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Higher commodity prices cushion blow to farmers of high price input costs, says Agricultural Business Chamber

While farmers are facing higher price inputs costs, higher commodities prices are softening the blow, according to the Agricultural Business Chamber (Agbiz). Photographer: Mark Elias/Bloomberg

While farmers are facing higher price inputs costs, higher commodities prices are softening the blow, according to the Agricultural Business Chamber (Agbiz). Photographer: Mark Elias/Bloomberg

Published Nov 10, 2021

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WHILE farmers are facing higher price inputs costs, higher commodities prices are softening the blow, according to the Agricultural Business Chamber (Agbiz).

The chamber's chief economist, Wandile Sihlobo, said this week that the ongoing global supply chains glitches and higher shipping costs were amongst the factors that had helped to sustain the agricultural commodity prices at the current higher levels.

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"These remain essential matters to monitor going forward, in addition to how the La Niña weather event impacts South American and East Africa's agriculture production. While the discussion was centred on grains and vegetable oils, these dynamics exist across the agriculture commodities market, as the weather impact will influence agriculture events the same way," Sihlobo said.

At the start of every agricultural production season, one of the major concerns for farmers was weather conditions over the course of the season and how these will affect yield.

Fr the 2021/22 season, another important concern that had been on farmers' radars since the start of the season was the rising input costs of the prices of fertilizers and agrochemicals.

"These are largely driven by supply constraints in key fertilizer-producing countries such as China, India, the US, Russia and Canada. Rising shipping costs, oil and gas prices have also been contributing factors, with firmer global demand from an expanding agricultural sector. This has been the case for farmers in the Northern Hemisphere for some time but also more recently for farmers in the Southern Hemisphere. On average, the prices of fertilizers were up by over 50 percent in September 2021 compared to the corresponding period a year ago. Meanwhile, the agrochemicals had risen by over 30 percent over the same period," he said.

He said another essential dynamic in the global agricultural market, which played an offsetting role to some degree, was the sustained higher commodity prices. There were unique price-driving factors for each crop, but broadly, the growing demand for grains and oilseeds in China, poor crop yields in South America in 2020/21 production season, and higher shipping costs, had been the primary price drivers.

“Many, including ourselves, had thought higher agricultural commodity prices would be temporary. The producers in the Northern Hemisphere, who incurred high input costs, will somewhat be cushioned by the current commodity prices, which will help overshadow some of the costs. Still, margins will be squeezed compared with the 2020/21 production season in the major agricultural commodities," Sihlobo said.

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The Southern Hemisphere farmers were also said to be counting on commodities prices remaining elevated for some time as they have also incurred higher input costs.

Agbiz said it believed this was likely to be the case, although prices could fall mildly from 2021 levels. With that said, they said they doubted that agricultural commodities prices would fall to levels seen in 2019 in the near term.

Sihlobo said while the early production estimates pointed to some upside compared with 2020/21, prices had not declined notably on the back of these upbeat expectations. For example, the International Grains Council (IGC) forecasts 2021/22 global maize production at 1.21 billion tonnes (up 8 percent), wheat at 781 million tonnes (up 1 percent), rice at 513 million tonnes (up 1 percent), soybeans at 380 million tonnes (up 4 percent) and sorghum at 65 million tonnes (up 7 percent year on year).

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Last week, the Food and Agriculture Organization of the United Nations (FAO) reported that its Global Food Price Index lifted by 3 percent in October from the previous month (up 31 percent from October last year). This was its highest level since July 2011.

Agbiz said the primary food products driving the most recent increase in the FAO's Global Food Price Index were grains and vegetable oils.

Meanwhile, the retail sales of agricultural equipment during October saw tractor sales of 856 units were almost 4 percent more than the 825 units sold in October last year.

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South African Agricultural Machinery Association chairperson Karel Munnik said that year-to-date tractor sales were now 25 percent up on last year.

He said marker sentiment continued to be positive and commodity prices were holding up.

"Winter crop prospects are still very encouraging. However, input costs have become a concern for farmers going into the summer planting season. This, together with the longer lead times which most companies are facing is holding sales back a little. Industry forecasts for the remainder of the year indicate that tractor sales for the 2021 calendar could be 20 percent up on last year."

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