AgriTrends 2022
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A Agriculture is a cyclical and ever-changing industry, and what happens on a socio-economic level, locally and globally, can significantly impact businesses. The AgriTrends 2022 report About this Report
provides insight from industry experts on the factors affecting agriculture in South Africa, and what this might mean for the future. By analysing the most recent conditions, we are able to provide a forecast for the next few years, empowering everyone in the val- ue chain to plan for the future.
CON TENTS A 02 INTRODUCTION 04 GRAINS AND OILSEEDS MARKETS 06. Maize Market Dynamics 08. Maize Look Ahead 10. Soybean Market Dynamics 12. Soybean Look Ahead 32 HIGH-VALUE EXPORT INDUSTRIES 34. Citrus Market Dynamics 40. Citrus Look Ahead 44. Table Grape Market Dynamics 46. Table Grape Look Ahead THE GLOBAL CLIMATE AGENDA 46. Overview 50. Why Should We Take Note of Regulatory Forms in the EU? 53. Carbon Taxes in South Africa 54. Commercial Financing in Climate Change 46 56 THE FALL AND RISE OF THE OIL PRICE 56. Key Oil Price Drivers Over the Past 24 Months 58. Look Ahead 14 LIVESTOCK MARKETS 16. Beef Market Dynamics 18. Beef Look Ahead 20. Lamb Market Dynamics 22. Lamb Look Ahead 24. Pork Market Dynamics 26. Pork Look Ahead 28. Broiler Market Dynamics 30. Chicken Look Ahead
Introduction
The last multi-sector future view that Absa AgriBusiness published, was in the last quarter of 2019. Little did we know that a few months later the world would face an unparalleled health crisis with major social and economic consequences. Three years on, some of the residual effects of the pandemic remain. This includes changes in consumer spending patterns, and disrupted global shipping and manufacturing bottlenecks, due to, amongst other things, China’s zero-Covid policy. Since the start of 2022, new challenges emerged and pre-pandemic issues gained renewed momentum. Here the most Export value share of South African agricultural products Fruit comprises almost 70%
notable is certainly the intensified drive towards limiting emissions and curbing global warming within the broader Economic, Social, and Governance (ESG) context. The achievement of these goals is, however, affected by the war between Russia and Ukraine, which disrupted energy markets and added additional complexities to the global movement away from fossil fuels. Given the explanation above, we have organised this publication around four themes or focus areas. The first, covered in section 3, deals with export focused subsectors that are still negatively affected by some of the residual effects of Covid-19 and other global disruptions. The selection of specific industries to cover here was driven by overall industry contribution to agricultural export value. From figures 1.1 and 1.2 it is clear that fruit and subsequently citrus and table grapes are the main contributors, and we have aligned our coverage as such.
Meat and edible offal
4,8%
Dairy and eggs
4,1%
1,1% 3,5%
Vegetables
Cereals Live animals
2,1% 15,6%
Coffee tea and spices Fruit
68,9%
Figure 1.1
Source: Trademap, 2021
2
Export value share of South African fruit products Table grapes and citrus account for almost 2/3 of fruit exports in value terms
4,0%
Other nuts Berries Stone fruit
3,7% 0,3% 5,3% 9,4%
Bananas
Dates, figs, avos, guavas and mangoes
42,2%
Citrus
19,1%
Grapes
15,8%
Pome fruit
Figure 1.2
Source: Trademap, 2021
Our second focus area, covered in section 2 deals with local factors and issues such as pressures on consumers’ disposable income, the widespread prevalence of foot and mouth disease (FMD), and high input costs. Here we draw heavily on the information used in our weekly reports and short-term outlooks for grains, oilseeds, and livestock. We relate it to longer-term views for these sectors, with a specific focus on the summer rainfall areas given the seasonal timing. The third focus area deals with climate change and the broader ESG issues that are gaining increased policy and
commercial importance. This is likely to shape the way business is conducted in the future and, as a result, we’ve attempt- ed to unpack the issues that could have bearing on South African agriculture. Our last focus area is a collaborative effort between Absa AgriBusiness and the Bureau for Economic Research (BER) at the University of Stellenbosch. It deals with oil price movements over the coming years. Given the strong link between agricultural input costs and energy markets, we deem this an important sector to keep track of in the months and years to come.
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GRAINS AND OILSEEDS MARKETS
The global grain and oilseed market has faced several supply disruptions over the past three seasons. The first was a persisting La Niña, that caused dry conditions in certain key grain and oilseed production regions around the globe, which included South America and the mid-west of the United States. The second factor was numerous trade disruptions which ranged from export issues and sanctions due to the Russia- Ukraine war, to export bans - for example, the 2022 wheat export restriction in India - which all added to global price momentum. Thirdly, labour issues and structural changes in palm production, due to the age of the plantations, contributed to the price run in global oilseed prices, specifically. From a demand perspective, record grain and oilseed purchases from China, as swine herds were rebuilt after the devasting 2018 African Swine Fever (ASF) outbreak, combined with increased demand for commodities used as a biofuel feedstock, contributed to the upward price trend. Whilst speculative trade in agricultural commodities added fuel to the proverbial fire fund managers increasingly participated in agricultural, commodity trade due to the bullishness of the markets.
