Poor timing for a fuel price increase – Grain SA

Poor timing for a fuel price increase – Grain SA
If current indicators hold, farmers could possibly pay R1,40/ℓ more for diesel in November. Photo: FW Archive
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Any fuel price increases in November will cost South Africa’s grain producers dearly, Grain SA economist, Luan van der Walt, has warned.

“Farmers are planting summer crops in the northern regions of the country, while the producers in the [southern regions] are harvesting wheat. This is a crucial time for production, so any increase in fuel prices will have a very negative impact on farmers’ cash flow,” Van der Walt told Farmer’s Weekly.

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He was responding to mid-month data for October from the Central Energy Fund, which indicated an under-recovery in petrol and diesel prices, that could potentially result in increases of between 95c/ℓ and 98c/ℓ for petrol, and just over R1,40/ℓ for diesel.

According to the Automobile Association’s (AA) website, the price of petrol (93 octane unleaded) currently stood at R17,59/ℓ (coastal) or R18,11/ℓ (inland), while the cost of 95 octane unleaded petrol was R17,61/ℓ (coastal) and R18,33/ℓ (inland). The diesel price was currently R14,87/ℓ (coastal) and R15,71/ℓ (inland).

Paul Makube, senior economist at FNB, said: “Although it is still a long way to month-end, this points to record fuel prices for November if the recent upswing in international crude oil prices is sustained beyond recent levels of US$85/barrel [about R1 240/barrel].”

He added that fuel supplies had tightened leading up to the Northern Hemisphere winter, where demand was shifting from expensive energy sources, such as gas, to oil and diesel for heating purposes.

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“Another factor has been rand weakness, [with the currency] depreciating 4,7% and averaging R14,95 [to the] US dollar for the first half of October, relative to the same period in September 2021.”

In a statement, the AA commented that South Africans were “basically paying at the pumps for weak governance, as one of the key indicators of the price of fuel depends on the exchange rate”.

Van der Walt said one could readily assume that a producer used 80ℓ of diesel to “work 1ha of land, and if the diesel price increases by R1/ℓ, then it will cost R80/ha more to either plant or harvest.

“If that farmer then has 1 000ha of grain that has been planted, it will come down to an additional cost of R80 000. This wreaks havoc on one’s budget.”

Makube said one could further assume that an increase in fuel prices would dampen the food inflation outlook.

“Food inflation has [seen an] uptick of 7,4% year-on-year in August, up from 7% year-on-year in July 2021.”

The September food inflation update was due for release on Wednesday, 19 October.

“Any further increase in overall inflation has negative implications for interest rates, which might be hiked sooner than expected,” Makube said.

Fuel prices are officially calculated and adjusted on the first Wednesday of every month by the Department of Mineral Resources and Energy.

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