August Executive summary

Transcription

1 August 2015 Executive summary On 28 July 2015 the Crop Estimates Committee released figures for the sixth production forecast of summer crops for 2015/16. Total maize production is estimated at 9.76 million tons; unchanged from the fifth forecast, but 31.5% lower year-on-year (y/y). Total soya bean production is now estimated at a record million tons; up 3% from the fifth forecast and up 10% y/y. Total sunflower seed production is now estimated at tons; up 7% from the fifth forecast, but 21% lower y/y. In July 2015, the average monthly exchange rate was R12.45 to the United States (US) dollar. This was weaker by 1.2% month-on-month (m/m) and by 16.75% y/y. The rand continues to be under significant pressure. On 24 August 2015 the rand sank to a record low of R14 to the US dollar as stocks and currencies around the world took a knock from a plunge in Chinese stocks. The price of fuel went down on 5 August 2015 due to falling Brent crude oil prices. The price of fuel is also expected to drop in September As the price of Brent crude oil continues to fall, on 2 September 2015, the price of petrol is expected to decrease by 69 cents and that of diesel by about 54 cents. Falling fuel prices will greatly benefit grain farmers that are beginning their land preparation for the 2015/16 production season. In July 2015, Brent crude oil cost USD57.43 a barrel; down 9.8% m/m and 47% y/y. By 24 August 2015, the average price had gone down to USD49.07 a barrel; 14.5% lower than the July 2015 average. In July 2015, the average monthly prices of yellow maize, white maize, wheat, soya beans and sunflower seed were up m/m and y/y, except soya beans which went down y/y. Field crop commodity prices have generally been getting support from a weaker rand and concerns about availability, and this trend is generally expected to continue in the short term. In July 2015, the prices for: Lamb Classes AB2/AB3, B2/B3 and C2/C3 went up m/m, while A2/A3 went down Lamb Classes A2/A3 and B2/B3 went up y/y, while AB2/AB3 and C2/C3 went down Beef Classes AB2/AB3, B2/B3 and C2/C3 were up m/m, while A2/A3 went down All beef classes were up y/y Weaner calves were up m/m and y/y Milk prices were unchanged m/m, but up y/y Porkers and baconers were down m/m, and Porkers and baconers were up y/y. In July 2015, the volumes of onions, potatoes and tomatoes were up m/m and y/y, so the prices were down. 1

2 1 Weather forecast and dam levels Current conditions Figure 1: Current rainfall conditions Source: National Agro-Meteorological Committee, 2015 Figure 1 shows that in May 2015, rainfall was below normal, with above normal patches in Mpumalanga and KwaZulu-Natal (KZN). In June 2015, rainfall increased, resulting in above normal rainfall over the central and western parts of the country, while the eastern parts of the country continued to receive below normal rainfall. Up to 20 July 2015, rainfall was above normal in the Eastern Cape and Western Cape, but generally below normal in other parts of the country. During the period July 2014 to June 2015, the country generally received near normal to below normal rainfall, with patches of above normal rainfall in the Northern Cape, the Western Cape and the Eastern Cape. The veld is in reasonable to poor condition, while livestock is generally in reasonable condition. Drought has been reported in KZN and in parts of the Free State and the North West. Other provinces that continue to report very dry conditions are Limpopo and Mpumalanga. There were livestock mortalities reported in KZN due to drought and in the Western Cape due to very cold conditions. Veld fires were reported in parts of the Free State 2

3 and KZN. Frost damaged was reported in vegetables in Gauteng (National Agro- Meteorological Committee, 2015). Rainfall forecast The rainfall forecast for August to December 2015 (Figure 2) shows that rainfall may be above normal for most parts of the country. This is less probable through late-winter, but moving towards early to mid-spring there is still an indication of above normal rainfall. There is generally a higher probability of above normal rainfall in the north-eastern parts of the country (National Agro-Meteorological Committee, 2015). Dam levels Dam levels have decreased in many provinces y/y. Water restrictions have been imposed in all districts of KZN (National Agro-Meteorological Committee, 2015). The state of dams and rivers is shown in Figure 3. 3

