• The SAFEX wheat prices had a good run on Friday’s trade session and settled in positive territory, with spot price at R3 855 per tonne. The gains were in line with higher Chicago wheat prices, as well as commercial buying interest.
• The Chicago wheat market was supported by lingering concerns about unfavourable weather conditions in the central and eastern parts of Europe, US Plains, Australia, Canada and Russia. This could potentially lead to a decline in wheat yields in the 2018/19 production season.
• In Russia, the US and the EU region there are already expectations of lower yields. Last week, International Grains Council (IGC) placed Russia, US and EU’s 2018/19 wheat production at 75 million, 46 million and 149 million tonnes, respectively down by 12 percent, 2 percent and a percentage point from last season.
• The other countries that are expected to register a decline in production in the 2018/19 wheat production season are China, India, Ukraine and Kazakhstan. This is partly underpinned by an expected reduction in area planted and prospects of unfavourable weather conditions in some regions.
• Meanwhile, Australia and Canada are expected to receive fairly good harvests despite the unfavourable weather conditions experienced last week. The IGC forecasts Australia and Canada’s 2018/19 wheat production at 24 million and 31 million tonnes, up by 15 percent and 4 percent from the previous season, respectively.
• Overall, from a global perspective, the aforementioned potential decline in production will somewhat be offset by increases in Canada, Australia and Argentina. The IGC forecasts 2018/19 global wheat production at 748 million tonnes, down by 2 percent from the previous season.
• Back on home soil, the weather remains a key focus in winter wheat growing regions. The winter wheat planting has already been completed in regions around Swartland and Overberg. The crop has emerged, thanks to light showers received in the past few weeks, although these were not sufficient to improve subsoil moisture levels. The Western Cape province needs to receive intense and persistent rainfall for subsoil moisture to improve, which will, therefore, benefit the new season crop.
• The areas that have not made notable progress regarding planting is the Southern Cape due to persistent dryness.

Click here to read the full report by Wandile Sihlobo

The post Spotlight on wheat market appeared first on Agri Limpopo.

• In terms of weather outlook, the South African Weather Service seems to be singing from the same hymn book as the International Research Institute for Climate Change Society. Yesterday the local weather agency indicated a possibility of above-normal rainfall in winter crop growing areas between June and September 2018.
• The expected higher rainfall is precisely what is needed in the Western Cape province in order to sufficiently improve soil moisture and benefit the new season crop. The dam levels could also improve. In the week of 21 May 2018, the dams averaged 17 percent, down by 2 percentage points from the same period last year.
• Be that as it may, the near term forecasts paint a mixed picture. The areas around the West Coast, Swartland, Helderberg, Overberg and the Garden Route regions of the Western Cape province could receive light showers within the next eight days which should benefit the newly planted crop. Meanwhile, the forecast for the week of 05 June 2018 shows clear skies over most regions of the province.
• The Western Cape province is of importance because of its share contribution to South Africa’s wheat production. The province accounts for 64 percent of South Africa’s intended 500 500 hectares for winter wheat in the 2018/19 production season. We will get clarity about this season’s harvest when the National Crop Estimates Committee releases its first production estimate for winter crops at the end of August 2018.
• Aside from the production dynamics, the wheat import tariff rate of R437.24 per tonne that triggered on 10 April 2018 was finally published in a government gazette on 25 May 2018, making it an official rate. This is a 45 percent increase from the previous rate. The delays and uncertainty of wheat tariff adjustments partly resulted in a decline in imports in the past couple of weeks, but this could soon change as all triggered tariffs have now been gazetted.

Click here to see the full report by Wandile Sihlobo

The post Good weather outlook for winter wheat appeared first on Agri Limpopo.

About 67 percent of this was yellow maize, with 33 percent being white maize. We made this point last week, but it is worth restating as the data hasn’t changed much. The fact that a large share of maize delivered to commercial silos is yellow shows that the harvest activity is gaining ground mainly in the early planted areas in the eastern parts of the country (areas that predominantly produce yellow maize).

The total maize deliveries for the first six weeks of the 2018/19 marketing year are estimated at 1.4 million tonnes.

More maize will be delivered in the coming weeks as the expected cool and drier weather conditions within the next two weeks could provide conducive conditions for the harvest activity, particularly in the early planted areas in the eastern and central parts of the South Africa maize-belt.

Click HERE to read the full report by Wandile Sihlobo

The post Maize harvest activity is gaining momentum in South Africa appeared first on Agri Limpopo.

Click HERE to read the full report by Wandile Sihlobo

The post Spotlight on soybean meal appeared first on Agri Limpopo.

I keep a close eye on the Zimbabwe agricultural sector because of its potential impact on regional demand. Since the collapse of the sector after the land reform programme in the early 2000s, the country has been one of the key markets for South African maize.

