Agricultural Market Viewpoint with Wandile Sihlobo

April marked the end of South Africa's 2023/24 marketing year for maize. This marketing year corresponds with the 2022/23 production season, as the crop harvested mid-year in 2023 was marketed from then through to the end of April 2024. According to data from the Crop Estimates Committee (CEC), the 2022/23 production season was characterized by an excellent harvest of 16,4 million tonnes. This was because of large plantings and the favourable summer rainfall that boosted the yields. The ample harvest allowed South Africa to maintain its position in export markets. South Africa is the world's ninth largest maize exporter, trailing the US, Brazil, Argentina, Ukraine, Romania, France, Paraguay and Poland. Data from the South African Grains Information Services shows that in the 2023/24 marketing year, the exports amounted to 3,4 million tonnes, down by 6% from the previous year. About 63% of the exported maize was yellow, with 37% being white maize. In the past, South Korea, Japan and Taiwan were the leading markets for South Africa's maize exporters. But in the 2023/24 marketing year, Zimbabwe took the lion's share of the exports, accounting for 18% of the 3,4 million tonnes of exports. The surge in exports to Zimbabwe comes after a few years of modest exports to the country because of decent domestic harvest and the restrictions on genetically modified maize, which the government often used as a barrier to imports in certain seasons. However, the regulations have changed, and Zimbabwe now imports genetically modified maize. Other large maize export markets in the African continent are Botswana and Mozambique, which accounted for 9% and 6% of South Africa's total maize exports, respectively. South Korea, Japan and Taiwan remained significant export markets for South African maize, accounting for 14%, 13% and 13% shares in the total exports, respectively. Another important maize export market for South Africa in the Asian region is Vietnam. Still, its exports were slightly lower than other countries, accounting for a 5% share in the overall export markets. While the export season was a success, the coastal regions of South Africa started worrying about the maize supplies at the end of the 2023/24 marketing year, specifically pricing when considering the transport costs from central regions of the country that are the main maize producers. Disappointingly, the excellent 2022/23 maize production season is followed by a less promising season. In the 2023/24 production season (which corresponds with the 2024/25 marketing year), South Africa's maize harvest is forecast to fall by 19% year-on-year to 13,3 million tonnes. This is according to data from the CEC. This decline in harvest is primarily due to unfavourable weather conditions in February and March, where dryness and heatwave caused widespread crop damage in various regions of South Africa. Subsequently, the coastal areas in South Africa worry about tight supplies in the new marketing year. This led to 32 691 tonnes of yellow maize imports from Argentina in the last week of the 2023/24 marketing year. We suspect there will be additional imports in the 2024/25 marketing year, primarily for the country's coastal regions. These imports will help increase supplies for the animal feed industry. Notably, while South Africa expects a significantly lower harvest this year, the country could remain a net exporter of maize. With an annual maize consumption of approximately 12,0 million tonnes and a harvest of 13,3 million tonnes, South Africa will have over a million tonnes of maize for exports. We also believe there are decent carryover stocks from the past season, which will help increase the maize supplies for the new marketing year of 2024/25. Listen to the podcast for a detailed reflection. My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/ Podcast production by Lwandiso Gwarubana, Richard Humphries Wandile Sihlobo website

