Bad weather and other challenges affect agribusiness confidence and crop outlook

Bad weather and other challenges are affecting agribusiness confidence for the first quarter of the year. Harvest prospects have been slashed and poor logistics mean that products cannot reach lucrative overseas markets.

The latest results of the Agbiz/IDC Agribusiness Confidence survey indicate a subdued mood among agribusiness due to the negative turn on the weather front that slashed harvest prospects for the 2023/2024 summer crop season.

This follows further negative news about agriculture’s gross domestic product (GDP) growth which plummeted 9.7% in the fourth quarter of 2023 compared to the third quarter after a -11.7 reading in the second quarter, according to Statistics South Africa.

Paul Makube, senior agricultural economist at FNB Commercial, says agriculture’s performance was indeed bad in 2023 as its overall gross value added fell sharply by 12.2% year-on-year.

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Negative outlook for agribusiness in fourth quarter

“A reading of 40 points in the fourth quarter for the Agribusiness Confidence Index (ACI) meant that 10 points are needed to lift the mood out of the doldrums and reach the breakeven level of 50. Unchanged from the previous quarter, the ACI was bedevilled by the persistent issues of poor logistics infrastructure and the deteriorating municipal services that constrain agribusiness operations.”

He says El Niño added fuel to the fire by inducing midsummer drought which caused extreme stress on crops.

“After being considered a mild event with good rains at the start of the 2023/2024 crop season, the El Niño conditions worsened in the second half.”

Consequently, the National Crop Estimates Committee (CEC) pegged its first estimate of the country’s summer crops at 17.41 million tons, a decrease of a whopping 13.5% year-on-year. In the case of the country’s biggest staple, maize, the estimate was slashed by 12.6% year-on-year to 14.36 million tons, mainly due to a significant reduction in the expected white maize harvest (-17.2% y/y), Makube says.

“This was expected given the persistent dryness in the producing areas of the North West and some parts of the Free State. Nonetheless, the current harvest estimate still ensures adequate supply for the country and is still higher than the long term average (10-year) of 13.1 million tons for the commercial maize crop.”

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Volume of agribusiness export also declined

Despite expectations for another good fruit harvest and reopening of markets for meat exports mainly to Saudi Arabia, the volume of export sub-index still fell by 7 points to 35 due to uncertainty about port performance and the lethargic railways.

However, Makube says, it is not all doom and gloom as the net operating income subindex edged closer to the 50 points level after nudging 1 point to 48 with assistance from financial services-related agribusiness.

With South Africa struggling with huge unemployment, a positive reading of the employment subindex at 50 points (+3 points q/q) bodes well for sector contribution.

Facing intermittent energy supplies, agribusinesses continue to invest in alternatives to sustain operations and this saw the capital investments subindex jumping 7 points to 50 points.

“Although this is good news, it would have been even better if this included expanding operations if this was not negated by the persistent challenges, including elevated interest rates. The higher interest rate impact was reflected in the financing costs subindex which increased by 14 points to 17. Nonetheless, debtor provision for bad debt was down, which reflects a healthy industry and no red flags yet despite the challenges.”

Makube says the year ahead will be a slight departure from the performance recorded previously, but the sector will continue to innovate and strive for a rebound in 2025.

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El Niño messed things up for maize production

Dr Penny Byrne, investment analyst for ESG and climate change at Standard Bank, says the local soft commodities outlook has given us whiplash this season.

“We started out rather bearish on the summer crop outlook since El Niño usually results in dry conditions over the summer rainfall regions across southern Africa. However, rainfall was merely average across most of the crop-growing regions in South Africa in the early part of the season – yet we were optimistic that South Africa would see another bumper crop.”

That is, she says, until February, when a flash drought set in during a crucial time in the growth of the summer crops. The dry conditions have been worse across the western part of the maize belt, which has resulted in a spike in SAFEX white maize prices.

“When the CEC releases its second estimate for this season’s production, it is feared that there will be a downward revision of the current estimates, which might well see SAFEX prices spiking further. Still, the last three summers resulted in bumper crops in South Africa largely due to the impact of La Niña, which brought good rainfall over the country.

“This means solid carry-over stocks to buffer a potentially poor harvest this year. Nevertheless, higher white maize prices might still impel higher food inflation this year.”

In the CEC’s first estimate, South Africa is projected to produce 14.3 million tons of maize, compared to 16.4 million tons in 2023, the second-largest crop on record. Domestic consumption of maize is below 12 million tons and although yields are expected to be lower this year, South Africa should still have enough maize to cover local consumption and with some in hand to export, she says.

This would support many of our northern neighbours, having had a trying growing season due to adverse weather.

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Agribusiness looks bad in Zambia due to drought

Byrne points out that much of southern Africa this season experienced the typical dry conditions associated with El Niño and the exceptionally dry February has exacerbated an already poor situation, with swathes of Zambia, Botswana and Zimbabwe having had their driest February in five decades. Further, alongside below-average rainfall, much of southern Africa has seen extreme heat stress this season.

Zambia has declared a national disaster as the country battles with drought conditions. The drought has negatively impacted the summer crops, copper production and energy production. Zambia generates around 87% of its electricity from hydropower, but the Zambezi River Authority (ZRA) now has reduced its allocation of water for electricity generation to Zambia and Zimbabwe to 16 billion cubic litres in 2024, down from 30 billion cubic litres in 2023 and 40 billion cubic litres in 2022.

The country now has as much as eight hours of load shedding daily as the drought digs in its heels. Almost half of the maize crop has been lost and maize prices have rocketed in recent months.

However, Byrne says the good news is that the global grains market is in very good shape, with record global production across many grains resulting in lower prices internationally.

“The current El Niño-Southern Oscillation (ENSO) forecasts also suggest a high likelihood that El Niño will end in the coming months, with La Niña resurging for the 2024/25 summer season. La Niña conditions typically result in above-average rainfall over South Africa, which holds promise.”