On average, South Africa’s maize exports to Zimbabwe accounted for nearly a third of overall maize exports between 2001 and 2017, according to Trade Map data. This came to a halt in October, when Zimbabwe banned maize imports after a recovery in domestic production to 2.2 million tons – its largest harvest in 23 years.

However, this season’s production estimates point to a lower harvest.

Recent data from the US Department of Agriculture shows that Zimbabwe’s 2017-18 maize production could reach 1.2million tons, 46% lower than last season’s bumper crop. This is largely due to a reduction in area planted, lower yields in some areas and unfavourable weather early in the season.

The expected decline puts the country in a net importing position, but it might not require the large volume seen in the past couple of years as the expected harvest is still higher than some years before the drought of 2015-16. Moreover, if the Zimbabwe Grain Marketing Board is to be relied on, there are about 500 000 tons of maize from the previous season. This means the total supply for the 2018-19 marketing year could amount to about 1.7 million tons.

Given that Zimbabwe’s annual maize consumption could vary between 1.8million and 1.9million tons, the country will still need to import to supplement domestic supplies, so the government would have to lift the maize import ban. This presents a small window of opportunity for South African farmers and traders to exploit.

The volume available is not large – about 720 000 tons, according to national supply and demand estimates committee data. The rest of the estimated 2.4 million tons of maize exports for the 2018-19 marketing year is yellow maize, which should flow to the world market. A large share of white maize exports may go to other regional markets.

It is worth noting that there might be limited competition in the 2018-19 marketing year in traditional African export markets from countries such as Zambia and Malawi. They are set to record a decline in maize production.

South Africa will also record a decline in production from last season’s record, but there will still be large supplies. This week, the crop estimates committee lifted its estimate from last month for 2017-18 maize production by 2% to 13.2 million tons.

Considering the domestic annual maize need of about 10.8 million tons, on the back of expected production coupled with an opening stock of 3.7 million tons, South Africa could see maize exports exceed the aforementioned estimate of 2.4 million tons in the 2018-19 marketing year, which ends on April 30.

Overall, the key fact is that Zimbabwe will again be a net importer of maize in the 2018-19 marketing year.

Most important, South African maize traders and farmers will have to look further afield for maize export markets, as the surplus might not all be absorbed by regional markets.

Sihlobo is head of agribusiness research at the Agricultural Business Chamber. 

Source: Business Live

The post WANDILE SIHLOBO: If Zim lifts maize ban, SA can step in appeared first on Agri Limpopo.

Click HERE to read the full report by Wandile Sihlobo

The post Maize harvest activity is gaining momentum in SA and Zim appeared first on Agri Limpopo.

Click HERE to read the full report by Wandile Sihlobo

The post South African Agricultural Commodities Weekly Wrap appeared first on Agri Limpopo.

Some positions, such as that of the EFF, support the principle of an end to private ownership of land and propose instead common property ownership. For this to be workable the state would have to implement a leasehold system over all land and run an effective land administration system and strong legal system to protect the security and tradability of the leasehold. However, as shown in many parts of Africa, Asia and Latin America, this is not easily guaranteed.

There are clearly divergent ideological positions on land as an asset and its role in a market-based economy — such as that of SA — that is an integral part of the global economy. A number of questions arise: what are the financial implications for the South African financial and agricultural sectors if different tenure options are followed? What happens to the financial sustainability of the companies or family businesses that own land? What are the implications for farmers?

Most market-based economies that permit land ownership and attach a value to land consider it to be a financial asset — something that can be traded for profit and the proceeds used to acquire assets of a different nature or that can be used as collateral to secure loans and finance the farming enterprise. This principle informs the behaviour of any financial institution and entrepreneur and plays an important role in the assessment of the financial performance of farms to evaluate investment decisions, calculate the repayment ability of a specific enterprise and assess affordable debt levels and overall sustainability.

The following are basic facts and concepts extracted from the first-year agricultural economics text book Finance and Farm Management, published by Standard Bank, to counter some of the irresponsible statements on land values and land ownership that have emerged over the past few months:

Most farm business in SA are family farms and are run as sole proprietorships. The sole proprietor will typically use own and borrowed capital in the business (as sole proprietor the farmer accepts full responsibility for making all decisions and is personally liable for any farming losses or claims against the business). This means there is an incentive for the farmer to work hard, since he or she shares in the success of the farming business and will be the ultimate loser of wealth in the case of failure. In addition to sole proprietorships, farm businesses can be structured as partnerships, companies, trusts and co-operatives.

In sole proprietorships the owner is responsible for all aspects of financial management. In the case of larger farm businesses there is sufficient turnover and financial responsibilities to warrant the appointment of a financial manager. Financial record keeping is a fundamental part of sound financial management. The correct valuation of the balance sheet is first priority.