Export opportunities for South Africa's agricultural products are opening up within BRICS+ countries. Over the past two years, China, the Kingdom of Saudi Arabia, and Egypt have widened market access for various agricultural products from South Africa. Admittedly, Egypt and the Kingdom of Saudi Arabia have recently joined the BRICS+ grouping, and market access is part of the long-term bilateral engagements with South Africa. South Africa has access to selected fruits, wine, wool, meat and grains. However, South Africa aims to broaden market access in BRICS+ for most of the country's agricultural products. For this reason, through the 2023 BRICS Summit in Johannesburg and the prior engagements, South Africa prioritized trade as a significant point on the agenda for discussion. The political principals broadly agreed that deepening trade was necessary for the BRICS countries. Still, each country's trade and agricultural authorities are responsible for taking the lead and seeking market access from member countries. The idea of a BRICS agricultural trade agreement that some argued for has not yet been thoroughly ventilated. The priority so far was for each BRICS member to work to reduce import tariffs and address the phytosanitary constraints for various products that BRICS member countries would present. Even before adding the new members, the original BRICS countries were already significant importers of agricultural products. Between 2019 and 2022, this group's agricultural imports averaged US$255 billion annually, according to Trade Map data. China accounted for 71% of all the agricultural imports into the group, followed by India at 11%, Russia at 11%, Brazil at 4% and South Africa at 3%. Despite these sizeable agricultural import figures, the intra-BRICS agricultural trade remained relatively low. The products these countries imported include soybeans, beef, maize, berries, wheat, palm oil, poultry meat, cotton, barley, dairy products, pork, apricots and peaches, sugar, wool, sunflower seed, nuts, sorghum, goat meat, wine, grapes, bananas, avocados, mangos, guavas, and fruit juices, among other products. South Africa produces some of these products in abundance and has surplus volumes for exports. Thus, the country championed a need to deepen trade in the 2023 BRICS Summit. Admittedly, the positive reception that South Africa has received from some BRICS countries lately is not entirely because of the groupings' focus on trade. Indeed, some discussions regarding market access to China have been underway for some time. Still, when agricultural trade is prioritized in various political forums, there is naturally urgency to deliver some results. With BRICS adding new members to form a bigger BRICS+, the agricultural trade opportunities have increased. Listen to the podcast for a detailed reflection. 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

Many, including myself, may have been a bit pessimistic about the 2023/24 summer crop growing conditions when we signalled a potential further downward revision of the harvest estimate this month. The data released last week by the Crop Estimates Committee showed mild upward adjustments in the crop size from last month's figures. South Africa's 2023/24 summer grains and oilseed harvest is estimated at 16,0 million tonnes, up 1% from last month. Indeed, this is not a cause for celebration. The figure does not change the reality that we have been through a challenging season of El Niño-induced drought and heatwave in February and March that weighed on the summer grains and oilseed harvest in various regions of the country. The current estimated harvest of 16,0 million tonnes is down 20% from the 2022/23 production season. Maize A closer look at the data shows that white and yellow maize harvest could be 6,4 million tonnes (up 2% m/m) and 6,9 million tonnes (roughly unchanged from last month). These revisions place the total maize production estimate at 13,3 million tonnes (up 1% m/m). When viewed annually, white maize harvest is down 25%, with yellow maize down 13% from the 2022/23 season. The expected harvest of 13,3 million tonnes is down 19% from the 2022/23 season. If it materializes, the expected harvest will be sufficient to meet South Africa's annual maize consumption of roughly 12,00 million tonnes, leaving the country with a small export volume. Still, we will likely see prices remaining elevated for some time because of the potentially tight supplies. The Southern African regional demand, particularly for white maize, also remains a significant upside driver of prices. Oilseeds The 2023/24 soybean harvest remained unchanged from last month, estimated at 1,8 million tonnes (down 35% y/y). This annual decline results from lower yields in various regions of South Africa. We now believe South Africa may not play a robust position in soybean exports like the previous season. If anything, soybean oilcake imports this new season are now a possibility. Meanwhile, the sunflower seed harvest estimate was lifted from last month by 4% to 615 000 tonnes (down 15% y/y). The area plantings are moderately down from the previous year, which means the primary driver of the annual decline in the harvest is the expected poor yields, especially as most of South Africa's sunflower seed is planted in the western regions that experienced dryness and heatwave in February and March. Concluding remarks The recent rains in much of South Africa's summer crop-growing regions are too late. The damage to the crop occurred in February and March during the heatwave and the El Niño-induced dryness. The current crop forecasts reflect this challenge, as the major crops are down notably compared to the 2022/23 production season. Listen to the podcast for a detailed reflection. 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

There are divergent views about the effectiveness and extent to which South Africa's agricultural policies have been implemented. Regardless of how experts feel about the capacity of the state and the policy stance of the South African government since the dawn of democracy, the one undeniable fact is that the sector has grown tremendously. Data from the Department of Agriculture, Land Reform and Rural Development show that domestic agricultural output in 2022/23 was twice as much as in 1993/94. Whether this growth has been inclusive and transformative is a question I will return to later in this piece. For now, it's important to emphasize the growth of the industry and the drivers of its expansion. Significantly, this expansion was not driven by a few sectors but has been widespread -- livestock, horticulture and field crops have all seen strong growth over this period. Of course, the production of some crops, most notably wheat and sorghum, has declined over time. This, however, had a lot to do with changes in agroecological conditions and falling demand in the case of sorghum, not policies. These higher production levels have been underpinned, mainly by adopting new production technologies, better farming skills, growing demand (locally and globally), and progressive trade policy. The private sector has played a major role in this progress. Listen to the podcast for a detailed reflection. My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/ Wandile Sihlobo website