4 Figure 2: Rainfall forecast August to December 2015 Source: National Agro-Meteorological Committee,

5 Exchange rate (Rands) Figure 3: State of dams and rivers Source: Department of Water and Sanitation, Exchange rates In July 2015, the average monthly exchange rate was R12.45 to the United States (US) dollar. This was weaker by 1.2% m/m and by 16.75% y/y. The rand continues to be under significant pressure. On 24 August 2015 the rand sank to a record low of R14 to the US dollar as stocks and currencies around the world took a knock from a plunge in Chinese stocks. Dollar Euro Pound Figure 4: Rand exchange rate Source: Standard Bank Research, 2015 The rand continues to come under pressure due to domestic and global drivers. At a global level, currencies in emerging markets (including South Africa) have been falling following China s devaluation of the yuan. This comes as pressure mounts on countries that trade with China to let their currencies weaken on concerns that the yuan s devaluation will make exports 5

6 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 US$ per barrel Rand/Litre Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Rand /ton less competitive. In addition, fading expectation of a United States (US) interest rate hike further increased anxiety about the health of the global economy. 3 Fertilizer R R R R R R R R MAP LAN (28) Urea (46) Potassium Chloride (granular) Figure 5: Domestic prices of fertilizers Source: Grain SA, 2015c In August 2015 there were mixed movements in domestic fertilizer prices. These were mainly driven by fluctuating international fertilizer and energy prices, as well as exchange rate movements. Mono-ammonium phosphate (MAP): R9 770 per ton; up by 1% m/m and 18.2% y/y. Limestone ammonium nitrate (LAN): R5 667 per ton; up 4.6% m/m and 10% y/y. Urea: R6 239 per ton; up 0.1% m/m and 4.2% y/y. Potassium chloride: R7 193 per ton; down by 2.8% m/m, but up 4.8% y/y. In July 2015, the international price for urea was R3 417 per ton; down 5% m/m and 1% y/y. The international price for mono-ammonium phosphate (MAP) was R3 679; up 1% m/m and 15%y/y. 4 Fuel Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Date Brent crude oil Figure 6: Monthly Brent crude oil price Source: The Star Business Report, 2015 R15 R14 R13 R12 R11 R10 R9 R8 R7 R6 R5 Reef Unleaded Coast Unleaded Reef Diesel Coast Diesel Figure 7: Monthly fuel prices Source: The Automobile Association of South Africa, 2015 The price of fuel went down on 5 August 2015 due to falling oil prices. If the rand had not weakened, the drop in fuel prices was expected to be more significant. The price of fuel is also expected to drop in September As the price of oil continues to fall, on 2 September 2015, the price of petrol is expected to decrease by 69 cents and that of diesel by 54 cents. Falling fuel prices will greatly benefit grain farmers that are beginning their land preparation for the 2015/16 production season. 6

7 Figures 6 and 7 show the average monthly prices of Brent crude oil and fuel respectively. In August 2015, the price movements of fuel were as follows: Petrol: o Reef unleaded 95 cost R13.26 a litre; down 3.7% m/m and 7.5% y/y. o Coast unleaded 95 cost R12.83 a litre; down 3.8% m/m and 7.8% y/y. Diesel: o Reef 0.05% cost R10.95 a litre; down 6.5% m/m and 14.8% y/y. o Coast 0.05% cost R10.62 a litre; down 6.7% m/m and 15.3% y/y. In July 2015, Brent crude oil cost USD57.43 a barrel; down 9.8% m/m and 47% y/y. By 24 August 2015, the average price had gone down to USD49.07 a barrel; 14.5% lower than the July average. Brent crude oil prices have been under pressure, firstly because of global over-supply, and secondly due to concerns about falling demand in Asian economies and in the US. 5 Electricity Eskom reported that seven mega projects it was undertaking in more than five provinces face delays because of the issue of land acquisition. Deputy Minister of Public Works, Jeremy Cronin, warned that landowners were holding Eskom hostage by charging the power utility exorbitant fees to install power lines on their properties. During public hearings on the Expropriation Bill on 28 July 2015, Cronin reported to the portfolio committee on public works that this practise was unacceptable. According to Eskom, the first unit of Medupi power station entered full commercial operation on 23 August 2015 and was officially handed over to Eskom by contractors. This means that an additional 794 megawatts of electricity will now be permanently available to the grid. Although the unit first fired up on 2 March 2015 when it was successfully synchronised, it has been ramping up over time and had not been running at full capacity. This comes as a welcome development after Eskom s unstable position had been laid bare at a results presentation on 11 August 2015, with all major performance indicators worsening to their lowest levels yet. Generation plant performance, which measures the availability of power stations to produce electricity, had dropped to 73.7% from 85.2% five years ago. Its target for the year was to achieve 80% plant availability. Electricity sales had declined to gigawatt hours, from 225 gigawatt hours in March 2012, as a result of breakdowns. This reduced net profit 49% to R3.6 billion, while its cash on hand dropped to R8.9 billion from R19.7 billion in March Labour According to Statistics South Africa s Quarterly Labour Force Survey (QLFS) for the second quarter of 2015 (Q2: 2015), the number of employed people increased by in Q2: 2015 compared to Q1: Large quarterly gains were observed in the Community and social services (98 000), Construction (79 000) and Trade (73 000) industries. Job losses were recorded in the Finance, Manufacturing and Agriculture industries (31 000, and respectively). Compared to the same period last year, employment increased by The largest annual increases were observed in Construction ( ), Agriculture ( ) and Finance ( ) industries. Trade and Transport industries recorded decreases of and respectively. 7

