Diesel price could fall further

Grain farmers struggling with profitability due to drought conditions may be in for some relief in coming months.

The recent decline in the wholesale diesel price could continue into the 2016/2017 production season if the rand continued to strengthen towards R13 to the US dollar, and if Brent Crude prices remained below US$50/barrel.

Wandile Sihlobo, head of agribusiness intelligence at the Agricultural Business Chamber (Agbiz), said diesel comprised approximately 11% of commercial grain farmers’ production costs.

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“At this point, the rand has firmed substantially against the US dollar. At the same time, the Brent Crude oil price remains at relatively lower levels on the back of large global supplies. Against this background, we believe that fuel prices could decline in coming months,” said Sihlobo.

Petru Fourie, research coordinator and production cost analyst at Grain SA, said that between July and August the wholesale diesel price (0,05% sulphur content) had decreased from R11,71/l to R10,97/l.

“According to the latest information from the Central Energy Fund, we can expect [further] decreases of 48 cents/l for 95 octane petrol and 73c/l for 0,05% wholesale diesel on 7 September. Producers across the country are already under a lot of pressure as a result of the recent drought that has damaged crops, so any type of decrease in any of the inputs is positive,” said Fourie.

She also said that given the fact that approximately 70% of inputs for the sector were imported, a strengthening rand provided “great advantage in terms of input costs”.

According to Grain SA, on the downside, the anticipated significant increase in summer grain yields in the 2016/2017 production season could force current record grain prices down to export parity levels at harvesting time next year.

It was therefore, essential for SA’s grain farmers to take full advantage of all cost benefits to soften the blow of any negative financial impacts of significantly lower grain prices next year, said Fourie.