South Africa has experienced two months of extremely dry and hot weather — February and March. The impact of harsh weather conditions on agriculture across the country is visible through crop failures. The 2023/24 summer grain and oilseed production is down 21% year-on-year, estimated at 15.8 million tonnes. We are now at an advanced stage of crop development where there would be minimal to no improvement, even if it rains. Indeed, if one reflects on the past few days, we have received some excellent rainfalls in various regions of South Africa, but this has had minimal benefit on crops. The soil moisture is enhanced, but this will unlikely improve our summer grain and oilseed production outlook. However, the grazing veld for the livestock will be improved somewhat. The map below illustrates the increased soil moisture levels in the central and eastern regions of South Africa following the recent rains. The improved moisture will help in the winter crop season, which starts at the end of this month in most regions of the country. Regarding summer grain and oilseed production prospects, South Africa is in a better condition than the rest of the southern African region, where there are massive crop failures and countries have to rely on grain imports. South Africa has sufficient grain for domestic consumption; if the forecast crop materialises, we hope it does. Listen to the podcast for more insights. My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/ Podcast production by Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli Wandile Sihlobo website

The past two years presented major challenges for the South African livestock industry. The spread of the Foot-and-Mouth Disease (FMD) and higher feed costs were the two major factors that weighed on their business. As farmers, various feedlots, and the government worked to control the spread of the FMD, the impact was deepening on the revenues of farming businesses as they suddenly had to limit the movement of animals, and various export markets were temporarily closed. In the case of the beef industry, in 2022, the exports fell below the prior five-year average, totalling 26 881 tonnes, down 16% year-on-year, according to data from Trade Map. The exports recovered slightly in 2023, up 3% year-on-year to 27 675 tonnes. Even as the beef industry confronted these challenges, it had already resolved that widening the export market would catalyze its long-term growth. There was evidence pointing to the expansion of exports. For example, between 2017 and 2021, South Africa's overall beef exports averaged 31 169 tonnes. This was notable progress as the beef exports had averaged 26 670 tonnes five years prior, and the years before that were less than 15 000 tonnes. The spread of animal diseases threatened this export growth. Between 2017 and 2021, the exports comprised, on average, 49% fresh beef and 51% frozen beef. The export markets were also diverse. For fresh beef, Kuwait, Jordan, United Arab Emirates, Mozambique, Lesotho, Qatar, Zimbabwe, Mauritius, and the Netherlands were some of the largest and most consistent markets. Similar markets and new ones were at the top of the list for frozen beef. These included Lesotho, Mozambique, China, the United Arab Emirates, Jordan, Egypt, the Netherlands, Qatar, Hong Kong, and Kuwait. Fortunately, while some regional markets had temporarily closed off the red meat products from South Africa, some remained open. Thus, the exports did not collapse in 2022 and 2023, when animal disease was a major challenge. This challenge was not limited to the cattle industry. Although the wool industry was not directly affected by FMD, some export markets temporarily closed due to concerns related to the disease. China, which accounts for more than two-thirds of South Africa's wool exports, temporarily closed for various periods in 2022 and 2023. The impact of those temporary closures is visible on export volumes of wool. For example, in 2022, South Africa's wool exports fell by 19% year-on-year to 42 239 tonnes. The major decline in volume was in the Chinese market. Fortunately, the engagements between the South African and Chinese authorities to reassure them of the safety measures in place to ensure that there is no spread of disease led to the resumption of exports. In 2023, South Africa's wool exports recovered 18% year-on-year to 49 715 tonnes. The higher feed costs were a factor outside the control of the farmers and regulators. This was also not unique to South Africa but a global phenomenon. The rise in Chinese demand for grains, coupled with drought in South America, higher shipping costs, and the Black Sea war, were major drivers of grain prices in the past two years. South Africa is interlinked to the global market; thus, the rise in international grain prices was also a reality here at home. For this reason, the livestock farmers had to contend with higher feed prices while simultaneously being squeezed in export markets. My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/ Podcast production by Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli Wandile Sihlobo website