8 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Rand/ton Rand/ton 7 Grains and oil seeds On 28 July 2015, the Crop Estimates Committee (CEC) released figures for the sixth production forecast of summer crops for 2015/16. The expected production of white and yellow maize was left unchanged. Production of sunflower seed and soya bean was revised upwards from the fifth estimate. These figures are shown in Table 1. White maize: 4.65 million tons; unchanged from the fifth forecast, but 40% lower y/y. Yellow maize: 5.11 million tons; unchanged from the fifth forecast, but 22% lower y/y. Total maize: 9.76 million tons; unchanged from the fifth forecast, but 32% lower y/y. Soya beans: A record million tons; up 3% from the fifth forecast and up 10% y/y. Sunflower seed: tons; up 7% from the fifth forecast, but 21% lower y/y. Table 1: Area planted and sixth production forecast for 2015/16 Commodity Area planted Sixth forecast Fifth forecast Area planted Final crop Ha Tons Tons Ha Tons (a) (b) (c) (d) (e) Change (b e) Change (b c) White maize % 0.00% Yellow maize % 0.00% Total maize % 0.00% Soya beans % 3.32% Sunflower seed % 7.25% Source: Crop Estimates Committee, 2015 The import and export parity prices of yellow maize, white maize, wheat, soya beans and sunflower seed on the Johannesburg Stock Exchange (JSE) Commodity Derivatives Market (Safex) show us how much incentive there is to trade in and produce these agricultural commodities in South Africa. Maize R R R R R R R R R R - R R R R R R R R R R - YM Safex YM Import parity YM Export parity Figure 8: Yellow maize monthly prices WM Safex WM Import parity WM Export parity Figure 9: White maize monthly prices 8

9 In July 2015: The average price of yellow maize was R a ton; up 10.6% m/m and 54.4% y/y. The average price of white maize was R a ton; up 9.9% m/m and 85.7% y/y. These prices are shown in Table 2. Domestic: Domestic maize prices have been getting support from a weaker rand and high Chicago Board of Trade (CBOT) maize prices. Domestic maize production was left unchanged in the CEC s sixth summer crops production forecast. However, domestic maize prices are expected to move sideways in the short term from projections that the final maize production estimate might be 0.8% higher than the current 9.76 million tons. International: In July 2015, CBOT maize prices gained support when the United States Department of Agriculture (USDA) (on 10 July 2015) revised down the 2015/16 global maize ending stock by 3% to 190 million tons. In addition, the 2015/16 global maize imports were revised up by 2% to 121 million tons, and the 2015/16 global maize production was revised down by 0.2% to 987 million tons. The crop production decrease was mainly in the US, where their 2015/16 maize production estimate (at that time) stood at million tons; down 0.7% from their previous estimate. The US maize growing season has been characterized by very favourable crop conditions in the Upper Midwest in states such as Minnesota, Iowa and South Dakota. However, this has been offset by the very poor growing conditions in Illinois, Indiana, Ohio and Missouri, and these areas were severely impacted by very late planting and record rainfall in June As a result, the USDA (as at 12 August 2015) now expects 2015/16 maize production to be million tons; down nearly 4% y/y, which has been giving some support to maize prices. Going forward, US maize prices are expected to get further support from Pro Farmer (a farm advisory service) crop estimates released on 21 August According to Pro Farmer, 2015/16 maize production in the US is estimated at million tons, which is below the USDA s estimate of million tons. The weekly South African maize export figures for the week ending 14 August 2015 showed that tons of maize were exported in the past week. This included tons of white maize and tons of yellow maize. This brings the cumulative maize exports for the season to date at tons tons of white maize and tons of yellow maize. The weekly South African maize import figures for the same week showed that tons of yellow maize were imported from Argentina in the past week. This brings the cumulative imports for the season to date to tons (Unigrain, 2015). 9

