous notes, the preliminary insights suggest that an El Niño could bring below-normal rainfall, but South Africa could still have a decent season. The improved soil moisture following four consecutive seasons of rain will help support crop and horticulture production as well as grazing conditions.

Although there is no evidence of its occurrence in South Africa this coming summer, one factor that concerns us is the possibility of extreme heat. Various countries in Europe and regions of the US have experienced extreme heat this summer, which has proved challenging for agriculture at certain times. When the 2023/24 summer crop season starts in South Africa, monitoring temperatures and the impact on crops after that will be necessary.

The weather outlook is a downside risk to production for the upcoming summer crop season, although not severe for the reasons we have outlined above -- improved soil moisture following four consecutive seasons of rain.

Notably, we are not the only ones holding this optimistic view. In the past few weeks, the International Grains Council (IGC) forecasted South Africa's 2023/24 maize production at 15,6 million tonnes, down marginally from the current crop of 16,4 million tonnes.

Moreover, the United States Department of Agriculture's Pretoria office recently released their forecast placing South Africa's 2023/24 maize production forecast at 15,8 million tonnes, marginally above the IGC's figures. These institutions have assumed a mild El Niño, and soil moisture is currently good. Still, while we are optimistic about the upcoming season, we doubt the crop could be this large and see 13-14 million tonnes as more likely.

Beyond the weather outlook, the farmers are also ready as they continue to receive high volumes of tractors ordered in the past few months on the back of incomes of the favourable seasons. For example, in the first six months of this year, South Africa's tractors sales amounted to 4 061 units, down marginally by 2% from the corresponding period in 2022. Given that the past few years saw solid sales, one wouldn't have assumed to continue seeing numbers like this in 2023. Admittedly, these orders were made in the past few months when farmers were still enjoying the gains of the past few seasons' ample harvests combined with higher prices, thus improving farm profitability. But they also signal farmers' confidence about the sector's outlook beyond the El Niño worries.

Also worth noting is that farmers will be on the fields with much better input costs this year than in the past season. For example, most agrochemicals prices are down by roughly 15% year-on-year. In addition, fertilizer prices are down by about 50% compared to 2022. This softening of input costs makes production conditions far better for farmers if we consider that fertilizer accounts for a third of grain farmers' input costs, and other agrochemicals account for roughly 13%.

We discuss more in this week's podcast segment.

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

Podcast production by: Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli Wandile Sihlobo website

A lot has happened in the agricultural markets over the past few weeks. First, Russia decided not to renew the Black Sea Grain Deal, which is essential to facilitating exports out of Ukraine and has contributed to a decline in global grain prices. Second, India has banned the exports of non-basmati white and broken rice on fears of inflation. Both these events have been quite disruptive to the grain trade. But a few days before these announcements, I wrote a piece mainly distilling the 2023/24 global grain production forecasts, which I felt were solid and still do.

I feel the need to post the article here as its core message is that there are a lot of grains and oilseeds in the world. So, we see the price reaction mainly because of the events I mentioned above, not the tight supplies.

So, on July 12, 2023, the United States Department of Agriculture (USDA) released its monthly flagship report, the World Agricultural Supply and Demand Estimates report. The report's focus has shifted from the 2022/23 season to the 2023/24 season, currently underway in the northern hemisphere and starting around October in the southern hemisphere.

The past few weeks, particularly in the US, brought drier weather conditions, leading to fears of a potential downward revision in the crop forecasts. But the latest estimates still present a positive picture of the 2023/24 global agricultural prospects.

For example, the 2023/24 global wheat production is forecast at 797 million tonnes, up 1% from the previous season. The larger harvest is anticipated in the EU region, the US, Canada, China, India, and Turkey. As a result of the expected large harvest, the 2023/24 season's global wheat stocks could increase by 1% year-on-year to 270 million tonnes.

Moreover, the USDA forecasts 2023/24 global maize production at 1,2 billion tonnes, up 6% from the previous season. The countries underpinning this improvement in production are the US, Brazil, Argentina, China and the EU region.

Regarding South America, the El Niño weather event will present much-needed change of a prolonged four years of below-average rain during a La Niña event. (the El Niño event has the opposite effect in Southern Africa, it brings below normal rainfall, while La Niña of the past four seasons presented above normal rainfall and supported agriculture in the region). The ending stocks could also increase by 6% to 314 million tonnes in the 2023/24 season because of the expected robust harvest.