This month, we will have farmers in the Western Cape likely begin to prepare the soil for the 2024/25 winter crop production season by the end of April into May. Other major winter crop-producing provinces, such as Free State, Limpopo and the Northern Cape, will likely start around the end of May. The production of winter crops outside the Western Cape has sizable irrigation support. These regions should benefit from the relatively higher dam levels from the early summer rainfall. In major winter grains such as wheat, nearly half of the production in South Africa is produced under irrigation. The irrigation share in overall wheat production is essential in an environment where drier weather conditions and heat waves are causing significant damage to summer grains and oilseed regions. The weather outlook remains uncertain for rainfed regions, which could negatively affect the planting in the 2024/24 season. Listen to the podcast for more details and our outlook. My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/ Podcast production by Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli Wandile Sihlobo website

Since the release of the previous report of South Africa's Crop Estimate Committee (CEC) at the end of February 2024, the weather conditions across the country have remained unfavourable. Thus, we are not surprised that the CEC further lowered its production forecasts for South Africa's summer grain and oilseeds this afternoon. The CEC now forecasts South Africa's 2023/24 total grain and oilseeds production at 15.8 million tonnes, down 9% from last month and 21% lower than last season's harvest. This year's overall decline in production prospects is primarily due to poor yields, not the area reduction, as farmers tilled more land than in the 2022/23 season. In essence, while we started the 2023/24 summer crop season with optimism and even estimated that harvest would be decent at above-average levels, the outlook is now challenged by the excessive heat and limited rainfall across the major crop-growing regions. Notably, this week marks nearly two months since some regions of South Africa last received adequate rainfall. Throughout February and March, the rainfall has been scant across South Africa, with an intense heatwave that made the summer crop growing conditions difficult. These months are also critical for crop pollination, a growth stage that typically requires higher moisture levels. We have gone through pollination with limited moisture, reinforcing fears of a potentially bad summer crop in South Africa this year. Another challenge of the 2023/24 season is the difficulty of forecasting the size of the summer crop as we face a moving target and continuous unfavourable weather conditions. The crop forecasts for later in the year will likely show a more realistic picture of the crop conditions. From a consumer perspective, the current drought presents upside risks to food price inflation. But the major issue is white maize. The favourable supplies of other grains in the world market, mainly yellow maize (also rice and wheat), and the moderating prices mean South Africa could be slightly cushioned in these commodities. Still, the exchange rate will be an important consideration when assessing the possible imports of wheat and rice (and possibly yellow maize) into South Africa, assuming we see further downward revision of the crop forecasts. The Southern African maize-producing countries such as Zambia, Zimbabwe and Malawi are also under pressure because of the drought. This means tight white maize supplies in South Africa could also face regional demand, further presenting upside price risks. My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/ Podcast production by: Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli Wandile Sihlobo website

While the summer grain and oilseeds production prospects for the 2023/24 season seem bleak in Southern Africa because of the excessive dryness and heatwave, the global production conditions remain reasonably optimistic. On March 14, the International Grains Council (IGC) released its monthly update of the 2023/24 global grain and oilseeds production, with some upside adjustments for significant crops. For example, the 2023/24 global maize harvest forecast at 1,2 billion tonnes, up 6% year-on-year. This improvement is due to better crop expectations in the US, Argentina, Ukraine, China, the EU, and Russia. Consequently, the stocks will also lift by 5% year-on-year to 294 million tonnes. The IGC forecasts that the 2023/24 global wheat harvest will reach 789 million tonnes, well above the long-term average levels (albeit down 2% year-on-year). A poor harvest in parts of Russia, Canada, Ukraine, Australia, the United Kingdom and Kazakhstan underpins the decline in the overall harvest. Still, the global wheat consumption will likely remain strong, particularly in Asia. As such, the IGC forecasts a 5% decline in stocks to 267 million tonnes. But from a long-term perspective, these will still be healthy stocks. There is a lot of rice globally, with the 2023/24 global harvest forecast at 511 million tonnes, well above the long-term average (but down 0,6 year-on-year). The minor decline in the harvest is primarily in India, Thailand, China and Indonesia. The global rice consumption will likely remain stable this marketing year, and thus, the IGC also left the ending stocks roughly unchanged from the 2022/23 marketing year at 43 million tonnes. These stock levels are broadly favourable for rice price moderation in the months ahead, which had started softening since the beginning of the year. This followed an uncomfortable price surge at the end of 2023 when India decided to limit the exports of the product. It is also worth noting that the 2023/24 global soybean harvest is estimated at 391 million tonnes, up 5% year-on-year. The robust harvest in Argentina, China, Canada, Russia, Ukraine, and Paraguay significantly drove this expected uptick in the global soybean harvest. With global soybean consumption reasonably stable, the increase in production resulted in an improvement in the global soybean stocks, now forecast at 66 million tonnes, up 12% year-on-year. The global agricultural prices already reflect this environment of improved supplies. For example, the Food and Agriculture Organization of the United Nations (FAO) recently released its Food Price Index for February 2024. This index measures the monthly change in international prices of agricultural commodities, not final food products. The FAO Food Price Index averaged 117.3 points in February 2024, down 1% from its revised January level and 11% from last year's corresponding period. The broad decline in grains and oilseed prices underpinned this moderation, again underscoring the importance of improved supplies in the 2023/24 season. My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/ Podcast production by: Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli Wandile Sihlobo website

