Farming income to slow down

Real nett farming income in South Africa is expected to slow an average 12% this year, and 10% next year, due to a decline in gross income, according to a recent report by the Bureau for Food and Agricultural Policy (BFAP) on the South African agricultural baseline. Last year, real nett farming income increased by 21%.

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The report provides price benchmarks in sectors from maize and barley production to dairy products and wine grapes for the period 2009 to 2014. But BFAP warns there are many uncertainties, such as weather, which could play a role.  Speaking at the launch of the report, Prof Johan van Rooyen of the BFAP said the baseline serves as an early warning system for the industry on the effects long-term structural changes could have on agricultural commodities markets.

Maize yield for 2009 is expected to rise to 4,6t/ha, which BFAP said would be a record. But plantings declined 13% in 2008/09 as some land previously used for maize is now used for wheat and oilseeds. With fewer plantings the BFAP expects a bullish outlook over the long term, especially assuming normal weather conditions. The report expects white and yellow maize prices to trade at R1 500/t to R1 600/t for 2009/10. By 2014, the baseline price for white maize is expected to be around R2 100/t, with yellow maize slightly lower.

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The report said that along with economic markets, grain markets have been awash with surpluses in the 2008/09 season, thanks to the large area planted and excellent yield. World wheat stocks are projected to be at an eight-year high of 171 million tons at the end of the 2009 season, sharply lowering world and local wheat prices.

“The world wheat price is projected to decrease further in 2010, mainly due to high carry-over stocks,” the report said. With reduced profit margins 40 000ha less wheat is expected to be planted in the Western Cape this year. “Wheat prices aren’t expected to recover in 2010 as import parity prices remain low with a further appreciation in the exchange rate and no recovery in world prices.”

The dairy market looks just as gloomy, with stock levels expected to peak in 2009/10. Producers and processors are up for what the BFAP calls “a dismal price scenario” over the next two years. Prices of milk and most dairy products are projected to decrease in 2009 on the back of surplus production in 2008 and a slump in international dairy prices. But prices are expected to recover, as their collapse has already triggered government purchases under price-support programmes in a number of major dairy-producing countries, to draw down stocks.

Dr Ferdi Meyer, also from the BFAP, said probably one of the “nicest surprises” of the 2009 baseline report was that meat prices increased by 8% to 15% in 2008. A sharp downturn in demand for fresh meat due to the economic crisis was expected, but never materialised. Demand has grown rapidly over the past three years due to the substitution of grain products for meat, and increases in real disposable incomes.

With regards to the 2010 Soccer World Cup, Meyer said although it might be expected the event will lead to an increase in meat use, it’s projected that even under the most favourable scenario total meat consumption will increase by only 2 636t next year. Compared to the total South African meat consumption of around 2,4 million tons, this is small. “Consequently, although a short increase in prices might be experienced over the period of the World Cup, annual average meat prices aren’t projected to increase significantly,” the report states.