Another important staple crop is rice, whose 2023/24 global harvest is estimated at 521 million tonnes (slightly below the 524 million tonnes estimate by the International Grains Council). This is up by 2% from the previous season. Vietnam, Thailand, the US, Pakistan, China, Indonesia, Bangladesh, the Philippines, and Brazil are the key drivers of this increase in the global rice harvest. Because of the solid consumption, the global stocks could remain roughly unchanged from the previous season at around 170 million tonnes.

Moreover, the 2023/24 global soybean crop is estimated at 405 million tonnes, up 10% from the previous season. The significant recovery in South America's soybean harvest after a few years of drought and an expected large harvest in the US, Brazil, Argentina, China, Russia, Ukraine and Uruguay are the maize drivers of the expected large global soybean crop. Importantly, the 2023/24 global soybean stocks could increase by 18% from the previous season to 121 million tonnes.

While we are still early in the season, and a lot could change depending on the weather conditions over the coming weeks and crop development in the southern hemisphere when the season starts, the current prospects are positive. If this optimistic crop production materializes, we could see a recovery in the global grains and oilseeds stocks, adding downward pressure on the prices.

We discuss more in this week's podcast segment. My writing on agricultural economic matters is available on my blog: https:// Wandile Sihlobo website

This past week was dominated by global agricultural events. First, grain exports, specifically from Ukraine, were disrupted when Russia invaded the country in February 2022. But the rising concerns about global food security resulted in the United Nations and Turkey brokering a deal in July 2022 between Russia and Ukraine to allow a safe movement of grain from Ukraine to the world market while the war continued.

But this past week, Russia halted the Black Sea Grain Deal. The reasons are not clear but it appears that the attack on the Kerch bridge connecting the Crimea peninsula to the Russian mainland angered Russia. But this is possibly not the only reason. Prior to this week's events, Russia wanted to increase the exports of ammonia and other fertiliser material to the world market and this required the EU to reconnect the Russian Agriculture Bank to the global electronic payment network, SWIFT. Russia demanded that this be done for them to renew the Black Sea Grain Deal, which had not happened.

Regardless of what Russia's true reasons are, this is an important event in global agriculture, whose implications will be clear over the coming days and weeks. Still, we can appreciate that one of the major contributors to the current slowing global agricultural commodities prices (food prices) is the Black Sea Grain Deal, which allowed for a safe grain movement from Ukraine and Russia since July 2022.

Second, India officially announced a ban on rice exports this week. But it does not cover all rice categories as some analysts, myself included, initially feared. It is mainly on the non-basmati white and broken rice. Still, this affected category is significant. It accounts for 45% of the 22 million tonnes of rice that India exports to the global market annually.

The rationale cited in various media articles in that India's government is worried about inflation ahead of the upcoming elections.

Understandably, many people are worried about this development because India is a significant producer of rice globally. The country accounts for a 26% share in the expected 2023/24 global rice production of 525 million tonnes, according to data from the International Grains Council (IGC).

Of the 50 million tonnes of rice for global exports projected for the 2023/24 season, India is expected to account for about 40%. But the affected non-basmati white and broken rice accounts for 18% of global rice exports, which is still a significant share, and thus raises worries about potential upside on prices.

Other notable rice exporters are Pakistan, Thailand, the US, Vietnam, China, Cambodia, and Myanmar. But India is the largest exporter of all these countries.

At the end of June 2023, global rice prices softened from the surge we saw in May as the global production prospects improved. This price decline was positive for an already declining global agricultural commodities basket from the peak levels we saw after Russia invaded Ukraine in March 2022.

But the export ban, combined with the non-renewal of the Black Sea Grain Deal, will likely change this constructive view of global food prices.

We discuss more in this week's podcast segment.

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

Podcast production by: Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli Wandile Sihlobo website

The livestock and poultry industry has had a difficult last few years. Various external shocks including animal diseases and rising input costs – yellow maize and soybean prices – made for a challenging operating environment for many farmers and agribusinesses. While the spread of diseases may be slowing, and organized agriculture and government continued to collaborate to address biosecurity risks, concerns about renewed increases in animal feed prices persist. This is particularly the case in the El Niño period, which might result in a lower harvest compared to recent seasons of bumper crops.

The livestock and poultry sector hardly enjoyed the gains of a large domestic harvest of the past two seasons because this did not bring any meaningful reduction in feed prices. For example, since December 2020, yellow maize prices have broadly traded over R3 000 per tonne, while soybeans have generally been over R5000 per tonne. This has been a different experience compared with prior seasons, where a large harvest would have led to a substantial price decline to much lower levels than we observed in the past two years. The major reason for this were higher global maize and soybean prices on the back of drought in South America, rising demand in China, Covid-19-related supply chain disruptions and the Russia-Ukraine war. As a small open economy, South Africa is interlinked with the global grains and oilseeds market, and domestic prices tend to follow the global price movements, and this is what we observed.

