He also provides more information about the latest developments in the agricultural sector. 

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This week Sihlobo takes a look at some positive indications about South Africa's upcoming summer season.

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“As the harvest for the 2021/22 summer crop season draws to a close, the focus is shifting towards the 2022/23 production season, which commences in October. The preliminary insights suggest that South Africa could have another good season.

“However, we fear the extreme rains and heat observed in the northern hemisphere summer season could be a reality here at home too. Still, the three critical indicators we have thus far are the tractor sales, the weather outlook for the next five months, and grains and oilseed prices, which paint a positive outlook for the 2022/23 season.

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“First, South Africa's tractor sales for the first half of 2022 are up 18% year-on-year (y/y), at 4 133 units. At the same time, combine harvester sales amounted to 213 units, up by 37%. The improved farmers' finances on the back of the solid production performance of the sector in the past two years, when commodity prices, specifically for grains and oilseeds, were elevated, are the primary driver of the sales in the first half of the year.

“Still, the positive sentiment about the upcoming 2022/23 production season is an essential factor that might have encouraged farmers to increase investments in movable assets such as tractors. 

"The generally positive sentiment in the sector is also reflected on the Agbiz/IDC Agribusiness Confidence Index, a measure of the sentiment amongst agribusinesses and major farming entities, which was at 60 points in the second quarter (having deteriorated though since the start of the year as the rising input costs, biosecurity concerns, hikes in interest rates, intensified geopolitical risks weighed on sentiment).”

Sihlobo further explains that this general optimism does not mean there are not many challenges facing the sector. The interruption of citrus exports in the EU, temporary closure of wool exports to China, foot-and-mouth disease in the cattle industry, relatively higher input costs, and rising interest rates are some of the problems that farmers have to contend with.

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“Second, the weather outlook for the upcoming 2022/23 production season shows encouraging signs. Last week, the Australian Bureau of Meteorology noted that 'The ENSO Outlook continues at La Niña WATCH. This is due to the persistence of some La Niña-like signals in the atmosphere and ocean and the potential for the Pacific Ocean to cool back to La Niña levels in some model outlooks.' La Niña WATCH means there is around a 50% chance of La Niña forming later in 2022.

“This is approximately double the normal likelihood. The South African Weather Service (SAWS) also shared a similar sentiment in its Seasonal Climate Watch for July to November 2022, released on 06 July.

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“With that said, the weather conditions require close monitoring. The extreme weather events in the northern hemisphere worry us about the possibility of such occurrence in the southern hemisphere during the summer.

“Third, while we expect South Africa's maize, soybeans and sunflower seed prices to soften somewhat in the second half of the year compared to the previous one. These are still attractive levels which should incentivise farmers to maintain sizable plantings in the 2022/23 season.

“For example, on 04 August 2022, yellow and maize prices were up 26% and 32% y/y, trading at R4 156 per tonne and R4 161 per tonne, respectively. On the same day, sunflower seed and soybean spot prices were 12% y/y and 16% y/y up, trading around R10 200 per tonne and R8 454 per tonne, respectively,” concludes Sihlobo.

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