By Paul Makube, Senior Agricultural Economist at FNB Commercial
- After an initial optimism of a 14.36 million tons in the first estimate despite the drought conditions, the National Crop Estimates Committee (CEC) downgraded their forecast in the subsequent updates. Now, the maize harvest estimate fell below 13.00 million tons for the first time in five years at 12.80 million tons which is down by 22% y/y and 5% below the 10-year average of 13.47 million tons, according to the CEC’s 8th production forecast.
- On plant protein sources for livestock feed, the CEC downgraded the sunflower harvest estimate by 2% from the previous month to 635,750 tons which is 11.7% lower y/y. However, soybeans were revised upwards by 1.8% m/m to 1.81 million tons but still down by 34.6% y/y, thus indicating a potential increase in imports of oil cake after building domestic self-sufficiency over the past few years.
- Near term grain and oil futures remain elevated but the outlook for 2025 shows a bearish trend.
Monthly live animals and animal products PPI remains in deflationary mode
- The August 2024 headline Producer Price Inflation (PPI) showed a further slowdown from 4.2% y/y in July 2024 to 2.8% y/y, and monthly coming in at -0.3% m/m. Meat and meat products PPI was almost unchanged at 4.2% y/y in August from 4.1% y/y in July. The monthly meat and meat products PPI continued to decline for the third consecutive month at -0.4% m/m in August 2024.
- For agriculture, the annual PPI rebounded after a steep deceleration of 5-percentage points (ppts) in July to 7.3% y/y in August and monthly nudging 0.9% m/m from a -2.6% m/m in the previous month.
- The annual live animals and animal products PPI accelerated slightly in August to 6.2% y/y and monthly remained in a deflationary mode at -1.9% m/m from a 4.8% m/m in the previous month. Following a sharp deceleration of 8ppts to 4.9% y/y in July 2024, the live animals PPI rebounded marginally to 5.8% y/y in August 2024.
- While cost pressures remain a concern with elevated raw feed input prices such as yellow maize which has so far increased by 9.6% y/y in September 2024, a positive development is that fuel costs were slashed for the past three consecutive months and there is a potential for another cut of R1.12 and R1.09 per litre for the diesel 0.05% and 0.005% grades respectively for October 2024, according to the Central Energy Fund’s daily update on the 25th of September 2024.
- Further, the South African Reserve Bank (SARB) ‘s much-awaited rate cut of 25-basis points which broad the benchmark repo rate to 8% with prime falling to 11.5% effective from the 20th of September 2024 will have a positive impact on producer margins as debt servicing costs decrease. Stability in electricity supply coupled with the potential extra spending will help reduce costs while the cash injection that will flow from withdrawals from the new Two-Pot retirement system will boost demand for meat.
OUTLOOK
- Benign inflation outlook with prospects of another rate cut before the end of year and a further reduction in fuel costs should provide a breather for the cash strapped consumers.
- This combined with the seasonal uptick in outdoor activities will boost demand for meat in the medium term.
- For producers, elevated feed costs remain a concern in the near term. Nonetheless, the longer-term outlook is positive for livestock feeders as feed prices are expected to decline.
