#AgriMarkets: SA could have yet another good season in 2020/21

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It has become increasingly challenging to forecast agricultural production seasons with some level of confidence. One of the factors that have contributed to this challenge is the more unpredictable weather conditions, especially over the last decade. South Africa has experienced not only a frequent occurrence of drought but also a significant change in the frequency, patterns and intensity of rainfall.

 Regions such as Mpumalanga and KwaZulu-Natal that would typically receive first rains around October have in the past few seasons experienced nearly a month delay in rains. This has led to producers adjusting their typical planting schedules for summer crops. Even the 2019/20 season, which is set to yield the second-largest grains harvest in the history of South Africa, started with prolonged dryness, which led many to doubt the prospects of a good harvest. Fortunately, when it finally rained, it was sufficient and consistent to boost producers’ fortunes.

Weather conditions

The preliminary indications for the 2020/21 season, at least for weather conditions, are showing some encouraging signs. We might not have a drier start of the season as in the 2019/20 season. This past week, the South African Weather Service (SAWS) released its Seasonal Climate Watch, which highlighted that “the likelihood of a La Niña phase during the coming summer months has drastically improved in the past few months, and it will be closely monitored as we move closer to the summer forecasts”.

The local weather bureau is not alone in this view. This past week, the Australian Bureau of Meteorology indicated that “the chance of a La Niña event forming in the coming months has increased to around 50% – twice the normal likelihood.” As a general reminder, the La Niña weather events typically result in above-average rainfall in most of South Africa over the summer months (except in the Western Cape, which is a winter rainfall region and has been receiving good rains lately).

It is also encouraging that these rains may not be delayed as in the past few seasons. The SAWS further noted that during spring, which is from September to November, “forecasts indicate increased chances of above-normal rainfall over the eastern parts of South Africa”. These are regions that would traditionally receive rainfall in this period so that plantings could commence at the beginning of October.

In such a scenario, it is plausible to assume that the central and western regions of South Africa would possibly receive rainfall early enough to keep to the typical planting schedule for summer crops, which is the beginning of November for central South Africa and mid-November for western South Africa. As we have discussed in the past, late plantings come with a much higher risk of lower yield due to possible frost later in the season.

Good grain season expected

Encouragingly, this could potentially be a second consecutive good season, which would allow producers to improve their financial situation. Over the past decade, the good seasons have generally been followed by droughts in most parts of South Africa, which meant that producers’ finances have generally been constrained, as most farming entities would need several good seasons for financial conditions to recover. This would not only be an improvement for field crop and horticultural producers, but also for the livestock sector, which would benefit from improved grazing veld conditions and available supplies of grains.

For summer grains such as maize, soya beans and sunflower, the years of large harvests, as the 2019/20 production season, would typically experience a notable decline in prices. Such an event unfolded in the 2016/17 production season during which maize prices had already declined to levels below R2 000 per ton by July 2017. This time around, maize prices have been remarkably steady in the environment of the second-largest harvest. In the week of 24 July 2020, maize prices were still hovering at levels above R2 500 per ton, which is lower than this period last year for both white and yellow maize.

Factors influencing prices

Several factors partially explain this relatively firmer price levels. This includes the (1) weaker domestic currency that has a strong correlation with the domestic maize price movement, (2) strong demand from regional and deep sea markets, and (3) a slight delay in producer deliveries compared to the regular seasons due to the late start of planting.

For producers who have experienced droughts in the past seasons and have seen rising debt levels, such steady prices provide a slight benefit. Meanwhile, consumers are also not as pressured as Statistics South Africa has shown in the recent food price inflation data where the price inflation of grain-related products has been subdued for some months.

In a nutshell, early indications suggest that South Africa might experience another good agricultural season in 2020/21 because of the expected higher rainfall. If this materialises, it will be beneficial to all subsectors of agriculture – field crops, livestock and horticulture.

And for the first time in many years, the available forecasts suggest that the summer crop season could start in its traditional period, which is the beginning of October each year. Of course, weather conditions can change, and we will be closely monitoring guidance from the weather forecasting institutions ahead of the planting period. – 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 agricultural markets for the major commodities.

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