Price of onions is enough to make you cry, but outlook for crops is up in 2023
Households and cooks may have wept this December when paying for onions. The bulb, which features in so many dishes, saw a whopping 97% increase year on year in November. A 10kg bag of onions that cost R63.39 last November now costs almost double that at R125.08, according to the Pietermaritzburg Economic Justice & Dignity Group’s Household Affordability Index for November.
The steep rise in the price of onions is no surprise to Paul Makube, senior agricultural economist at FNB Agribusiness.
“A combination of factors is responsible; the main one being supply tightness. There have been significant cost pressures in the agriculture sector, with fertiliser costs running high. Onion farmers had to reduce their hectarage by 700 hectares compared to last year, which made quite a big difference to supply, and demand remained the same, which pushed prices up,” he says.
Makube says that, as with most seasonal crops, the price of onions should come down when conditions are more favourable and supply improves.
“Internationally, we are seeing fertiliser prices starting to moderate, although they are still at relatively high levels. International factors such as the war in Ukraine have affected the manufacture and supply of fertiliser. Higher crude oil prices also impacted on freight costs, which were absorbed in the fertiliser prices,” he explains.
Fertiliser price outlook
Fitch Ratings says it expects fertiliser prices to decline in 2023, but to remain above mid-cycle levels due to high crop prices, gas input costs and restricted, although improving, supply.
“Our reduced 2022 assumption for urea [fertiliser] reflects lower year-to-date prices, which we do not expect to recover for the rest of the year.
“We have kept all other assumptions unchanged as we maintain our view that new capacity additions will offset lost exports from China and supply disruptions due to the Russia-Ukraine war,” Fitch says.
“We estimate that 3.8 million tonnes of new production capacity will be added globally, excluding China, for the full year of 2022, followed by 3.2 million tonnes in 2023 and 2.2 million tonnes in 2024.”
Maize yield barometer
Makube adds that maize yields are a good barometer of overall crop performance, with projections improving slightly, from the 14.53 million tons anticipated at the beginning of 2022 to around 15.02 million tons currently predicted.
“Despite the slight drop in anticipated yields from the previous season, these volumes are still significantly higher than the historical 10-year yield trend, and given that domestic consumption typically averages around 11.8 million tones, there will be a healthy surplus available for export,” adds Makube.
He contends that this surplus, combined with the fact that international maize prices remain high, means that conditions are positive for another good financial year for not only maize farmers, but also most primary crop farmers in South Africa.
Positive trends and revenues
These positive trends around yields and prices, which have now continued for the past two years, have resulted in positive revenues and cash flows for most farmers, and this has filtered through to other areas of the country’s agri industry.
For example, the South African Agricultural Machinery Association (Saama) reports that tractor sales were at their highest in 40 years, with 1,268 sold in October alone.
Tallie Giessing, chairman of Saama, says between the favourable start to the summer rainfall season and better-than-expected winter crops, market sentiment remains good.
“The sales trend should continue, at least into early 2023. Thereafer, with the inevitable higher equipment prices and input costs, initial predictions are that sales will stabilise,” he says.
Despite this positive backdrop, Dawie Maree, head of agriculture information and marketing at FNB Agribusiness, says that farmers would be well advised to exercise at least some caution regarding the spending of their recent financial windfalls, as the landscape may have begun to shift.
“Although cost pressures that emanated from a dramatic increase in fertiliser and fuel costs that we saw earlier in the year due to the war-induced supply crunch have eased lately, it remains high relative to the previous season.
“When you combine this elevated cost trend with the potentially negative impact of rising domestic and global interest rates on consumer demand, cautious spending is probably the best policy for everyone in the agri sector right now.”
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Despite the strong yields enjoyed by most farmers over the past two years, margins remain tight. While there have recently been signs of a slight economic reprieve in terms of moderation in global food inflation and fuel prices coming down a little, it’s still far too early in the current inflationary cycle to make a call on whether these events signal the end of the upward trend.
“Given that there is always a significant lag in terms of any such inflationary trends filtering through the industry, margin pressures are likely to continue for some time to come.
“Farmers would be well advised to temper their optimism with a good pinch of realistic expectations, and exercise caution as we go into the new planting season,” concludes Makube. BM/DM