The damaging effects of persistent dryness and heatwave in South Africa's summer crop-growing regions have raised concerns about a possible rise in consumer food inflation in the coming months. With South Africa's food price inflation averaging 11% in 2023 (from 9.5% in 2022, 6.5% in 2021, and 4.8% in 2020), which was relatively high compared with recent periods, talk of further upside pressure in inflation comes as an unwelcome development. However, the underlying drivers of the increase in food inflation in the past two years were mainly the international agricultural commodity prices and, to a much lesser extent, idiosyncratic domestic factors. Still, towards the latter part of 2023, local factors such as animal diseases, weaker domestic currency, and load-shedding-related costs were some of the key drivers of food inflation. The drought in South America, China's strong demand for grains and oilseed, rising shipping costs, higher energy prices, and the Russia-Ukraine war were some of the factors that were behind the higher global agricultural producer prices, which, in turn, boosted the domestic prices, and thus leading to relatively elevated consumer food price inflation in 2022 and 2023. Also worth noting is that South African food manufacturers had to absorb some of the increases and did not pass on the full increases to consumers who were already under pressure because of weak economic conditions and higher unemployment in the country. For example, in 2022, while consumer food inflation averaged 9.5%, the producer price inflation for agricultural products was 15.0%, and the food manufacturers inflation was 12.3%. This means manufacturers did not pass on the total costs to consumers, contrary to what some regulators have argued. The factors that underpinned higher consumer food inflation in 2022 and 2023 have somewhat subsided. There are ample grain supplies in the global market. Aside from the international factors, other major factors driving South Africa's food inflation this past year was the increase in vegetable and poultry products prices. The poor harvest caused the vegetable price increases after load-shedding at the start of the year, undermining crop quality. Things have changed this year. While it has been quite dry across the country since the beginning of February 2024, vegetable production has not taken a strain because all commercial production in South Africa is under irrigation and load-shedding, while risk has not been hard since the start of 2023. Some farmers are better prepared this year for possible regular power cuts. Considering the above developments, the major risks to consumer food inflation in South Africa in 2024 will primarily be white maize products, while other products within the food basket may moderate or show sideways movement in prices. My writing on agricultural economic matters is available on my blog: https://wandilesihlobo.com/ Podcast production by: Lwandiso Gwarubana, Richard Humphries, and Sam Mkokeli Wandile Sihlobo website

South Africa, Zambia and Zimbabwe have recently published reports indicating a potential decline in grain harvest because of intense El Niño-induced dryness. These developments could put the entire Southern African maize supply chain at risk, with Zambia and South Africa hard hit by heatwaves and dryness. The neighbouring small producers such as Zimbabwe, Botswana, Lesotho and Namibia are also struggling with dryness. Given that South Africa, Zambia and Zimbabwe are among the largest maize producers within the Southern Africa region, a potential decline in the harvest in these countries suggests there could be an increase in the risk of food insecurity. This would necessitate imports to meet the shortfall in the region’s maize supplies. The dryness in an El Niño event is not unexpected in the Southern Africa region as this weather phenomenon is typically accompanied by dryness. The year started favourably, with excellent rains. But the dryness intensified from the end of January. Major damage has been caused to crops since then. The unusual pattern may be part of the broader climate change challenges. Based on research into grains markets in the region, and recent observations from our fieldwork across the summer crop-growing regions of South Africa, it is clear that the region faces a difficult time ahead. 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