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“Geo political issues continue to add uncertainty and volatility to commodity markets”
Currently, prices are still at elevated levels underpinned by a smaller than anticipated
Although there is a consensus amongst market analysts that agricultural commodity prices will continue to soften over the coming months there is some upside risk. Broad-based heat waves and dry spells in the Northern Hemisphere resulted in a smaller than anticipated crop. Weather patterns in key production regions will be pivotal in giving prices direction during the coming months. Since the rapid fall in corn and soybean prices in early July, three-quarters of the initial drop in prices has already been reversed due to weather concerns. Uncertainty around weather and ongoing geo- political issues are also likely to support the recent volatility in commodity markets going forward.
Northern Hemisphere harvest and persisting La Niña conditions causing dry conditions in South America. Concerns around easing global growth brought some reprieve to the markets, in July, which led to a significant price drop in agricultural
Northern Hemisphere harvests are lower than anticipated
commodity markets. Growth projections for countries like China, the US, the EU, and the UK have since mid-2021, consistently been adjusted downwards by institutions such as the World Bank and International Monetary Fund as a result of supply chain bottlenecks, energy price shocks, and associated surges in inflation. This has, in turn, also spurred aggressive contractionary monetary policy which is bound to curb global aggregate demand and would also filter through to eased demand for agricultural commodities.
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Maize Market Dynamics Due to favourable local production conditions over the past four seasons, surplus maize production has resulted in prices trading at export parity over the past months. Strong global prices, high shipping costs, and a weakening exchange rate therefore all contributed to bolstering local prices to record levels. During July, when global prices eased, local prices held firm due to the offsetting effect of a rapidly depreciating exchange rate. As global prices regained momentum in August this year, local prices were again fueled by global price dynamics and a currency that was under pressure. The Rand has been under pressure, depreciating by over 25% year on year in by October 2022, as a result of tighter global monetary policy and concerns about a global recession. This was exasperated by increased incidences of load-shedding. In terms of global dynamics, and as mentioned above, global crop progress in the Northern Hemisphere will be a notable determinant of price dynamics over the fourth quarter of 2022. In this
regard, prolonged dry spells across the U.S. have put their crop quality at risk, shown by the deterioration in the corn condition ratings, from 73% good-excellent at the onset of the 2022 rating season in June down to only 54% good-excellent for the August report. The October
United States Department of
Drought also affected crop quality in the US
Agriculture (USDA) production report, also showed that U.S corn yield decreased by 4.8 bushels per acre due to persisting hot and dry conditions. Drought is weighing on Argentina’s early season corn production, due to smallerarea planted as poor early season rainfall outlooks are discouraging corn planting. This makes up around 40% of the total area. These factors have resulted in CBOT corn prices in September being almost 27% higher than the corresponding time last year. This effect on SAFEX yellow maize prices, in turn, was even more pronounced at 67.4%
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In terms of SAFEX price dynamics between white and yellow maize, the past three seasons showed fluctuations between the discount and premium dynamics of white maize compared to yellow maize, which can be explained as follows:
From 2020 onwards
large harvests around the region limited the opportunities for regional exports. In 2020 and 2021, production conditions were favourable due to high rainfall across large parts of Southern Africa, which resulted in production for
As a result of the above, white maize prices traded largely at a discount to yellow maize since the start of 2022, but there was a short time during the start of 2022Q2 when quality dynamics in the South African harvest resulted in white maize trading at a premium. various countries in the region being above their five-year average consumption (see Figure 2.2). This caused some countries, that were traditionally net importers of white maize from South Africa, to become self-sufficient or surplus producers and for the 2021/22 marketing year, exports of white maize decreased by 34.4% compared to the year before.
CBOT Corn, SAFEX YMAZ, and SAFEX WMAZ Prices
SEPT 2018 – SEPT 2022
SAFEX YMAZ
SAFEX WM CBOT Corn
350
5 000
4 500
300
4 000
3 500
250
3 000
200
2 500
2 000
150
1 500
100
1 000
08-Sep-2017 08-Sep-2018 08-Sep-2019 08-Sep-2020 08-Sep-2021
Source: Reuters, 2022
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Regional White Maize Production and Consumption 2022
Production 2020/21 Production 2021/22 Domestic Use (5-year-average)
10 000 000 9 000 000 8 000 000 7 000 000 6 000 000 5 000 000 4 000 000 3 000 000 2 000 000 1 000 000 0
South Africa Zambia
Malawi
Tanzania
Uganda Mozambique Zimbabwe Kenya
Source: FAO Giews, 2022
• Due to the above, combined with strong export demand, we could see maize prices pulling away from export parity in 2023. • Despite this, local prices would still be influenced by global prices and the USD/ZAR exchange rate.
Looking Ahead
• Global research institutions and
• For the price levels forecasts in Table 2.1, we assume normal rainfall in the summer rainfall areas of South Africa. • Our view is that this will likely result in good production prospects for the coming season. White maize areas are however expected to shrink due to expansion in soybeans. This is underpinned by higher input costs
analysts agree that global agricultural commodity prices will come down, throughout 2023 and then more modestly into 2024. In 2025, prices are expected to start increasing again.
• Locally, we expect SAFEX prices to also decrease somewhat during
2023 and 2024 but the effect is less pronounced than in the global context due to the expected depreciation of the rand and the movement away from export parity.
for maize and the current high returns associated with oilseeds.
