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The winter wheat crop is in good condition in the Swartland region, thanks to recent rainfall. In fact, towards the end of last week, the Swartland region received between 20 and 30 millimetres of rainfall, which bodes well with the new season crop. The crop in Overberg region is also in fair condition following good showers in the past couple of weeks. Towards the end of last week, the region received light showers of about 10 millimetres. However, the Southern Cape region has not received notable rainfall since the start of the season and the recently emerged winter wheat crop is not in good shape.

The weather forecast this week promises a possibility of light showers of between 16 and 40 millimetres across most parts of the Western Cape province, which should support crops in the near term. With that said, the subsoil moisture levels are still low across the province due to the recent drought. The province needs intense and persistent rainfall in order to show notable improvements.

Elsewhere, the winter wheat planting activity is still at initial stages in other provinces. The Free State province, which is the second largest wheat producer after the Western Cape, has recently started its planting activity and should gain momentum within the next couple of weeks. The winter wheat crop in the province is produced in both dryland and irrigation areas. The summer rainfall has improved soil moisture levels across the province which bodes well for the new season crop. Furthermore, the irrigation areas could have a good season as dams are almost at full capacity across the province (see Map below).

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Amongst the ten sub-indices making up the Agbiz/IDC Agribusiness Confidence Index, the quarterly decline was broad-based, with the exception of the general agricultural conditions sub-index. The optimism in this particular sub-index was underpinned by prospects of above normal rainfall in the Western Cape province within the next three months, which in turn, should support winter crops and horticulture fields, as well as favourable drier conditions for harvest activity in summer crop regions.

Meanwhile, the turnover, net operating income, market share, employment, capital investment, the volume of exports, economic growth, debtor provision for bad debt and financing costs sub-indices were the key factors underlying the decline in confidence from the previous quarter.

Discussion of the sub-indices

Following a 10-index points increase to 78 in the first quarter of 2018, confidence regarding the turnover sub-index deteriorated to 64 points in the second quarter of this year. This could partially be explained by the expected decline in agricultural output this year, although some field crops are still at above-average levels, particularly grains and oilseeds. In a similar trend with the turnover sub-index, confidence in net operating income sub-index declined by 9 index point to 58 in the second quarter of 2018.

The market share of the business sub-index declined by 15 points from the previous quarter to 53. This despondency is due to a delayed harvest period in summer crops on the back of the late start of the season, as well as the aforementioned expected lower agricultural output. Case in point is the horticulture industry following the Western Cape drought, and to a lesser extent in the summer crop areas.

Confidence regarding employment in the agricultural sector retreated by 19 points to 56, which is the lowest level since the first quarter of 2017. This is unsurprising following a 3% y/y decline in agricultural employment in the first quarter of the year to 847 000 jobs. Moreover, the above- mentioned decline in agricultural output will translate to reduced activity in the fields, which could limit the chances of increased employment in agriculture in the near term.

After improving to 68 points in the first quarter of 2018, the capital investments confidence declined by 4 points in the second quarter of 2018 to 64. The uncertainty regarding land reform policy was cited by respondents as one key factor behind the deterioration in confidence.

The perception regarding export volumes sub-index deteriorated further by 17 index points in the second quarter of 2018 to 39. This is largely due to decline in horticultural products output, as well as regulatory issues in livestock products such as ostrich meat (fresh and pre-cooked), which has been restricted to accessing the European Union market sine since 1 March 2018.

The perception regarding economic conditions weakened by 18 points in the second quarter of this year from the previous quarter to 50. The respondents’ perceptions could have been influenced by

the recent poor GDP data for the first quarter of 2018, which showed a -2.2% quarter-on-quarter seasonally adjusted and annualised, compared with a consensus expectation for -0.5%.

The debtor provision for bad debt sub-index lifted by 10 index points from the first quarter to 50. This still mirrors the tail-end effects of the drought, particularly in agribusiness operating in the Eastern and Western Cape provinces.

The financing costs sub-index also lifted by 34 index points from the previous quarter to 64 in the second quarter of this year.

Concluding remarks

Although the Agbiz/IDC Agribusiness Confidence Index results showed a marginal decline from the first quarter, there is still some optimism regarding business conditions in the South African agricultural sector. The forecasts of above-normal rainfall in the Western Cape province bodes well with winter crops and also horticulture industry, following months of persistent dryness in that province. The summer crop harvest activity is also on good footing supported by cool and dry weather conditions across most parts of the country.

‘The uncertainty regarding land reform policy, particularly expropriation without compensation, remain a key risk that could potentially undermine investment in the agricultural sector. At this point, however, farmers are somewhat in a wait and see mode. We have not seen a notable dent on investments in the sector yet’ says Wandile Sihlobo, head of agribusiness research at the Agricultural Business Chamber.

1 The Agbiz/IDC Agribusiness Confidence Index reflects the perceptions of at least 25 agribusiness decision-makers on the ten most important aspects influencing a business in the agricultural sector (i.e. turnover, net operating income, market share, employment, capital investment, export volumes, economic growth, general agricultural conditions, debtor provision for bad debt and financing cost). It is used by agribusiness executives, policy-makers and economists to understand the perceptions of the agribusinesses sector, and also serves as a leading indicator of the value of the agricultural output while providing a basis for agribusinesses to support their business decisions.