Despite all the challenges at the ports and various export markets, the South African agricultural sector has continued to realize excellent export activity. Total agricultural exports reached a new record of US$13.2 billion in 2023, up 3% from the previous year. This is stronger than our earlier expectations of a modest export activity this year. The products that dominated the export list were citrus, maize, apples and pears, nuts, wine, soybeans, sugar, wool, grapes, berries, avocados and fruit juices. This improved export activity was a function of improvement in volumes and prices. That said, pricing developments over the year were significantly more varied than the average data suggest. While fruit prices picked up, grains and oilseed prices have declined notably from the 2022 levels. Notably, the exports were widely spread across various key markets. The African continent remained a leading market, accounting for 38% of South Africa's agricultural exports in 2023 in value terms. Asia was the second largest agricultural market, accounting for 28% of exports, followed by the EU, the third largest market, accounting for 19%. The Americas region was the fourth largest, accounting for 6%, and the remaining 9% went to the rest of the world. The UK was one of the leading markets within the 'rest of the world' category, accounting for 7% of total exports. The products of exports to these markets were primarily the same, with the African continent and Asia importing a reasonably large volume of maize, soybeans, wool and beef. Meanwhile, exports to other regions were primarily fruits and wine. Listen to our podcast for more insights. 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

Wandile Sihlobo unpacks the latest agriculture trends and statistics in this podcast. After a notable jump in the third quarter of 2023 to 956,000, South Africa's primary agricultural employment fell by 4% quarter-on-quarter to 920,000 in the last quarter of 2023. Jobs declined mainly in the Eastern Cape, Western Cape, Gauteng, Mpumalanga and Limpopo. Wandile Sihlobo website

The excessive heat across South Africa currently is a significant concern for the farming sector. The 2023/24 summer crop season started on favourable footing. We received widespread rains, which was unusual in an El Niño season, which would typically start with drier weather conditions. According to data from the Crop Estimates Committee, the farmers managed to plant a sizable summer grain and oilseed area of 4,4 million hectares, up by 0,4% from the 2022/23 season. For a while, it appeared as though South Africa was on track for yet another excellent harvest. But since the start of February, the rain has been scant across the summer crop-growing regions of South Africa, thus raising concerns about the yield potential of the crops. 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

We start the year with reasonably weak agricultural machinery sales data. South Africa's tractor sales were down 26% y/y in January 2024, with 353 units sold. At the same time, the combine harvesters were down 50% y/y, with eight units sold. At face value, this could be viewed as a worrying agricultural machinery sales report indicating difficulties in the sector. But we have a different reading of it. This is more of a normalization after a few years of robust sales. For example, South Africa's tractor sales for 2022 amounted to 9,181 units, up 17% y/y and the highest annual sales for the past 40 years. The combine harvesters also had an excellent performance of 373 units in 2022, up 38% y/y and the highest yearly sales figure since 1985. The sales for the year before were also exceptional. These generally strong agricultural machinery sales these past few years were primarily on the back of large grain and oilseed harvests. In 2023, the tractor sales were down marginally from the previous year, while the combine harvester sales held the last year's momentum. Thus, we think the January 2024 sales begin a correction period. While in the past, agricultural machinery sales would be read as one of the early indicators of the health of the farming sector, this time around, the sales should be read differently for the reasons we stated above. The summer crop production conditions are relatively robust in the fields across South Africa. For example, the recently released by the Crop Estimates Committee puts the preliminary area plantings for 2023/24 summer grains and oilseeds at 4,41 million hectares, up by 0,4% y/y. This increase is not limited to a few crops but across most summer crops except for soybeans, where plantings possibly fell by 10% y/y to 1,04 million hectares (which is still well above the 5-year average area of 867 240 hectares). The area plantings for other major grains, such as maize and sunflower seed, is also well above the 5-year average. Notably, the weather conditions have been broadly favourable since the start of the 2023/24 production season, thus supporting crop growth. We currently expect harvest that will be broadly above the long-term average levels in major summer crops, which again illustrates that the weak sales are not mainly a production conditions issue but a lower replacement rate of machinery after excellent years of sales. Moreover, the rising interest rates added pressure to farmers' finances. The relatively weaker rand exchange rates also negatively influenced the farmers' machinery buying decisions. Also worth noting is that while other input cost prices, such as fertilizer and agrochemicals, have softened in 2023, the price levels were still well above long-term levels, thus adding pressure on farmers' finances. 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