10 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Rand/ton Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Rand/ton R R R R R R R R R R R - Wheat In July 2015, the average monthly price of wheat was R ; up 2% m/m and 6.6% y/y (Table 2). Wheat Safex Wheat Import parity Wheat Export parity Figure 10: Wheat average monthly prices Domestic: Wheat prices have been getting support from the weaker rand, which has been making inbound shipments more expensive for South Africa, which is a net importer of wheat. According to the CEC, wheat growers are forecast to plant hectares of wheat in the 2015/16 season; up 0.4% y/y, but it would be the second smallest area to date, and this is expected to give wheat prices some support. International: In July 2015, wheat prices got support from unfavourable weather conditions which had a negative effect on wheat production in Canada and the EU (two key producers), reducing the aggregate projected wheat output of these two producers by 4.3 million tons. From August 2015, reductions in wheat production are expected to be offset by increased production in Russia, the Ukraine, Kazakhstan, other Former Soviet Union countries, and Turkey. These gains are expected to give some pressure to wheat prices. The outlook for EU wheat has been improving, which is also expected to put some pressure on prices. R R R R R R R R R R - Soya beans In July 2015, the average monthly price of soya beans was R ; up 1.5% m/m, but down 4.4% y/y (Table 2). Soya Safex Soya Import parity Soya Export parity Figure 11: Soya bean average prices Domestic: Domestic soya bean prices have generally been getting support from a weaker rand, which makes soya bean meal imports more expensive. The area planted to soya beans for the 2015/16 season is estimated at hectares; up 37% y/y due to good demand pull from ample soya bean crushing capacity and the increased use of soya beans by farmers in crop rotations with maize. Good demand is generally expected to support domestic soya bean prices. However, prices might come under a bit of pressure from the upwards revision to soya bean production to a record level in the sixth CEC estimate. International: Soya bean prices have been under pressure from concerns about ample global supplies and slowing demand. The performance of the Chinese economy particularly remains 10

11 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Rand/ton a concern in the international soya bean market. Analysts have reported that soya bean demand in China has gone down in the past few weeks. This is worrisome because China is traditionally the leading soya bean importer, importing about 60% of the globally traded soya beans. On the other hand, reports of drier weather conditions across the US Midwest are expected to provide some support for prices in the short term. R R R R R R R R R - Sunflower seed In July 2015, the average monthly price of sunflower seed was R ; up 3.1% m/m and 19.9% y/y (Table 2). Sunflower Safex Sunflower Export parity Sunflower Import parity Figure 12: Sunflower seed monthly prices Domestic: Domestic sunflower seed prices continue to trend upwards since April 2015 due to concerns about availability and the weakening rand. In addition, there is currently a premium for sunflower seed of about R550 per ton, reflecting international fundamental issues of insufficient supply of sunflower seed and its products. However, prices might come under a bit of pressure in the short term from the upwards revision to sunflower seed production in the sixth CEC estimate. International: There are ongoing concerns about the availability of sunflower seed on the international market. World production of sunflower seed is estimated to be smaller than expected for 2015/16. Production is lower in the EU, primarily in Romania, Spain and France. This will make consumers more dependent on soya beans from October 2015 to September 2016 than in the preceding 12 months, and support soya bean prices while sunflower seed prices might come under pressure from weak demand. Table 2: Monthly price movements in grain and oil seeds Commodity Category Units Jul 2014 Jun 2015 Jul 2015 Change (m/m) Change (y/y) Yellow maize R R R % 54.4% White maize R R R % 85.7% Average SAFEX Soya beans Rand/ton R R R % -4.4% spot prices Wheat R R R % 6.6% Sunflower seed R R R % 19.9% Source: Grain SA, 2015a Table 3 shows the price trends of commodity futures as at 24 August