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Table 2.1
White Maize (R/ton)
Yellow Maize (R/ton)
2019 2020 2021
2 696 2 921 3 428
2 805 3 040 3 276
Average Yellow and White Maize Production and Consumption 2022
Forecasts
2022 2023 2024 2025
4 351 3 967 3 808 3 895
4 300 3 915 3 760 3 945
• The global price downturn as explained above is underpinned by a positive supply response to high prices and favorable margins
Source: Absa AgriBusiness, 2022
in various key production regions around the globe. Production and trade from the Ukraine remains limited. Before the invasion the Ukraine was responsible for around 10% of global corn exports. The extent to which this can be re-established, combined with climatic conditions in key production regions, will be key in giving global markets direction over the next 18 months. • Over the coming years, we expect white maize to trade at a slight discount to yellow maize but will largely be determined by the production conditions of other countries in the region. With good
SAFEX maize prices could pull away from export parity due to low stock levels export prospects, white maize prices will likely trade at a premium. In the absence of regional export opportunities, surplus white maize will likely flow to the feed market and trade at a discount.
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Soybean Market Dynamics
The global soybean market is currently associated with high levels of uncertainty as low stock levels put production from the major soybean producers under constant scrutiny. Over the past seasons, the market was therefore highly responsive to weather developments in regions such as South America and the US were hot and dry weather prevailed. Prices continued to fluctuate at elevated levels on the back of a delay in US plantings and deterioration in US crop conditions. At the time of writing the US soybean crop was classified as 57% good-excellent from the 70% good-excellent rating at the begging of the season. This is shown in Figure 2.4.
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Intensions to plant indicate
Locally, we anticipate yet another expansion in the area planted to soybeans for 2023 as shown by the CEC in their Intentions’ of producers to plant summer crops for 2023 report. This shows that the intended area is expected to increase by 16.2% from the
another signficant expansion in area
previous year where we expect a record soybean crop for the 2021/22 season at 2 201 000 tons. Production for 2023 will therefore exceed the local crushing capacity, just as the production in the 2022 season. Alternative markets have to be sought to cater to the oversupply locally.
CBOT Soybean and SAFEX SB Prices
SEPT 2018 – SEPT 2022
SAFEX SB CBOT Soybean
650 600 550 500 450 400 350 300 250 200
10000 9000 8000 7000 6000 5000 4000 3000 2000
Source: Reuters, 2022
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US 2020, 2021 and 2022 Good-excellent Soybean Condition Ratings
2021
2020
2022
80
75
70
65
60
55
50
Source: USDA, 2022
• Global price decreases are,
Looking Ahead
however, expected to be limited due to continued demand for biofuels. As blending percentages for biodiesel are higher than that of ethanol, demand for non-fossil fuels is likely to support global prices above USD 11.00 per bushel. • As with corn, ongoing production and trade disruptions from Ukraine could affect sunflower seed and crude oil prices, which would likely also limit the degree of price decreases for oilseeds in general.
• Average yearly SAFEX soybean prices for 2023 are projected to decrease by almost 7.5% compared to 2022 levels. • This is underpinned by lower global prices as higher interest rates start to curb aggregate demand and the agricultural commodity price run of late. Record prices for vegetable oil
• As discussed above, crop size and quality issues in the Northern
Hemisphere present upside risk to the above price trajectory and could delay the rate of price decreases over the coming seasons.
have also resulted in demand destruction and easing global demand is expected to weigh on prices.
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• Locally, an area expansion and the associated increase in production are bound to slow further price growth. In fact, for the 2023 season, we are likely to see notable surplus soybean production which would result in soybeans trading at export parity. Soybean production in 2023 likely more than local crushing capacity • With soybean exports being relatively limited, there is an option to replace imported soy cake - typically used at the coast - with local production. Since it is more cost-effective to use imported oil cake in these areas due to notable inland transport costs, local production prospects could result in pressure on local crushing margins. Average Soybean Prices (2019-2021) and Price Forecasts (2022-2025)
Table 2.2
Soybeans (R/t)
2019 2020 2021
5 326 7 165 7 816
8 830 8 175 8 295 8 220 Forecasts
2022 2023 2024 2025
Source: Absa AgriBusiness, 2022
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LIVESTOCK AND MEAT MARKETS
Over the past 12-18 months, livestock and meat prices increased rapidly as the world emerged from the Covid-19 pandemic and its associated lockdowns. Price increases in these markets were so pronounced that analysts dubbed the phenomenon “meatflation”, intended to highlight the large effect that meat price increases played in overall food inflation around the globe. This was driven by both supply and demand factors. On the demand side, as economies opened up, demand from the food service industry increased. This combined with pent-up demand during the pandemic and ensured strong demand for all livestock products. In terms of supply, disease outbreaks, such as the BSE outbreak in Brazil and Avian Influenza outbreaks in Europe and more recently in the USA and Canada, further added to trade disruptions and supply and demand imbalances. High feed costs due to supply disruptions in grain markets also added to constrained supply.
