After contracting by 33,6% quarter over quarter (q/q) in the first quarter of this year, the South African agricultural economy entered technical recession in the second quarter following a further 29,2% q/q contraction.

This far exceeded our expectations of a modest shrinkage of around 19% q/q. This data partially reflects the tail-end negative effects of the Western Cape drought, as well as the delayed harvest in the summer crop growing areas of South Africa, particularly the grain and oilseed production regions. This is on the back of a late start of the summer crop season due to unfavourable weather conditions earlier in the year.

As we highlighted in our note on 05 June 2018, the South African agricultural economy underperformed in the first part of this year, albeit far exceeding our expectations. This followed the 20% year over year (y/y) decline in wheat production to 1,54 million tons, 13% y/y decline in barley production to 307 000 tons, 11% y/y decline in canola production to 93 500 tons, and a decline in stone fruit and grape production, particularly in the Western Cape.

The reduction in the Western Cape agricultural output has been hard-felt because of its large share contribution to the overall agricultural economy, underpinned by higher value field crops and horticulture.

Overall, we believe that South Africa’s agricultural economy could rebound to positive territory in the third quarter of 2018. This could be supported by the expected large maize harvest of 13,8 million tons, record soya bean harvest of 1,6 million tons, large sunflower seed crop of 858 605 tons, improvement in sugarcane production to roughly 18,5 million tons, and general improvement or recovery in the livestock sector. – Press release