With global maize and soybean prices declining notably since the start of the year, South Africa's maize and soybean prices have followed a similar trend and are roughly 15% lower than the levels we observed in 2022. This benefits the livestock and poultry industry, which is currently struggling with more domestic-related costs such as load shedding and failing municipalities where various businesses have had to use their resource to maintain basic services. This has added to their cost of doing business. In addition to mainly following global price trends, large grains and oilseed supplies are in the market, which adds downward pressure on animal feed prices. For example, the Crop Estimates Committee forecasts 2022/23 maize production at 16,35 million tonnes. This crop is 6% more than the 2021/22 season and the second-largest harvest on record. The 2022/23 soybeans harvest is forecast at a record estimate of 2,76 million tonnes (up 24% year-on-year).

Still, there are fears that harvest could decline notably as we transition into an El Niño weather phenomenon, which may result in below-average rainfall in Southern Africa. Such a scenario would increase maize and soybean prices and further strain the livestock and poultry sector. However, the expected El Niño weather phenomenon might not be as harsh as the 2015/16 season, where grains and oilseed harvest fell below long-term averages, necessitating imports.

We discuss more in this week's podcast segment.

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

Podcast production by: Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli Wandile Sihlobo website

South Africa's agricultural sector had a rough start to the year regarding production and exports. The excessive rains brought production challenges that delayed the summer crop planting activity by roughly a month but later improved.

Regarding exports, the slowing agricultural commodity prices reduced profitability from the levels farmers enjoyed a year ago, specifically grains and oilseeds. Moreover, some logistical challenges persisted in Cape Town port and thus negatively affecting the table grapes and various horticultural products exports. Still, this was not as harsh as in the previous years. The cooperation between organized agriculture groups and Transnet has helped improve agricultural export efficiencies somewhat. With that said, there is still room for improvement, which is essential for all the ports as South Africa has an export-oriented agricultural sector.

Against this backdrop, South Africa's agricultural exports fell by 2% y/y in the first quarter of 2023 to US$2,9 billion. However, when viewed quarterly, the exports are up 5% from the last quarter of 2022. The top exportable products were grapes, maize, apples and pears, wine, wool, apricots and peaches, sugar, fruit juices, and soybeans, amongst other products. We expect some of these products to continue dominating the export list, with the additions being citrus, where harvest and export activity is underway. While the start of the year was rough with excessive rains, improving weather conditions from the end of January supported agricultural activity.

From a destination point of view, the African continent remained the largest market for South Africa's agricultural exports in the first quarter of this year, accounting for 39% in value terms. The European Union was South Africa's second-largest market, accounting for 23% of all agricultural exports. Asia and the Middle East combined accounted for 21%. The Americas region accounted for 8% of South Africa's agricultural exports. The United Kingdom is one of the most important agricultural markets for South Africa and accounted for 7% of overall exports in the first quarter. The balance of 2% value constitutes other regions of the world.

South Africa's trade approach is not one-sided, perusing only exports. The country imports a significant amount of agricultural products. And thus, in the first quarter of 2023, South Africa's agricultural imports amounted to US$1,7 billion, down 9% y/y (but up 4% quarter-on-quarter). The imported products are primarily wheat, rice, palm oil, sunflower, and poultry. Because of unfavourable climatic conditions, rice and palm oil cannot be sustainably produced in South Africa. The annual decline in the import bill is mainly because of the relatively lower agricultural commodity prices compared to a year ago. We believe rice, wheat, and palm oil will continue leading the annual agricultural import product list.

Ultimately, South Africa recorded an agricultural trade surplus of US$1,20 billion in the first quarter of 2023, up 9% from last year's corresponding period. The widening trade surplus is mainly a result of a notable decline in import value, not necessarily a growth in exports, as the figures above illustrate.

We discuss more in this week's podcast segment.

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

Podcast production by: Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli Wandile Sihlobo website

With summer crop harvest underway across South Africa, the recent production estimates are more reliable and reflect the large yields farmers continue to reap. Hence, we were not surprised when South Africa's Crop Estimates Committee lifted the country's 2022/23 commercial maize production estimate by 1% from last month to 16,35 million tonnes.

This crop is 6% more than the 2021/22 season and the second-largest harvest on record. The expected ample harvest is primarily on the back of large yields, as the area planted is slightly down from the 2021/22 season. About 8,64 million tonnes is white maize, with 7,71 million tonnes being yellow maize.

