AGRIBUSINES PERSPECTIVE: Favourable commodity prices are rallying farmers’ optimism

Many people have expressed concern about the uncertainty created by the ongoing discussions about South Africa’s land reform policy.

However, some allow the fear to get the better of them. Over the past few months, a dominant view expressed on a few social media platforms has been that South African farmers might reduce their plantings due to this uncertainty.

Data dispels lower planting rumours

However, if we look at the data, this is not the case. The most recent data from the South African Agricultural Machinery Association shows that, in the first nine months of the year, South African tractor sales amounted to 5 001 units, up 7% from the corresponding period in 2017.

In its report, released at the end of October, the South African Crop Estimates Committee provided further tentative evidence, indicating that local farmers intend to increase the area planted to summer grains and oilseeds by 5% to 4,03 million hectares, compared with the 2017/2018 production season. Maize and soya bean are among the crops set to record a notable uptick in plantings, while sunflower seed plantings could decline marginally.

One way of explaining this optimism among farmers is favourable commodity prices, with yellow and white maize prices up more than 20% year-on-year.

In terms of soya bean, growing demand from the animal feed industry is the source of the optimism. To further refute the claims of reduced plantings, South African farmers planted 508 350ha of wheat between May and August this year, which is a 3% increase year-on-year, and 119 000ha of barley, up 30% year-on-year.

There is also fairly good activity in horticulture and the livestock sector.

With figures like these, it was, from the onset, clearly inaccurate to state that “South African farmers have reduced plantings.”

All is not rosy

However, this is not to suggest that all is rosy in the South African agriculture sector. In September, the Agbiz and Industrial Development Corporation’s Agribusiness Confidence Index fell below the 50 neutral mark to 46 index points, suggesting that agribusinesses are somewhat downbeat about business conditions in the country.

The root cause of the pessimism was the lingering uncertainty about land reform policy and weak economic growth, among other issues.

The recent ‘intended planting’ estimates and tractor sales data are therefore an encouraging barometer of the activity on the ground and the investment trajectory in the South African agriculture sector.

Of equal importance is the fact that although the recent tractor sales and intended plantings data paint a fairly optimistic picture about activity in the sector, the decline in confidence remains a concern.

As Agbiz pointed out in its official statement in September, “the deterioration in confidence could potentially curtail investment and long-run growth prospects and gains in the agriculture sector.”

I previously cautioned about the mediumterm risk of a possible El Niño event later in the summer. Aside from land reform policy developments, this will be a key determinant in whether South Africa achieves a good harvest or its crops wither.

I am, however, slightly at ease about this threat, as weather forecasters suggest that such a weather event could occur later in the season, and also be weak. We shall see!

farmers aim to increase the area planted to summer grains and oilseeds by 5%