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“Weaker economic growth is likely to curb meat price increases”
In a global environment where livestock and meat prices increased rapidly, local market dynamics followed suit, although some local developments resulted in South African livestock and meat trends following a nuanced trajectory. More recently, aggressive
interest rate hikes in various countries combined with high energy costs look set to curb global aggregate demand and economic growth. This is likely to be transmitted to South African markets as well and local purchasing power would likely be impacted negatively further by increased bouts of loadshedding.
Global growth is easing
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Beef Market Dynamics
Beef Market Dynamics
Despite increased pressures on consumers, which include higher interest rates and fuel costs, beef carcass prices have been holding firm since the start of 2022 (see Figure 3.1). This was primarily driven by low slaughter numbers (see Figure 3.2), with beef slaughterings in July 2022 6.3% below the long-term average for July and a 2.8% decrease year on year. Lower slaughter numbers were, in turn, the effect of multiple factors. The first is high input and feed costs underpinned by high grain prices. Strong revenue streams from grains and oilseeds also
resulted in producers with grain and livestock enterprises to rebuilt their herds more aggressively and this decreased the availability of marketed animals. The third factor relates to the ongoing Foot and Mouth Disease (FMD) outbreaks. During October 2022, South Africa had 171 open cases affecting Kwazulu Natal, North West, Free State, Mpumalanga, and Gauteng. The rapid spread of increased production risk combined with the current high production costs is limiting the throughput of animals through the chain.
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In terms of weaner calve prices, the above-mentioned FMD issues and high feed prices have resulted in a downward price trajectory apparent since the start of 2022. Here, it is also expected that an increased amount of animals will start to enter the market during 2023 as a result of ongoing herd rebuilding initiatives. Being cognisant that dry conditions in the Western parts of the country have only improved since 2020, herd rebuilding initiatives in these areas could be ex-
tended into 2024 and 2025 which is likely to constrain price growth for weaner calves over the medium term.
July 2022 beef slaugterings were lower than long-term average 2.8%
Beef Carcass and Weaner Calf Prices
JAN 2019 – JUL 2022
Beef Class A
Beef Class C Weaner Calf
65 60 55 50 45 40 35 30 25
Source: Absa AgriBusiness, 2022
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Monthly Cattle Slaughter Numbers
JAN 2019 – JUL 2022
2020
2019
2021
2022
310 000
290 000
270 000
250 000
230 000
210 000
190 000
170 000
150 000
Jan
Feb
Mar Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Source: Red Meat Levy Admin, 2022
Looking Ahead
We expect carcass prices to draw back from the highs in 2022 due to constrained economic growth and ongoing pressures on consumers’ disposable income. Lower grain prices and an increase in marketable animals will also contribute to this easing trend. We
expect prices to pick up again into 2024 with the prospects of improved control on the FMD issues. Increases are expected to continue into 2025 with the prospects of higher economic growth and increased bilateral exports. In the case of the latter, this is underpinned by our FMD issues improving. For weaner calves, in turn, prices are likely to remain under pressure for 2023 but do follow a modest upward trajectory through the rest outlook period. This modest upward trend is likely to be supported by increased carcass prices and improved economic prospects. The price increases are, however, less pronounced than carcass prices due to an expected increase in the supply of marketable animals. As with carcass prospects, a key to price growth would be to get FMD issues under control.
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Average Carcass and Weaner Calf Prices (2019-2021) and Price Forecasts (2022-2025)
Table 3.1
Class A (R/kg)
Weaner Calf (R/kg)
Class C (R/kg)
2019 2020 2021
43.94 46.41 52.48
37.63 40.30 45.41
28.18 33.00 38.77
Forecasts
2022 2023 2024 2025
59.15 55.35 58.35 61.35
47.70 43.90 46.90 49.90
38.55 34.55 36.40 38.40
Source: Red Meat Levy Admin, 2022
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Except for two periods of price pressure, mutton and lamb prices have followed a steady upward trajectory since the start of 2019 underpinned by low supply (see Figure 3.3). The first notable period of decline in prices was in early 2021, after the 2020 festive season highs. This was exacerbated by intensified Covid-19 lockdowns during the start of 2021. The second period of decline was during July 2021, after a shipment of a large number of live sheep left South African shores in June 2021. The shipment of live animals in Lamb and Mutton Market Dynamics
June kept prices elevated during the sec- ond quarter of 2021 after which demand returned to normal levels. Low supply over the past years was underpinned by prolonged drought in key production. In fact, these conditions were widespread, affecting areas such as Willowmore, Uniondale, Laingsburg, Prince Albert, Calvina, and Williston, which all had below long-term average rainfall from 2015 to 2020 (see Table 3.2).
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Improved veld conditions leading to flock rebuilding flocks in response to improved veld conditions. This is expected to restrict the number of animals available for slaughter over the near term, which could provide price support. Rising pressure on consumers’ disposable income is, in turn, likely to curb price growth over the coming Rainfall conditions improved in 2021 and 2022 and producers are now rebuilding 18-24 months. Beef prices are a key determinant of lamb prices with lamb prices closely linked to beef with a
correlation of 80%. This suggests that high beef prices could provide room for lamb prices to also increase substantially towards the end of 2022. Over the next two-to-three years, as the availability of marketable animals improves, price growth for carcasses and feeder lambs could moderate. It is, however, expected that substantial decreases in carcass prices would be limited due to structural issues affecting the supply growth. These include high risk due to issues such as animal theft and climatic issues where certain areas are slowly recovering from drought.