12 Jul- 12 Sept- 12 Nov- 12 Jan- 13 Mar- 13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Rand/kg Table 3: JSE commodity futures prices per ton JSE futures prices per ton as at 24 August 2015 Commodity Aug 2015 Sep 2015 Oct 2015 Dec 2015 Mar 2016 May 2016 Jul 2016 White maize R R R R R R R Yellow maize R R R R R R R Wheat R R R R R NA NA Sunflower seed R R R R R R R Soya beans R R R R R R R Source: Grain SA, 2015b 8 Livestock A2/A3 AB2/AB3 B2/B3 C2/C3 Figure 13: Average monthly lamb prices Source: Red Meat Abattoir Association (RMAA), 2015 Lamb In July 2015, the average monthly prices (per kg) of lamb classes were as follows: A2/A3: R52.85; down 2.2% m/m, but up 5.2% y/y. AB2/AB3: R43.79; up 7.3% m/m, but down 2.1% y/y. B2/B3: R41.59; up 7% m/m and 4.2% y/y. C2/C3: R38.32; up 1.1% m/m, but down 1.2% y/y. See Table 4 for these prices. In July 2015 there were mixed movements in the prices of the different lamb classes on monthly and yearly bases. The total number of sheep slaughtered was ; up 6% m/m, but down 6% y/y. There has been a y/y drop in the slaughter of sheep since April 2014, due to drought experienced in 2014/15 in the mutton producing areas in the north western parts of the country. The producers of sheep are therefore in a flock rebuilding phase and slaughter is expected to trend lower for the rest of As a result of good demand and tight supplies, the prices of lamb Classes AB2/AB3, B2/B3 and C2/C3 trended upwards m/m in July An increase is expected in the prices of sheep meat from August 2015 to January 2016 due to good demand as warmer weather returns. Based on the expectation that the rand may further depreciate against the Australian dollar, the import parity price of sheep meat may move further upward over the next six months. In July 2015, the import parity price of lamb from Australia went down by 6% y/y, to R76.87 a kg, and Australian mutton went down by 14% y/y, to R45.95 a kg (these prices are based on the rand to Australian dollar exchange rate). 12

13 Jul- 12 Sept- 12 Nov- 12 Jan- 13 Mar- 13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Rand/kg Jul- 12 Sept- 12 Nov- 12 Jan- 13 Mar- 13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Rand/kg A2/A3 AB2/AB3 B2/B3 C2/C3 Weaner calf Figure 14: Average monthly beef prices Source: RMAA, 2015 Beef In July 2015, the average monthly prices (per kg) of beef classes were as follows: A2/A3: R33.69; down 1% m/m, but up 4.5% y/y. AB2/AB3: R31.92; up 2.1% m/m and 6.9% y/y. B2/B3: R29.62; up 4.5% m/m and 5.6% y/y. C2/C3: R27.31; up 0.9% m/m and 16.7% y/y. Weaner calves: R20.20; up 4.1% m/m and 15% y/y. See Table 5 for these prices. In July 2015, the total number of cattle slaughtered was ; down 4% m/m and 8% y/y. This gave some support to prices, as the prices of most beef classes and weaners went up on monthly and yearly bases. From August 2015, beef prices are generally expected to trend upwards and reach a peak towards the end of 2015 due to tight supplies. In July 2015, the import parity price of cow meat from Australia was 45% higher y/y, at R54.98 a kg. Domestic beef Class C2/C3 was 17% higher y/y, at R27.31 per kg Pork In July 2015, the average monthly porker price was R24.41 a kg; down 3.4% m/m, but up 15.1% y/y. The average monthly baconer price was R22.00 a kg; down 4.5% m/m, but up 14% y/y. See Table 6 for these prices. Porker Baconer Figure 15: Average pork prices Source: RMAA, 2015 In July 2015 there was a drop in the prices of pork on a monthly basis due to a moderation in demand, but prices gained on a yearly basis. The total number of pigs slaughtered was ; down 6% m/m and 15% y/y. From August 2015, the prices of pork are expected to move sideways or slightly upwards in the short term, as demand picks up when warmer weather returns, on the back of tight supplies. In July 2015, the import parity price of US barrows and gilts went down by 29.3% y/y, to R28.55 a kg. US farmers conducted aggressive herd rebuilding after a swine virus killed 13

