Although the ongoing drought in South Africa, alleviated by rain in some provinces notwithstanding, has resulted in the country’s gross domestic product (GDP) decelerating in 2016, the prices of various agricultural products are expected to moderate this year as rain across producing areas boosts production.

FNB senior agricultural economist Paul Makube said in a statement issued on Monday that the maize crop is expected to rebound by almost 60% to just over 12-million tons in the 2016/17 production season.

Wheat, too, has achieved a significant recovery, with production already 6% higher year-on-year at 1.88-million tons.

“This, together with the abundant global supply outlook, with production and stocks of 235-million tons, will maintain downward pressure on domestic prices as South Africa remains the net importer of wheat.”

Sugar and horticulture production is expected to increase on the back of improved conditions owing to the recent rains.

This, he said, would boost the availability of the exportable produce, particularly fruit.

“Although local sugarcane production improved somewhat in the latest updates, poor quality and subsequent sugar recoveries have reportedly cut the export availability for 2016/17. Globally, the outlook is bullish with a surplus expected for 2016/17 owing to increases in Thailand, India and the European Union.”

Makube pointed out that this would contribute to renewed downward pressure on international sugar prices.

Meanwhile, red meat prices trended mostly sideways to stronger during the last quarter of 2016 as slaughtering increased owing to the delayed onset of the summer rains, while beef prices in general are expected to remain elevated owing to supply constraints and herd rebuilding in 2017.

The weaner market saw a rebound in prices with calves selling at just over R21/kg as producers began holding on to their stock owing to improved production conditions as a result of the summer rains.

“Pork and poultry producer margins are expected to improve owing to declining feed prices, especially in the second half of 2017. However, import competition will continue to limit price gains despite elevated red meat prices,” he said.

Makube added that poultry, in particular, had seen significant pressure from imports, which was forcing local producers to cut back on production and defer expansion plans.

Poultry and pork meat remain the cheapest source of animal protein and the demand remains resilient.

While the improved domestic and international agricultural production outlook bodes well for food inflation, Makube points out that the prospects of a weaker exchange rate might offset this benefit given that pricing for most grain commodities is based on import parity.

The rand faces increased volatility in the medium to longer term, owing to the renewed interest rate tightening by the US Federal Reserve Bank and weak domestic growth prospects.
 
“Overall, 2017 has started off well, with good rainfall in some parts of the country. The year ahead will be trying, but the silver lining is that we are starting to see a little relief from the recent rains and the sector is slowly stabilising,” Makube said.