Rainfall % Deviations from Long-term Average in Key Lamb/Mutton Producing Areas
Table 3.2
Tankwa Matjiesfontein
Montagu Bredasdorp
Mosselbay Calitzdorp
Uniondale Oudtshoorn
George Plettenberg Bay
Willowmore Klaarstroom
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
-3.3 7.3
-3.3 7.3
-3.3 7.3
-3.3 7.3
-3.3 7.3
-3.3 7.3
15.1 43.1 43.9 -31.2 10.4 -30.1
15.1 43.1 43.9 -31.2 10.4 -30.1
15.1 43.1 43.9 -31.2 10.4 -30.1
15.1 43.1 43.9 -31.2 10.4 -30.1
15.1 43.1 43.9 -31.2 10.4 -30.1
15.1 43.1 43.9 -31.2 10.4 -30.1
9.1 1.0
9.1 1.0
9.1 1.0
9.1 1.0
9.1 1.0
9.1 1.0
40.8 42.4
40.8 42.4
40.8 42.4
40.8 42.4
40.8 42.4
40.8 42.4
Source: Weather SA, 2021
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Lamb, Mutton, and Feeder Lamb Prices JAN 2019 – AUG 2022
Average of Class A
Average of Class AB
Average of Class B
Average of Class C
Feeder Lambs
120
100
80
60
40
20
0
Source: Absa AgriBusiness, 2022
For carcass prices, we expect a moderate increasing trend into 2023. This is underpinned by flock rebuilding initiatives that are likely to limit supply over the coming months. For the outer years of the outlook and as with beef, higher economic growth and structural issues negatively impacting supply are likely to further support prices.
Looking Ahead
Feeder lamb prices, in turn, are also likely to follow a modest upward trend over the outlook period. There is some upside risk to this given an increase in exports, with those to the Middle East seemingly gaining momentum.
22
Average Lamb/Mutton Carcass and Feeder Lamb Prices (2019-2021) and Price Forecasts (2022-2025)
Table 3.3
Class A (R/kg)
Feeder Lamb (R/kg)
Class C (R/kg)
2019 2020 2021
66.69 81.07 86.98
49.64 58.93 69.14
33.83 39.81 44.76
Forecasts
2022 2023 2024 2025
95.20 96.15 99.00 102.00
72.80 74.80 77.20 79.50
46.85 48.50 49.50 50.45
Source: Absa AgriBusiness, 2022
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Pork Market Dynamics Over the past three years, South African pork prices have exhibited the proverbial rollercoaster ride (See Figure 3.4). During the second half of 2020, pork prices increased by almost 62%. This was in response to an increase in local and regional export demand
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Since the highs experienced at the start of 2021, pork prices have however returned to lower levels, comparable to those in the months leading up to the pandemic, and have not experienced the elevated price levels apparent in red
meat products. Since pork production is an intensive industry with a short production cycle, relatively high returns up until 2020 (see pork to maize ratio in Figure 3.5) induced expansion. This increase in production drove prices down. In addition to this, high feed costs have required producers to reduce the size of their sow units, which also added to increased production and contributed to downward pressure on prices. The local
Despite a recent rebound in pork prices, profitability remains under pressure
market for pork is notably smaller than markets for other meat protein products. In the context of a smaller demand base, an expansion in production can easily lead to a rapid reduction in prices as was apparent since the start of 2022. Since the third quarter of 2022, pork prices have strated to gain momentum, breaching R30.00 per kg, on the back of lower supply. Despite this, profitability indicators are still under pressure due to high input costs
Porker and Baconer Prices
JAN 2019 – JUL 2022
Porker
Baconer
35 33 31 29 27 25 23 21 19 17 15
Source: Absa AgriBusiness, 2022
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Pork to Maize Ratio
JAN 2019 – JUL 2022
11,00
10,00
9,00
8,00
7,00
6,00
5,00
Source: Calculated from Absa AgriBusiness Data, 2022
Looking Ahead
Due to the shorter production cycle and adjustment to cost pressures in the form of lower supply, pork prices are expected to rebound in 2023. Lower grain costs are also expected to improve profitability and lead to an increase in production towards the outer months of
the outlook period. This is expected to limit the degree of price increases over the coming years. Research has also indicated that pork demand is relatively inelastic to growth in consumer income. As a result, the effect of better economic growth prospects towards 2025 is likely to be more muted for pork than for the red meat industries discussed above.