A crop of 16,35 million tonnes implies South Africa will have sufficient supplies to meet domestic maize needs of roughly 11,40 million tonnes and have over 3,00 million tonnes for export markets in the 2023/24 marketing year.

The soybeans harvest was unchanged from May's record estimate of 2,76 million tonnes (up 24% y/y). The annual crop improvement is due to an expansion in the area planted and higher yields. The ample soybeans harvest means South Africa could meet its domestic demand and remain with over 300 000 tonnes of soybeans for export markets. This soybean export expansion is a new territory for South Africa, which until recently, had been a net importer of soybeans and soybean products, and positive for the agricultural trade balance.

However, the sunflower seed production estimate was lowered by 5% from last month at 758 610 tonnes (down 10% y/y). The annual decline in the sunflower seed production forecast mirrors the reduced planted area and yields in some areas.

Sorghum production estimate is down 1% from last month and now estimated at 103 870 tonnes (up 1% y/y). Other small crops, such as groundnuts and dry beans, were left unchanged from last month at 51 510 tonnes (up 6% y/y) and 48 560 tonnes (down 8% y/y), respectively.

Overall, South Africa has big summer grain and oilseed harvest, and the recent rains did not cause quality issues as some may have feared.

From a grain’s consumer perspective, these data bode well with the already softening maize and oilseed prices and reinforce our view of a possible moderation in grains-related food product prices in the food inflation basket.

We discuss more in this week's podcast segment.

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

Podcast production by: Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli Wandile Sihlobo website

From a maize supply perspective, South Africa is in a relatively strong position. According to recent estimates by the Crop Estimates Committee, the country's 2022/23 commercial maize production could reach 16,1 million tonnes, up 5% year-on-year and the third largest on record. Given South Africa's annual maize needs are roughly 12 million tonnes; the country could have over 3 million tonnes for export markets in the 2023/24 marketing year that started in May (this marketing year corresponds with the 2022/23 production year).

This ample harvest materialized through farmers' persistent efforts to plant even beyond the optimal planting window, which closed in December before the entire area of 2,6 million hectares was planted as heavy rainfall disrupted farmers' activity. Thus, farmers planted some hectares outside this window, and some feared there would be poor yields and frost risks later in the season. Fortunately, the worst did not materialize, and South Africa expects an ample maize harvest.

However, neighbouring Zimbabwe was not as fortunate as South Africa. Initially, Zimbabwe's 2022/23 maize production season had a better start than South Africa's. The favourable rainfall from October to November allowed farmers to till the land and start planting. But the season hit a dry spell in December, adversely affecting the maize crop in the southern and western areas of the country. Zimbabwe's fortunes worsened when the country was hit by Cyclone Freddy in late January 2023, leading to crop damage.

Hence, Zimbabwe's 2022/23 maize production could reach 1,5 million tonnes, almost half of the ample harvest of 2,7 million tonnes in the 2020/21 production season, according to the latest estimates by the Pretoria Office of the United States Department of Agriculture (USDA). With that said the expected harvest of 1,5 million tonnes is a mild improvement from the 2021/22 production season's maize harvest of 1,4 million tonnes but 32% lower than the annual maize needs of 2,2 million tonnes. At face value, Zimbabwe might have to import about half a million tonnes to fulfil the yearly maize needs in the marketing year 2023/24.

It is also worth considering that the Zimbabwe Grain Marketing Board is mandated to maintain a minimum of half a million tonnes of strategic maize reserve in physical stocks. Therefore, Zimbabwe will likely require a million tonnes of imports in the 2023/24 marketing year. Still, given the poor economic conditions in Zimbabwe, it is unclear at this stage if the Zimbabwe Grain Marketing Board will procure the half million tonnes strategic reserve in full within the 2023/24 marketing year. We will closely monitor the country's maize import pace in the coming months, as it would lead to a substantial increase in regional maize demand.

Fortunately, South Africa's 2023/24 marketing year maize surplus of over 3 million tonnes will help meet the potential rise in imports in Zimbabwe. While Zimbabwe could import a particular share of maize from Zambia, the country will likely rely more on South Africa.

We discuss more in this week's podcast segment.

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

Podcast production by: Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli Wandile Sihlobo website

Forecasts of an El Niño occurrence in the 2023/24 summer season do not necessarily equate to a bad agricultural season. The upcoming season of possible below-normal rainfall, i.e., El Niño, follows a rare consecutive four years of heavy rains that have improved soil moisture and natural grazing veld.

This means there is a natural cushion for agricultural activity even if the rains are below the average(typically around 500 mm) in South Africa. What will be necessary, however, is for the showers to fall in critical periods, such as seed germination and pollination stages of growth, which are all essential for crop growing.