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This morning the weather charts show a possibility of light showers of between 10 and 20 millimetres within the next eight days in the areas around Swartland, Helderberg, Winelands and Overberg regions of the Western Cape province. This will help sustain crops in fair condition in the Swartland and Overberg regions, while Swartland could be strained due to lower soil moisture (topsoil and subsoil).

Be that as it may, the Western Cape province still needs intense and persistent rainfall in order to sufficiently improve subsoil moisture. The recent showers in some regions have been helpful in terms of sustaining the crop and improving topsoil moisture. Also worth noting is that the Western Cape provincial dam levels averaged 32 percent in the week of 18 June 2018, up by 6 percentage points from the previous week and 11 percentage points from the corresponding period last year.

In our previous notes, we talked a bit about expectations of higher rainfall over the Western Cape province within the next three months, leaning on the South African Weather Service and International Research Institute for Climate and Society’s forecast. These views have not changed. There is still some level of optimism regarding the weather in the medium term.

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The weather will be a key focus within the next couple of weeks as it continues to influence the harvest activity of summer crops and growing conditions of new season winter crops. The forecasts for the next eight days show clear skies across the country, which should bode well for harvest activity, while it’s the opposite for winter crops.

The week ahead is data-packed, but the most anticipated release is the Crop Estimate Committee’s fifth production estimate for 2017/18 summer crops.

The SAFEX beef carcass market experienced a quiet week with prices unchanged from levels seen last week.

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In the past few weeks, the Swartland and Overberg regions of the Western Cape province received good showers, hence the winter wheat crop is a fair condition in these particular regions. Meanwhile, the Southern Cape region, particularly Mosselbay and Heidelberg, have not received notable rainfall since the start of the season, hence the winter wheat crop is not in good condition in the region. This week might not bring any improvements in the Southern Cape region as weather forecasts show a possibility of light and scattered showers over the Western Cape province, varying between 10 and 20 millimetres.

This is not only a concern for Southern Cape farmers, the rainfall received in areas such as Swartland and Overberg in the past couple of weeks have been helpful in terms of sustaining the crop and improving topsoil moisture, but the province still needs intense and persistent rainfall. This will help to replenish subsoil moisture and subsequently, benefit the winter wheat crop over the coming months.

In terms of trade policy, the import tariff matters will continue to dominate the market as imports are set to reach the second highest level on record in the 2017/18 marketing year. On 12 June 208, the wheat import tariff triggered to a new rate of R281.74 per tonne, which is 36 percent lower than the current rate. This adjustment followed an uptick in global wheat prices in the past couple of weeks, due to unfavourable weather conditions in parts of the Black Sea and the EU regions.

The newly triggered rate of R281.74 per tonne has not yet been published on the government gazette, and will only be applicable after its publication. The timeframe for this process is unclear, but previous adjustments took more than three weeks.

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Also due for release today is maize producer deliveries data, which should show an uptick given that weather conditions have been quite favourable for harvest activity in the past couple of weeks. To recap, the volume of maize delivered to commercial silos in the first seven weeks of the 2018/19 marketing year is estimated at 2.24 million tonnes, which equates to 17 percent of the estimated harvest of 12.91 million tonnes.

Yesterday, the weekly maize trade data was quite encouraging with exports at 70 172 tonnes in the week of 22 June 2018, which is a 49 percent increase from the previous week. About 97 percent was yellow maize, with 3 percent being white maize.

The leading buyer was Vietnam, accounting for 90 percent of the weekly exports. Trailing Vietnam was Botswana and Swaziland, with 7 percent and 4 percent shares, respectively. Overall, this placed South Africa’s 2018/19 maize exports at 400 833 tonnes, which equates to 20 percent of the seasonal export forecast.

Also worth noting is that South Africa’s maize stock was estimated at 3.4 million tonnes in May 2018, up by 35 percent from the corresponding period last year due to a large opening stock at the start of the season.

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• The improvement in South Africa’s wheat production was unsurprising following expansion in area plantings and also good rainfall in parts of the Western Cape province, particularly Swartland and Overberg region. This is also in line with the International Grains Council estimate for this season. This improvement, however, was not widespread across the country. Most provinces registered an uptick with the exception of the Northern Cape, KwaZulu Natal, Mpumalanga and Limpopo provinces. Most importantly, this is still the first estimate for the season, the National Crop Estimates Committee will provide further updates over the coming months.
• Moreover, the seventh summer crop production forecasts confirmed that South Africa’s grain and oilseed supplies are in good shape, with most estimates left unchanged from last month (see Figure 1). This generally bodes well for trade and food inflation dynamics, as production volumes of major crops such as maize are set to be well above domestic consumption needs. At the same time, the higher soybean production will benefit the animal feed industry. Considering the domestic annual maize need of roughly 10.8 million tonnes, at the back of expected 13.2 million tonnes of commercial production, coupled with an opening stock of 3.7 million tonnes, South Africa could see exports exceeding 2.5 million tonnes in the 2018/19 marketing year.

Sourced: Agbiz, Agribusiness Research

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Sourced: Agbiz, Agribusiness Research

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Sourced: Agbiz, Agribusiness Research

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