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Average Porker and Baconer Prices
(2019-2021) and Price Forecasts (2022-2025)
Table 3.4
Porker (R/kg) Baconer (R/kg)
2019 2020 2021
26.00 26.47 29.64
24.90 25.28 28.00
Forecasts
2022 2023 2024 2025
27.15 27.80 28.30 28.85
26.20 26.85 27.35 27.85
Pork prices expected to remain firm during 2023
Source: Absa AgriBusiness, 2022
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of local poultry meat consumption is imported 20% Roughly
Broiler Market Dynamics
28
South Africa is reliant on exports for around 20% of domestic chicken consumption. In this regard, local market dynamics are closely tied to global price dynamics and exchange rate movements. Since mid-2020, global poultry product prices have followed an increasing trend on the back of high input costs and supply constraints related to disease outbreaks in the EU but also more recently in the US and Canada. This filtered through to local prices which were further amplified by a weakening exchange rate and broad-based local input costs pressures ranging from increased cold storage costs to packaging and labour. The increasing price trend is apparent since May 2020 (see Figure 3.6 below). Disease issues are limiting global poultry supply
Patel from the Department of Trade and Industry suspended import/anti-dumping tariffs on chicken imports from Brazil and the EU for one year. Although the EU has limited exportable supplies due to the disease issues mentioned above, cheaper Brazilian imports will be beneficial to consumers over the next year but are likely to put pressure on margins in an industry already under pressure due to high input costs. In the years leading up to 2018, high levels of chicken imports entered South Africa. With import tariffs being introduced from 2018 onwards, this has decreased markedly (see Figure 3.7). As mentioned concerns are now building that the suspension of tariffs could lead to increased imports, especially from Brazil, whose chicken exports to South Africa decreased by 21% between 2017 and 2021 due to imposed import tariffs. Global shortages of poultry products, as a result of disease outbreaks have however kept global prices high and to date, an influx of cheap imported products seems limited.
In response to the high prices and food affordability concerns, Minister Ibrahim
Broiler Product Prices
JAN 2019-JUL 2022
Fresh Whole Bird Frozen Whole Bird
IQF
36
34
32
30
28
26
24
22
20
Source: Absa AgriBusiness, 2022
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South African Chicken Product Import Quantity by Origin
Brazil Australia
EU Thailand
USA Chile
Argentina Other
Canada
600
500
400
300
200
100
0
Source: Trademap, 2022
Higher red meat prices are likely to also support prices for chicken as strained consumers will move to affordable meat protein products going into 2023. This could, to some extent, be offset by Looking Ahead
increased /cheaper imports for the next year. Towards the outer
years in the outlook, prices are likely to be supported by improved economic conditions and rising red meat prices. Lower grain prices could, in turn, induce increased production although the ability of the industry to respond to lower input costs would largely be determined by the effect of imports on short-term margins and how this affects production and expansion over the medium term.
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Average Poultry Prices (2019-2021) and Price Forecasts (2022-2025)
Table 3.5
Frozen Whole Bird (R/kg)
Fresh Whole Bird (R/kg)
IQF (R/kg)
2019 2020 2021
25.60 25.47 29.22
26.71 26.17 29.66
23.82 23.95 25.40
Forecasts
2022 2023 2024 2025
31.95 32.58 33.74 34.90
32.20 32.83 34.00 35.17
28.88 29.45 30.50 31.55
Source: Absa AgriBusiness, 2022
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HIGH-VALUE EXPORT INDUSTRIES
On top of multiple local pressures, ranging from climatic issues to local port efficiencies and social unrests, global shipping costs and reliability have created a challenging business environment for export-focused industries in agriculture over the past two years. During the second and third quarters of 2021, freight prices increased rapidly by more than 150% if average freight rates as those measured by the Freightos container index is considered (see Figure 4.1 below). This was on the back of high energy costs and multiple supply chain disruptions that added to unreliable shipping times (see Figure 4.2). Since then, average shipping rates have followed a downward trajectory gaining momentum during the second quarter of 2022 as demand destruction occurred in a response to high shipping prices. Some of the supply chain issues apparent during 2021 also started to normalise. Shipping costs are however still three to five times what they were during pre-pandemic times and despite averages coming down, selected routes such as those from South Africa to Russia or from South Africa to North America remain persistently high. Our view on future shipping costs is that the downward trend apparent over the past months will continue into 2023 as additional capacity comes online and aggregate global demand eases on the back of higher interest rates. The degree to which prices can go down will, however, to a large extent, be dictated by energy, or more specifically, crude oil costs. With this projected to remain elevated over the medium term (see Section 5 for an explanation on this), we do however expect prices to continue to hold above pre-pandemic levels. The effect of lower costs could however also be more muted than in other parts of the world due to ongoing port ineffeciencies and the dominance of two shipping lines for shipments from South Africa.
32
Freightos Global Container Index JAN 2019-JUL 2022
12000
10000
8000
6000
4000
2000
0
Source: Freightos 2022
Shipping Scheduling Reliability Index
2018
2020
2021
2022
2019
90
80
70
60
50
40
30
20
10
0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Source: Sea Intelligence, 2022
33
Citrus Market Dynamics
Between 2017 and 2022, South African average orange export prices have traded largely sideways, except in 2019 which saw prices decreasing on the back of lower EU prices. This was a result of increased EU production during the Northern hemisphere 2018/19 season combined with a late Spanish season in which case the latter caused an overlap with imports from South Africa into the EU. In 2020, prices
rebounded as a result of firm demand around the globe for
Orange Market Dynamics
products that are high in Vitamin C. This was underpinned by the rapid
spread of Covid-19. In 2021, average South African orange prices came under pressure
again. This was the result of two notable factors. The first is the shipping issues as explained above, which affected fruit quality and time in the market. The second was bottlenecks on roads to the Durban port and congestion at the port itself, caused by the July unrests and the hacking of the Transnet IT system. This delayed shipments. With marketing weeks lost as a result of this, increased volumes were pushed later into the season which depressed prices in those weeks. The South African marketing season also extended beyond mid-October which triggered a tariff for exports into the EU and as in 2019, South African exports again overlapped with the availability of early EU fruit.
