Farmers to tighten the belt for the next grain season

Crop estimates for summer and winter grains are looking good, with maize up 117,1% from 2006/07 and winter cereals such as wheat up by 16,1% from the 2007 season, according to data released by the Crop Estimates Committee (CEC).
Issue date : 08 August 2008

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Crop estimates for summer and winter grains are looking good, with maize up 117,1% from 2006/07 and winter cereals such as wheat up by 16,1% from the 2007 season, according to data released by the Crop Estimates Committee (CEC). Producers are reaping the benefits of high volumes, together with high yields due to favourable climatic conditions.

They are also benefiting from high commodity prices, the result of last season’s relatively low input costs. Lindie Botha, agriculturalist at the Agricultural Business Chamber, said that when factoring in the low international reserve stock levels, and increased demand from countries such as China and India, this is a good time to be in agriculture. But next season will be a different ballgame, with current input costs pressurising producers’ profit margins as the expected commodity price increases are overshadowed by already-high input costs. Higher interest rates will also play a more significant role next season as more production capital will be needed due to higher input costs.

Botha explained that interest has to be paid on old and new debt, so past investments will influence producers’ cash flow more prominently next year. Nico Hawkins, an Agri economist, agreed that next season will be tougher. Predictions are for a large maize carry-over stock, which will probably stabilise the current high prices producers are getting for maize. He added that the increase in wheat production should be seen in perspective as it’s an increase from an all-time low. A ccording to CEC data, planted 2 million hectares of wheat in 1988, a figure that kept declining until 2007 when only 738 560ha were planted.

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Hawkins said producers should adhere to pricing signals from the market and be careful when planning for next season. nother Agri source said that with dry land production costs averaging between R6 000/ha and R8 000/ha, and the current SAFEX contract price for maize delivered in June 2009 at between R2 000/t and 100/t, producers should think twice as these prices may not cover costs. otha advised producers to avoid unnecessary debt while interest rates remain high. “If the old tractor is still doing its job, rather keep it than buy a new one now,” said Botha. “Avoid planting on marginal land, and heed advice from climatologists.”

She predicted crop insurance would become more important as production costs increase. “The risk of crop failure will simply become too high and the cost of insurance will decrease as a percentage of total production cost,” she added. But according to Dr Dirk Troskie, a specialist agricultural economist for the Department of Agriculture in the Western Cape, people tend to focus on specific inputs that increased drastically and forget those that stayed the same or increased only slightly. “Labour and capital are significant components of input costs, but increased only slightly compared to the maize price that increased from R800/t to R2 000/t,” he explained. He predicted a new equilibrium would be established next season and that producers that are producing profitably now will be able to adapt to it. – Wouter Kriel

Potato producers to think hard before planting

While vegetable prices increased by 32,85% year on year since April 2007, the price for potatoes declined by 18%, according to figures measured by the Consumer Price Index (food) and reported by Statistics SA. Mark du Plessis, CEO of Potatoes South Africa (PSA), said price determination of potatoes, like many other products, is the result of interaction between supply and demand.

Vegetable prices in general increased due to unfavourable climatic conditions, while potato production in 2006 and 2007 was very good. H e said the excellent potato volumes in 2006 and 2007 saw producer prices fall from R21,68 for a 10kg pocket in mid-June 2007 to R17,67 in June 2008. This is good news for cash-strapped consumers, but bad news for potato producers. SA plants 54 000ha of potatoes and produces 1,9 million tons a year. While producer prices dropped 18%, production costs increased by 25%.

This means at current prices producers need a yield of between 60t/ha and 70t/ha to break even. P ieter van Zyl, operational manager for industry intelligence at PSA, said producers in the western Free State have a good yield this season, but many other regions are struggling. Farmers need to think carefully before planting for the 2009 season starting in August this year, as production costs will be between 50% and 60% higher. When the 2009 crop reaches the market, a 10kg pocket will have to realise between R25 and R30 for producers to break even.

 Van Zyl predicts producers will plant fewer potatoes for the 2009 season, but accurate figures will only be available once the crop is on the land. He further predicts some producers will establish substitute summer crops such as maize and wheat. “At least grain prices can be secured with futures contracts on the SAFEX,” he explained.

 “Potato prices are unpredictable with no security for producers, who are price takers.” He added that a solution for potato producers is to take control of the value chain. He referred to the farmer-controlled business models successfully implemented in some European countries. “Unfortunately, in we seem to be 20 years behind in this regard,” added Van Zyl. – Wouter Kriel