14 Rand/litre nearly 10% of the national herd in 2013, and now there are concerns of oversupply. In South Africa, the average producer price of porkers went up by 15% y/y, to R24.41 a kg. The average producer price of baconers went up by 14% y/y, to R22 a kg Dairy In July 2015, the average milk price was unchanged m/m, but up 4.7% y/y, at R4.50 a litre. See Table 5 for these prices. Figure 16: Average monthly milk prices Source: Milk Producers Organisation, 2015 Dairy During the first six months of 2015, 10.6% more milk was produced y/y, which shows that the high production of milk since mid-2014 has continued. This was mainly because of a favourable milk to maize price ratio. However, the milk to maize price ratio has been weakening, and this is expected to affect the level of milk production for the rest of the year. In July 2015 it weakened by 9.6% to This was the first time the ratio went below the eightyear average of 1.8, and it is a concern for the dairy industry. In July 2015, the JSE spot price of yellow maize went up by 10.6% m/m to R2 766 a ton, with no change in the milk producer price. South African dairy producer prices are expected to fall in August 2015, which will see the milk to maize price ration weakening further. In July 2015, the USDA lowered its forecasts for global dairy exports. This was based on low international market prices and weak global demand. Factors contributing to lower prices include weak demand from China and the Russian import ban on dairy products from western producers. The combined 2015 milk production forecast for the largest exporting countries (Argentina, Australia, the EU, New Zealand and the US) is million tons; down 1.2% from the December 2014 estimate. However, international dairy prices have been trending upwards in August Decreases in availability on the market gave some support to dairy prices, as most commodities on offer in the EU and the US markets went up at the Global Dairy Trade Auction, which took place on 18 August Table 4: Monthly price movements in lamb Average price Commodity Category Units Change (m/m) Change (y/y) Jul 2014 Jun 2015 Jul 2015 Lamb Class A2/A3 R R R % 5.2% Class AB2/AB3 R R R % -2.1% (R/kg) Class B2/B3 R R R % 4.2% Class C2/C3 R R R % -1.2% 14

15 Rand/ton Ton Table 5: Monthly price movements in beef and dairy Average price Commodity Category Units Change (m/m) Change (y/y) Jul 2014 Jun 2015 Jul 2015 Beef Class A2/A3 R R R % 4.5% Class AB2/AB3 R R R % 6.9% (R/kg) Class B2/B3 R R R % 5.6% Class C2/C3 R R R % 16.7% Weaner calf R R R % 15.0% Dairy Class 1 (R/L) R 4.30 R 4.50 R % 4.7% Table 6: Monthly price movements in pork products Average price Commodity Category Units Change (m/m) Change (y/y) Jul 2014 Jun 2015 Jul 2015 Porker R R R % 15.1% Pork (R/kg) Baconer R R R % 14.0% 9 Vegetables R R R R R R R Onions In July 2015, the average monthly price of onions for all markets was R2 796 a ton; down 14% m/m and 24% y/y (Table 7). The total monthly volume traded was tons; up 5% m/m and 9.8% y/y (Table 8). The average monthly price of onions is expected to go down in the next few weeks due to increasing market supply. Tons (RHS) Price (LHS) Figure 17: Onion prices and volumes Source: Department of Agriculture, Forestry and Fisheries (DAFF),

16 Rand/ton Ton Rand/ton Ton R R R R R R R R R R 500 R - Tons (RHS) Price (LHS) Figure 18: Potato prices and volumes Source: DAFF, Potatoes In July 2015, the average monthly price of potatoes for all markets was R2 479 a ton; down 2% m/m and 22% y/y (Table 7). The total monthly volume traded was tons; up 8.6% m/m and 16.8% y/y (Table 8). The average price of potatoes is expected to move sideways or slightly up in the next few weeks, as market supply moderates. R R R R R R R R R R - Tons (RHS) Price (LHS) Figure 19: Tomato prices and volumes Source: DAFF, Tomatoes In July 2015, the average monthly price of tomatoes for all markets was R4 846 a ton; down 8.5% m/m and 37% y/y (Table 7). The total monthly volume traded was tons; up 22.4% m/m and 35.6% y/y (Table 8). The average price of tomatoes is expected to go down in the next few weeks due to growing market supply. Table 7: Average monthly price movements in vegetables Commodity Units Average price Change Jul 2014 Jun 2015 Jul 2015 (m/m) Change (y/y) Onions R R R % -24% Potatoes Rand/Ton R R R % -22% Tomatoes R R R % -37% Table 8: Monthly volume movements in vegetables Tons Commodity Jul 2014 Jun 2015 Jul 2015 Change (m/m) Change (y/y) Onions % 9.8% Potatoes % 16.8% Tomatoes % 35.6% 16