34
This paved the way for the European Union regulation on False Codling Moth (FCM) announced on 24 June 2022. This protocol requires Oranges to be cooled, loaded, and shipped, with a total cooling time amounting to 25 days. With current shipping times around 18 days, ship- ments need to be cooled before or after the shipping period for an additional 7 days to reach the total requirement FCM makes prospects for oranges in EU market uncertain
of 25 days. This contributes to costs and results in one marketing week being lost. The current protocol will come to an end in December 2022. After this, an intensified protocol will commence in 2023. This will require oranges to be loaded at a lower core temperature, shipped and stored at this temperature for 20 days. Although the shorter storing time for the 2023 protocol is beneficial in terms of a loss in time during the marketing season, the local cooling capacity would likely not be sufficient to adhere to these requirements. Although the EU has implemented the mentioned protocol only on Oranges, FCM also affects soft citrus and stone fruits. Based on this, the scientific merit of the protocol is being disputed by South Africa at the World Trade Organization (WTO). Some trade experts however note that it can take up to 2 years for issues like these to be settled.
Average free on board (FOB) export prices for oranges (2012-2021) After strong growth between 2015 to 2018, orange prices seem to have stabilised betwe USD 9 and USD 10.
10,00
9,50
9,00
8,50
8,00
7,50
7,00
6,50
6,00
2012
2013
2014
2015
2016
2017
2018
2019 2020
2021
Source: ITC Trademap, 2022
35
Lemon Market Dynamics
Lemon prices showed strong upward trends up until 2016 after which the trend reversed (see Figure 4.4 below). Highly favourable returns during the early 2010’s induced expansion, not limited only to South Africa, but also in Europe and South America. As the associated volumes of these expansions started to come online, prices decreased accordingly. The downward trend was further exasperated by the Covid-19 pandemic in which demand for lemons negatively affected the global hospitality sector and in 2021 logistical issues as explained under oranges also affected returns. In 2022, there were mixed signals for lemons for the various markets serviced by South African exports. In Europe, lower production in Spain and Italy, during their 2021/22 season, set the scene for good prospects for exports from the Southern hemisphere into the
European market, but rain in Limpopo during April and unrest in the Eastern Cape delayed the volumes marketed. The loss of the Russian market is, in turn, causing pressure on other markets such as the Middle East, which is also pushing average export prices down. In terms of local production dynamics, 40% of the total area is 5 years and younger. This shows that there are still significant volumes that will come online over the next 5 years. This is bound to put pressure on average export prices and returns over the coming years if additional markets are not opened.
Average free on board (FOB) export prices for lemons (2012-2021) Prices in USD have been under pressure since 2016
18,00
17,00
16,00
15,00
14,00
12,00
11,00
10,00
9,00
8,00
2012
2013
2014
2015
2016
2017
2018
2019 2020
2021
Source: ITC Trademap, 2022
36
Soft Citrus Market Dynamics
Soft citrus price trends have closely mimicked those of oranges as shown in Figure 4.3, with rapid increases between 2015 and 2018, and a drop in 2019. Some recovery was apparent in 2020 but traded sideways into 2021. Similar to other citrus categories, this was largely the result of global and local logistical issues, higher shipping costs, and increased volumes. In 2022, pressures on prices persisted with constrained access to markets such as Bangladesh, which is an important destination for class 2 fruit. In terms of local market dynamics, almost 56% of the total soft citrus area is younger than 5 years. Like lemons, increased volumes to be marketed are therefore likely to weigh on average export prices over the coming years. To sustain returns additional international markets and management of cost through the chain is imperative. The 2021 and 2022 seasons have also shown the importance of cultivar selection with selected soft citrus variaties still yielding very attractive margins.
Average free on board (FOB) export prices for soft citrus (2012-2021)
16,00
15,50
15,00
14,50
14,00
13,50
13,00
12,50
2012
2013
2014
2015
2016
2017
2018
2019 2020
2021
Source: ITC Trademap, 2022
37
Grapefruit Market Dynamics
Grapefruit prices saw an increasing trend from 2015 to 2018, after which it recorded a decrease in 2019 to an average price of just above USD 8.00 per 15kg carton for 2020 and 2021 (see Figure 4.6).
African grapefruits are China (30%) and the EU(25%) and Japan(14%). Time in the market is however crucial from a returns perspective. This year, the severe flooding in Durban and rain in the Northern provinces delayed the grapefruit marketing season, which resulted in lower prices and pressure on returns for products marketed during the 2022 season.
