The most crucial time for South Africa’s summer crop and some horticultural products, and by extension, the livestock sector, is between October and February each year. This is a summer rainfall period and therefore a determinant of the season’s harvest and veld conditions.

We began the 2020/21 production season at the beginning of October this year with prospects of above-normal rainfall in most regions of the country. This means there is the possibility of a large harvest.

While October was set to experience below-normal rainfall, with the La Niña-induced higher rainfall set to begin in November, there were good showers in most regions of South Africa. The benefit of this rain is evident in improved soil moisture, as illustrated in Exhibit 1.

Soil moisture to accelerate planting activity

Improved soil moisture, primarily in KwaZulu-Natal, central and northern Eastern Cape, eastern Free State and parts of Mpumalanga, will help to accelerate planting, which is already underway. The optimal planting window for maize and soya beans closes in the week of 20 November this year in the eastern regions of South Africa, while remaining open for the central and western regions until mid-December.

For the eastern regions, this means the areas that manage to complete plantings within the next two weeks could see crops benefit from improved soil moisture on the back of the early La Niña rainfall. Meanwhile, for the central and western regions, the rainfall will have a similar effect on crops, although there might be delays in plantings from time-to-time, depending on the occurrence of expected rains.

An expectation of above-normal rainfall

We are more confident about the La Niña occurrence mentioned in a report the South African Weather Service (SAWS) released on 6 November this year. This report indicated that the “El Niño-Southern Oscillation (ENSO) is currently in a La Niña state. In addition, the forecast shows that it will most likely remain and strengthen towards a strong La Niña state during mid- and late summer. With this likelihood of a strong La Niña during mid-summer, there are increased chances of above-normal rainfall in the summer rainfall areas during summer.”

The weather agency further stated that “early summer (November, December and January), mid-summer (December, January and February) and late summer (January, February and March) all indicate increased chances of above-normal rainfall over the summer rainfall areas of South Africa.” This supports our view that the 2020/21 season will most likely be yet another good season for South African agriculture.

The favourable weather prospects have encouraged producers in the summer crop area to increase their intention to plant by 5% year-on-year (y/y) to 4,15 million hectares, as stated in our note of 2 November.

Tractor sales reflect producers’ optimism

While we do not have the comprehensive seed sales data yet, the other indicator which we have continued to monitor is tractor sales. The sales have remained robust between June and October 2020, at levels higher than those of 2019. This too illustrates producers’ optimism regarding the 2020/21 summer crop production season.

The improved financial conditions following the second-largest summer crop harvest on record in the 2019/20 production season, coupled with higher commodity prices, have also contributed to higher tractor sales and intentions to increase plantings in the 2020/21 season.

In essence, the high-frequency, weather-related data continues to paint a positive outlook for South Africa’s agricultural sector. The next four months will, nonetheless, warrant constant monitoring as it will be a crucial period for all summer crops, from planting to pollination.

Any deviation of the actual weather conditions from the current expectations will have an impact on the outlook we have been communicating over the past few weeks.

Weather’s effect on food price inflation

From a macroeconomic standpoint, we believe that agriculture will again show positive growth in 2021, although at a much lower rate than the 10% y/y expansion we currently expect in agriculture’s gross value-added in 2020.

The lower growth rate will primarily be a function of base effects, while the output will most likely be large, all else being equal. The same is true for food price inflation, which we continue to believe will not exceed 5% y/y in 2021 (from an expected 4,5% y/y in 2020 and the actual rate of 3,1% y/y in 2019).

The potentially larger harvest in 2021 could result in softening commodity prices from the higher levels experienced in October, where maize and soya bean prices were up by over 20% y/y. The reasons for such an increase are demand-driven and weaker currency effects.

From February 2021, if the favourable weather conditions and generally large harvests view holds for South Africa (and the entire Southern Africa region), commodity prices could soften notably. Consequently, this will bode well for food price inflation. – Wandile Sihlobo, Agbiz

Wandile Sihlobo, chief economist at Agbiz, shares highlights in his update on agricultural commodity markets. Click here for the full report on the agricultural markets for the major commodities.

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