Tractor sales, rainfall forecasts point to bumper summer crop season for South Africa

  • 10 September 2021
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In a recent blog post, Wandile shares his thoughts on the summer crop season and explains how factors such as tractor and equipment sales, weather forecasts, rising input costs, and conducive market conditions will most likely impact the season.

Tractor and equipment sales

Tractor sales have been robust since the start of the year and according to SA Agricultural Machinery Association figures, tractors sales have been 26% ahead of the corresponding period in 2020, with 3,934 units sold in the first seven months of this year. That said, it is worth highlighting that 2020 first-half sales were negatively affected by Covid-19 lockdown restrictions, so the base is somewhat distorted.

According to Wandile, 2020 was a good year for SA tractor sales, so surpassing it means that the agricultural sector is witnessing good momentum this year. In 2020 tractor sales amounted to 5,738 units, up 9% on 2019, supported by the large summer grain and oilseed harvests of 2019/2020.

The 2020/2021 agricultural season was also excellent and coincided with higher commodity prices, boosting farmers’ finances and subsequently supporting tractor sales. Farmers’ improved financial standing gave them the latitude to replace implements. But, the optimism about the 2021/2022 production season also played a part in purchasing decisions.

Weather conditions

The weather conditions in the build-up to the 2021/2022 summer season also continue to paint a constructive picture for agriculture. 

Last month, the SA Weather Service hinted at another La Niña season, albeit somewhat weaker than in the 2020/2021 summer season. Such a favourable weather forecast means there is likely to be above average rainfall over most regions of SA. 

Global weather forecasters such as the International Research Institute for Climate and Society echo the SA Weather Service’s prediction. Importantly, from September 2021 to January 2022 the probability of La Niña is more than 50%.

A second successive year of La Niña and favourable rainfall prospects will mean better crop conditions from October to February when SA’s summer crops need water most.

Notably, SA farmers will be planting in soils that already have better moisture than at the onset of the 2020/2021 season.

While the expected La Niña is positive for the Southern Africa region, by contrast South America usually experiences dryness. Media reports out of the continent indicate that there is already nervousness among farmers about the prospects of yet another La Niña in the upcoming season. Wandile states that a similar scenario was witnessed in 2020/2021, with maize production in Brazil and Argentina dropping compared to the 2019/2020 production season. 

Because of South America’s significant contribution to global grain and oilseed production, the downward revision in their crop estimates typically supports global prices.

The surge in global grain and oilseed prices over the past couple of months was partly underpinned by such fears of dryness in South America in the 2020/2021 season, in addition to rising demand from China. A similar episode could play out again, though to a lesser extent in 2021/2022.

Conducive market conditions for SA farmers

Wandile explains that while domestic prices have long been driven by local fundamentals and exchange rates, they are increasingly being driven by global factors. 

A case in point is 2020 and much of 2021, when the domestic grain harvest was the second largest on record yet prices remained elevated. The critical driver was global developments, the dryness in South America, and the rising Chinese demand for grains and oilseeds.

The prospect of La Niña means global grain prices may not fall much, as many had expected. Still, this doesn’t change my view about the potential decline in global and domestic grain prices, which I base on the improvement in grain and oilseed production in North America and Europe, where the crop is maturing. 

The International Grains Council forecasts 2021/2022 global grain and oilseed production at a record 2,3-billion tonnes, up 3% year on year. This improvement in global grain production prospects is also evident in the Food & Agriculture Organization global food price index, which fell for a second consecutive month in July, though it is still higher than in the same period last year.

The index is at 123 points, down 1% from June 2021, but still 32% higher year on year.

Rising input costs

Wandile highlights that SA farmers are contending with rising input costs this year. 

Fertiliser and agrochemical prices were up more than 30% in August compared with last year. Farmers’ finances will be squeezed, but they could still emerge in relatively better shape this season if global prices receive the expected level of support due to South American crop concerns.

These are all reasons for local farmers not to hold back in the 2021/2022 season and ensure that all 4-million hectares of the field are prepared across SA. 

The outlook for SA consumers is of a potential moderation in food price inflation from the 7% recorded in July.

The expected favourable weather conditions will also support the expansion of horticulture, livestock, and other agricultural activities, all of which contribute to the cost of our food basket.

 






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