17 10 Other news and developments Governance issues Officials reported that South Africa s biofuels funding incentive is being revised over concerns that it is unaffordable. Brent crude oil prices have halved over the past year. South Africa is a net importer of Brent crude oil products, and wants biofuels to initially meet 2% or around 400 million litres, of the country s annual fuel consumption. The plan is to reduce imports and improve the trade balance. In the second week of September 2015, Africa will, for the first time, host the 14th World Forestry Congress in Durban, which aims to ensure that forestry is an integral part of sustainable development. The congress also sets out to propose technical, scientific and policy interventions to promote forest sustainability. Economy South Africa s economic challenges have deepened, raising concerns that the country might be heading towards a recession after a report showed on 25 August that the economy had contracted in the second quarter. The latest report on the gross domestic product (GDP), the broadest measure of the value of all goods and services produced within the country s borders showed that GDP shrank by 1.3% in the second quarter, after rising by 1.3% in the first quarter. It is the second quarterly contraction since the economy emerged from the last recession in Economists polled by Bloomberg had expected GDP to gain 0.6%. Annual headline consumer price inflation accelerated to 5% y/y in July 2015; from 4.7% y/y in June, with analysts reporting that this was the fastest move in seven months. High inflation is expected to keep pressure on the central bank to increase interest rates. As a result, analysts expect one further 25 basis points interest rate hike from the Reserve Bank this year. International trade South Africa s R10 billion citrus industry has welcomed an audit report by an EU body which found that the sector s black spot risk management measures were up to standard. According to the audit report released in August 2015, the sector meets revised EU thresholds. This has been seen as a major boost for the citrus industry whose image has been tarnished by numerous bans on its products over concerns that the black spot fungus may be transmitted to EU orchards. Oudtshoorn's ostrich industry has been given a lifeline after the EU lifted a four year ban on South Africa s ostrich meat exports. Member of the Executive Council for economic opportunities Alan Winde reported that the EU s lifting of the ban on the export of fresh ostrich meat to the EU will come into effect in August American officials requested further evidence that Pretoria is ready to lift disease-related bans on US poultry, beef and pork. This was raised during a public hearing on 7 August 2015 in the US, on whether South Africa should continue to receive African Growth and Opportunity Act (Agoa) trade privileges. According to US officials, South Africa would have to do more than address US concerns in order to remain in Agoa, and significant and continual progress had to be made on the elimination of barriers to US trade and investment. 17

18 Agribusiness Foods and beverage company AH-Vest, previously known as All Joy Foods, announced on 3 August 2015 that it had acquired polyethylene terephthalate bottle and jar manufacturing firm Winplas. The company said it would take over Winplas Johannesburg and Cape Town factories for an undisclosed amount. It said the acquisition would assist in the production of its own packaging. All Joy Foods is a key manufacturer of tomato sauce packed in plastic bottles in South Africa. Sugar cane farmers in KwaZulu-Natal are facing viability challenges in the wake of the worst drought in 23 years. An industry body estimated losses to be more than R1.7 billion in gross revenue for the 2015/16 season. The sugar cane industry has seen a 23% drop in production y/y, with farmers in the dry land areas, which make up most of the province's operations such as umfolozi, Felixton, Amatikulu, Gledhow and Darnall experiencing a 33% fall in production y/y. Dangote Flour Mills (DFM) in Nigeria, which is 65.7% owned by South African consumergoods company Tiger Brands, released yet another set of disappointing quarterly results in August Combined with problems at Tiger Brands Haco subsidiary in Kenya, the company has underperformed its peers over the past year and is under pressure to curb loss making in Africa. Tiger Brands now also faces competition as its bread baking in South Africa is facing competition from Pioneer Foods and Premier Foods. DFM s cost of sales rose 13%, distribution expenses increased 17.2% and its operating loss went up 66.7% in its third quarter to June 2015 y/y. It posted a total loss of R580 million, 110.8% worse y/y. Research and development South Africa s first black Périgord truffle was discovered in the Western Cape on a farm called Altima, which is one of the properties within the Anthonij Rupert Wyne portfolio. According to Woodford Truffles SA, the discovery was made after six years of nurturing and care by the managers at Altima. The management s truffle sniffing dog sniffed out the 200 gram truffle in their inoculated oak orchard. Woodford Truffles reported that its dog trainers had been searching for the elusive truffle for the past two years, and going forward the orchard will be monitored on a weekly basis until the end of the winter harvest season. According to Dacom, an agricultural yield management systems provider, farmers can share crop information and continuously monitor and fine tune their production process throughout the growing season using the information provided by connected devices, such as smart phones and tablets. To support farmers in this endeavour, the company launched a new telematics standard last year to support agricultural applications on smart devices, comprising an installed base of sensors in weather stations, as well as field and soil monitoring, and irrigation management sites. Dacom develops and supplies specialised hardware, software and online advisory services to farmers and global agribusiness. The company says it hopes to use this new technology to enhance sustainable production in a way that increases farmers profits. Asset management solutions provider QCIC relaunched its Qic-Sur telemetry pesticide system earlier this year, which enables remote controlled monitoring of pesticides for the fruit, vegetable and wine industries. The product relaunch forms part of QCIC s aim to make a contribution to address the needs of the agriculture sector, and enables the company to provide trained product specialists for the agricultural environment. The Qic-Sur telemetry pesticide system enables farm managers to keep track of tractors, such as where and when a 18