Since 2019
Market analysts report that grapefruit consumption is on a decreasing trend and between 2021 and 2022 global grapefruit volumes produced stabilised at 437 000 tonnes. The main destinations for South grapefruit prices decreased
Flooding affected exports of grapefruits in
2022
38
Average Free on Board (FOB) Export Prices for Grapefruit (2012-2021) Prices have stabilised between USD 8.00 and USD 8.50
10,00
9,50
9,00
8,50
8,00
7,50
7,00
6,50
6,00
2012
2013
2014
2015
2016
2017 2018
2019
2020
2021
Source: ITC Trademap, 2022
39
Looking Ahead
• Orange and lemon prices are expected to record higher average FOB prices for 2022 compared to 2021, whilst average soft citrus and grapefruits expected to show a decrease. In the case of soft citrus, this is however highly dependent on variaties.
a trend of shrinking demand over the past years. Based on this, our projection for all groups is that prices will increase by around 2% in 2022. • Over the medium term, ongoing profitability issues related to high shipping costs (likely to last into 2023), for South African and other Southern hemisphere producers such as Chile and Peru, are expected to bring about some consolidation in the industry. This could result in slower growth in volumes traded Consolidation could result in future volumes being somewhat lower than inititally anticipated To achieve growth, alternative markets for South African citrus markets remain a key objective over the medium term. over the coming decade than initially expected, which could, in turn, bolster prices. For 2024 and 2025 we, therefore, expect average FOB price growth of just below 3% per annum.
• Over the next season, lower production in key EU countries
such as Spain, which suffered from persistent heat waves and dry spells, would likely support prices for citrus during the early weeks of the marketing season. The prospects of shipping costs that are still comparatively high to pre-pandemic levels are also likely to see only premium products being marketed from Southern hemisphere markets. This will likely also support prices.
• In contrast to the point above,
citrus demand is likely to soften somewhat in key markets such as the EU and UK due to substantial inflationary pressures in the cost of living. For grapefruits specifically, this trend is more subdued since this category has been experiencing
40
Table 4.1
Oranges (USD/15kg)
Lemons (USD/15kg)
Soft Citrus (USD/15kg)
Grapefruits (USD/15kg)
2019 2020 2021
8.43 9.50 9.36
12.08 12.31 10.46
14.04 15.34 15.39
8.27 8.10 8.30
Forecasts
2022 2023 2024 2025
9.60 9.80
11.79 12.00 12.35 12.70
13.28 14.10 13.95 14.35
8.05 8.20 8.40 8.55
10.10 10.35
Source: Absa AgriBusiness, 2022
Average FOB Citrus Prices (2019-2021) and Price Forecasts (2022- 2025)
41
Table Grape Market Dynamics
of price growth at the farm gate. Quality issues resulting from extended shipping
times and other issues resulted in substantial claim rates and have affected the revenue on the farm negatively. Additional
Average Table grape prices have shown solid growth between 2017 and 2022, with a slight dip in prices during the 2020/21 season (see Figure 4.7). This was in December 2020, as the marketing season started, and South Africa announced its second Covid-19-related lockdown which also coincided with numerous lockdowns in key export markets. This disrupted global trade which manifested in reduced container availability and longer shipping times, ultimately affecting the arrival time in foreign markets. Quality was also affected negatively which translated to lower prices. These challenges continued into the 2021/2022 season and were exasperated by weather and other operational challenges in the Cape Town port. As a result, although average FOB export prices continued the increasing trend apparent before the COVID-19 pandemic, these higher prices might not be reflective
local issues have also been added to make 2021/2022 one of the most challenging seasons that producers had to date. These issues include increased input costs and electricity issues that affected cold chain operations. Although our views here relate to average performance of table grapes, performance is very cultivar specific. Our market intelligence suggest that varieties such as Autumn Crisp, Sweet Globe and Sweet Celebration mostly outperform other varieties. In contrast to this, exporters are noting that markets for certain variaties have shrunk to the point where they will no longer consider these varities for export. It will therefore serve all market stakeholders to consider the commercial viability of different cultivars over the coming years. Another key factor to consider is quality and how increased production could affect the ability of the product to reach export markets in a good condition in times of increased shipping costs and unreliable shipping times.
42
Average FOB Prices for Table Grapes Exported from South Africa (2012-2021) Table grape prices remain favourable
8,50
8,00
7,50
7,00
6,50
6,00
5,50
5,00
2013 2014
2015
2016
2017
2018 2019
2020 2021
2022
Source: ITC Trademap, 2022
43
• Higher production and export volumes from other Southern Hemisphere countries are increasing the competition in traditional export markets, which is bound to put prices under pressure. Cost of living pressures in export markets could limit price growth Looking Ahead
44
• Inflation and the cost-of-living crisis in the Eurozone and the UK are likely to affect the purchasing power of these consumers which could negatively affect demand. • As a result, price growth is likely to be more subdued compared to the 2017-2022 period.
Average FOB Table Grape Prices (2019-2021) and Price Forecasts (2022- 2025)
• In terms of supply, although
shipping disruptions and costs are reducing, higher shipping costs, compared to pre-pandemic rates, increase risks. The 2021/2022 season has shown the importance of shipping high-quality products. The increased cost and risk associated with shipping could affect volumes exported negatively (from SA and other exporters). This could provide some price support during the next season.
Table 4.2
Table Grapes (USD/4.5 kg)
2018/19 2019/20 2020/21 2021/22
7.52 7.30 7.21 8.25
• Considering these factors, we expect modest price growth of around 2.5% during the coming season.
• Subdued price growth and
persistently elevated input costs are likely to weigh on margins over the coming years. This is expected to cause consolidation in South Africa and other Southern Hemisphere industries which would create an upward price scope for the industries over the medium term. As a result, our forecasts for the last two seasons in the forecast period increase by 3% per annum.
8.45 8.70 8.95 Forecasts
2022/23 2023/24 2024/25
Source: Absa AgriBusiness, 2022
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