It would not be South Africa's first time in such a fortunate position. The summer of 2018/19 had a weather El Niño event. Still, the rains fell in critical periods, and South Africa attained a decent crop harvest, with commercial maize at 11,2 million tonnes, soybeans at 1,2 million tonnes and sunflower seed at 678 000 tonnes.

Other field crops and horticulture also achieved decent yields that year. Notably, the 2018/19 season was not preceded with favourable four years of favourable rainfall that improved soil moisture. Therefore, the current position is better than the most recent El Niño period.

Various weather forecasters all share the same view in terms of the likelihood of the occurrence of an El Niño. In the past few months, we reflected on forecasts by the South African Weather Service and Columbia University's International Research Institute for Climate and Society, which all point to a higher probability of El Niño occurrence towards the end of this year. The latter has placed its possibility at over 80% at the start of this month.

Under such conditions, the agricultural sector and agribusinesses must plan for this changing operational environment from the conducive four years that supported growth in the sector. Still, this weather outlook should not necessarily imply less investment in agriculture or elevated risk.

Such fears are likely as some people still remember the harsh drought of the 2015/16 production season, where maize output fell to 7,8 million tonnes, soybeans at 742 000 tonnes, and sunflower seed fared better at 755 000 tonnes as farmers switched white maize hectares to sunflower seed and cotton in the western regions of South Africa. That season, the livestock industry, various field crops and horticulture also suffered major losses across the country. Importantly, the 2015/16 season was preceded by a drier production period in 2014/15, and soil moisture was too low in various regions. Thus, the fall in yields was notable.

We discuss more in this week's podcast segment.

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

Podcast production by: Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli Wandile Sihlobo website

The numbers released by Statistics South Africa today show that in the first quarter of 2023, agriculture gross value added sharply contracted by -12,3% quarter-on-quarter (seasonally adjusted). There are a few elements that explain this sharp contraction.

First, the field crops had a tough start to the season because of excessive rains, which disrupted and delayed plantings by over a month in some areas.

Second, the cattle industry still feels the adverse effects of foot and mouth disease, leading to a decline in slaughtering activity. We see similar issues of animal disease challenges also in the pork industry.

Lastly, one can not underestimate the impact of load-shedding disruptions on poultry production. However, the government has since introduced various measures to ease the load-shedding burden on farmers, such as load curtailment, expansion of the diesel rebate to the food value chain, and, most recently, the launch of the Agro-Energy Fund.

Also worth noting is that South Africa's agriculture quarterly gross value-added figures tend to be quite volatile; hence our communication always focuses on the annual performance. Importantly, we expect the coming quarters in the sector to show a robust performance and boost the annual growth figure to around 3% (from a revised 0,9% in 2022).

While the summer crop season started on bad footing, and the planting of some crops was delayed by roughly a month, the weather conditions improved in January and allowed for the completion of the planting.

Moreover, the load-shedding interventions we mentioned above assisted some farming entities. However, the effectiveness of these energy support measures differs across farming enterprises, and the costs are high mainly for those not fully benefiting from the above efforts and have had to rely on diesel generators to maintain production.

We discuss more in this week's podcast segment.

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

Podcast production by: Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli Wandile Sihlobo website

May 2023 marked a year since South Africa's Agriculture and Agro-processing Masterplan was completed and launched. This plan offers the government and the private sector framework to grow the sector, build competitiveness, attract more investment, improve inclusion, and create jobs. This year should mark the start of the implementation phase.

But progress so far remains limited, as the focus shifted to energy security at the beginning of the year because of the intensified load-shedding. With various interventions such as the load-curtailment, extension of diesel rebate, and Agro-Energy Fund under implementation, the sector should refocus its attention on the Agriculture and Agro-processing Masterplan and explore means of implementation. Admittedly, the operating environment in the sector is more challenging than when the plan was drafted. Still, neglecting or delaying implementation will only allow the present challenges to worsen.

The growth constraints such as biosecurity, infrastructure, widening of export markets, registration of new crop protection chemicals, and various commodity-specific and regionalized plans are some of the aspects that the Agriculture and Agro-processing Master Plan reflected on.

Notably, the broad sector support behind the plan could wane over time if the implementation is slow, and we may again find ourselves with another "good on paper but not implemented plan". Getting out of this state of inertia requires the Department of Agriculture, Land Reform and Rural Development (DALRRD) to reconvene the social partners with an implementation proposal at hand to propose.

We discuss more in this week's podcast segment.

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

Podcast production by: Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli Wandile Sihlobo website