19 tractor applied a pesticide. The system also indicates if a tractor applied pesticide too slowly or too quickly, and whether too much or too little spray was applied. A Stellenbosch winery that uses rooibos in its production has released a white wine with no added sulphites or other preservatives. After releasing a red wine last year made using rooibos chips instead of the traditional oak wood derivatives, Audacia Wines has now released a white wine. Research shows that antioxidants in rooibos help preserve wine naturally. 11 Conclusion During the period July 2014 to June 2015, the country generally received near normal to below normal rainfall, with patches of above normal rainfall in the Northern Cape, the Western Cape and the Eastern Cape. The rainfall forecast for August to December 2015 shows that rainfall may be above normal for most parts of the country. This is less probable through late-winter, but moving towards early to mid-spring there is still an indication of above normal rainfall. There is generally a higher probability of above normal rainfall in the north-eastern parts of the country. Dam levels have decreased in many provinces y/y. Water restrictions have been imposed in all districts of KwaZulu-Natal. Veld is in reasonable to poor condition, while livestock is generally in reasonable condition. Drought has been reported in KZN and in parts of the Free State and the North West. Other provinces that continue to report very dry conditions are Limpopo and Mpumalanga. There were livestock mortalities reported in KZN due to drought and in the Western Cape due to very cold conditions. Veld fires were reported in parts of the Free State and KZN. Frost damaged was reported in vegetables in Gauteng. Field crop commodity prices have generally been getting support from a weaker rand and concerns about availability, and this trend is generally expected to continue in the short term. Livestock commodity prices are generally expected to move sideways or upwards in the short term, as demand picks up when warmer weather returns, on the back of tight supplies and a weakening rand. The rand continues to come under pressure do to domestic and global drivers. At a global level, currencies in emerging markets (including South Africa) have been falling following China s devaluation of the yuan. This comes as pressure mounts on countries that trade with China to let their currencies weaken on concerns that the yuan s devaluation will make exports less competitive. In addition, fading expectation of a United States (US) interest rate hike further increased anxiety about the health of the global economy. Brent crude oil prices have been under pressure, firstly because of global oversupply, and secondly due to concerns about falling demand in Asian economies and in the US. 19

20 12 References Crop Estimates Committee (2015). Area planted and crop production figures. Crop Estimates Committee. DAFF (2015). Summary report for certain products for all markets. Department of Agriculture Forestry and Fisheries. Department of Water and Sanitation (2015). Daily state of dams and rivers. Department of Water and Sanitation. Grain SA (2015a). Price information (Domestic and International). Grain SA. Grain SA (2015b). Safex feeds. Grain SA. Milk Producers Organisation (2015). Milk producer prices. Milk Producers Organisation (MPO). National Agro-meteorological Committee (2015). Advisory on the seasons. Department of Agriculture Forestry and Fisheries. Red Meat Abattoir Association (2015). National South African price information. Red Meat Abattoir Association. Standard Bank Research (2015). Exchange rates. Standard bank. The Automobile Association of South Africa (2015). Fuel Pricing. Retrieved from The Automobile Association of South Africa: The Star Business Report (2015). International oil prices. The Star. Unigrain (2015). Weekly maize reports. Unigrain. Compiled by: Brian K. Mahumani Analyst, Agricultural Economic Insights Tel: