FOLLOWING a period of heightened optimism supported by favourable agricultural production conditions, the Agbiz/IDC Agribusiness Confidence Index (ACI) declined in the first quarter (Q1) of 2022 as rising fuel, fertiliser and agrochemicals costs worry the sector.
The index fell by 12 points to 62 after reaching its second-highest level on record in the fourth quarter of 2021.
A level above the neutral 50-point mark implies that agribusinesses remained optimistic about operating conditions. This meant that the first-quarter results still reflected favourable conditions, albeit not as strong as the recent quarters.
Agricultural Business Chamber (Agbiz) chief economist Wandile Sihlobo said that the Agbiz/IDC ACI’s first-quarter results presented a picture of a sector that was still on solid footing, despite the uncertainty generated by geopolitical events and the damages caused by the excessive rains in various regions of the country.
“The issues we are most concerned about right now on are the rising fuel, fertiliser and agrochemicals costs, which could negatively impact farmers' planting decisions in the coming season. This is all a result of the Russia-Ukraine war and pre-existing supply and logistical constraints caused by the Covid-19 pandemic. We doubt that the higher commodity prices will be sufficient to offset the rising costs fully. This is one area we will keep monitoring and engaging with farmers and agribusinesses about in the coming months,” Sihlobo said.
According to the ACI, nearly half of the responses to the survey came after February 24, the day Russia invaded Ukraine. This survey was conducted from the last week of February into the first week of this month and covered agribusinesses operating in all agricultural subsectors across South Africa.
Before the war started on February 24, Agbiz said that their primary focus in the global grains and oilseeds market was the production conditions in South America and Indonesia, where maize soybeans and palm oil were negatively affected by dryness. The possible lower yields in these countries alone had elevated global grains and oilseeds prices over the past few months.
The Russia-Ukraine war was now an additional risk, specifically to export activity. Ukraine suspended its exports activity since the war started. Russia faced some limitations in its export activity because of the sanctions and higher shipment insurance premiums in moving grains to various export destinations.
Sihlobo said this was a significant challenge because both countries constituted significant global grains and oilseeds export volumes. Last year, these countries together accounted for nearly 30 percent of global wheat exports, about 14 percent of global maize exports, roughly 32 percent of global barley exports, and almost 60 percent of global sunflower oil exports.
The recent monthly update of global Supply and Demand Estimates of grains and oilseeds by the US Department of Agriculture (USDA) provides essential data for assessing the world supplies amid this uncertainty on trade.
The USDA forecasts 2021/22 global wheat production at 779 million tonnes, marginally up from the previous season. About 14 percent of this harvest is from Russia and Ukraine.
Due to the increase in global consumption, both in the human and animal feed industry, the 2021/22 global wheat stocks were forecast to decline by 3 percent year on year (y/y) to 281 million tonnes.
This decline in global stocks, combined with challenges facing shipments in the Black Sea region, meant that global wheat prices could remain elevated over the medium term, as has been the case since the days leading up to the invasion of Ukraine by Russia.
Maize was another major grain that has been a central focus, and its production was up 7 percent y/y in the 2021/22 season, with an expected harvest of 1.2 billion tonnes. The expansion in area plantings in Brazil and Argentina had compensated for the losses in yields.
Rice was another key crop to watch, which countries could use to substitute maize and other wheat. The global production conditions for this crop were favourable, with the 2021/22 harvest estimated at 514 million tonnes, up by 1 percent from the previous season.
These positive production prospects had kept rice prices relatively under pressure since mid-2021, following a surge at the start of 2021 where some prices crossed $500 (R7 563) per tonne, to now at levels below $400 per tonne. A potential surge in demand could push prices up, negatively affecting importing countries such as South Africa, which imports about a million tonnes of rice a year.
Poor soybeans production conditions, combined with expectations of a poor palm oil harvest in Indonesia and the fact that Russia and Ukraine account for nearly 60 percent of global sunflower oil exports, will keep the global vegetable products prices elevated over the near to medium term, the index found.
given.majola@inl.co.za
BUSINESS REPORT ONLINE