Typical farm assets in the balance sheet include land, fixed improvements (orchards, irrigation systems, buildings, kraals, dams, fences, sheds); breeding stock, other livestock, machinery and equipment. This implies that land can in fact be only a small part of the total asset value of a farm business.

Regarding the value of the land as one of the assets of the farming business, a first step is to classify all land available to the farm business in terms of ownership. There can be own land (title deed, private property), rented or leased land (land owned by someone else or the state) and land used for sharecropping.

Land is only an asset if it has value and is tradable. Thus, even “owned land” is only considered an asset under the correct circumstances, ie the guarantee of private property rights. Without this, individuals do not have a secure bundle of rights to land, which includes, naturally, the right to transfer land or rent it out. However, a long-term (99 year) tradable leasehold could be entered in the balance sheet as an asset.

When valuing land one should draw a distinction between dry-land crop cultivation (crops, pasture, orchards and plantations), irrigated land (orchards, crops, pastures), natural grazing, farm yard and waste land. This distinction, with a further distinction for arable land between high, medium and low potential, also indicates that 1ha of land is not the same anywhere in the country.

The land potential, and thus the income-earning potential, not only affects the farm size necessary for a full-time livelihood but also the value of the land. That is why regions with high potential, such as irrigated farm land, have smaller farm sizes that support full-time large businesses. Naturally, the land values are much higher than those in the dry western parts of SA, where animals on low-potential natural grazing are the dominant farming enterprise.

The value of farm land under freehold tenure can be established using the agricultural value (income capitalisation) method or the market value (based on transactions of comparable pieces of land in the region).

The return on investment in land includes not only the annual income from the land but its appreciated value over time. The market value is therefore almost always higher than the agricultural value of farm land. There will, however, be no market value for land if land cannot be sold.

Throughout the recent discourse in SA there seems to be an aversion to the principle of using land as collateral to access finance. There seems to be some misunderstanding of the risks facing lenders that extend loans to individuals to acquire assets or inputs. There is no guarantee, given the risks inherent to agriculture, that individuals will repay the borrowed funds. So what guarantee does the financial institution have? What happens if the asset is not used to produce an income stream from which the monthly or annual payment can be made?

Using the land as collateral forces the owner to work hard and effectively to ensure that the annual commitments are made, since the lender will be able to sell the asset to recover the loan if the lender does not pay.

The collateralised asset therefore facilitates access to finance as it reduces the risk of default and losses for the lender.

Borrowing money can furthermore make financial sense since it provides an opportunity for leverage and growth of the enterprise.

The use of farmland as collateral to access finance has distinct and crucially important benefits, including increasing returns. A basic principle taught to students of accounting, economics and finance is that of positive financial gearing, a principle that simply holds that “the income generated from the loan’s application should be more than the cost of the loan”. For example, if the loan has an interest rate of 10% one should endeavour to apply the loaned funds to an activity in which the potential benefit is more than 10%.

Assume a farmer plants soya beans and makes a return after overheads and before tax of R2,000/ha (value of total crop minus production costs and labour). If this farmer has 100ha it implies earnings before interest and tax of R200,000 (R2,000/ha x 100ha). Assume he paid R10,000/ha to acquire the land, paid in full with own funds. This implies an investment of R1m (R10,000/ha x 100ha). He thus made a 20% annual return on his R1m initial investment, (R200,000 from R1m).

Assuming the farmer only contributed 50% own capital and took a 50% loan, the farmer’s own contribution is R500,000, which with a bank loan of R500,000 makes up the R1m paid for the 100ha of land. The farmer produces the same crop and makes his earnings before interest and tax of R200,000, but must now pay R50,000 interest (simple straight-line once-compounded 10% for R500,000 loan).

This gives the farmer earnings before tax but after interest of R150,000.

At face value it seems the farmer is worse off by R50,000, as he only makes a profit of R150,000 versus R200,000. Yet his return on capital is now 30% (R150,000 earnings before tax on R500,000 own capital).

This is more complicated, more difficult to manage and higher risk for the farmer, but also represents a better return.

Overall, in the event of nationalisation of land the potential beneficiaries will not be able to build wealth without assets, as illustrated above. Therefore, the proposed system will not enrich anyone but rather be a nightmare for the state to administer — as has already been witnessed with the difficulties with managing the current land programmes.

Source: Business Day

The post Farming 101 teaches the importance of land ownership to leverage returns appeared first on Agri Limpopo.

Click HERE to read the full report by Wandile Sihlobo

The post South Africa’s maize harvest process is largely depended on the weather appeared first on Agri Limpopo.

Click HERE to read the full report by Wandile Sihlobo

The post Soybean remains at the heart of the US-China trade war appeared first on Agri Limpopo.