Agbiz Confidence Index shows continued farmer optimism

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Agbiz Confidence Index shows continued farmer optimism

 

By Helmo Preuss

 

 

Although the Abiz/IDC Agribusiness Confidence Index (ACI) slipped to 56 in the second quarter from 57 in the first quarter, the ACI remained above 50 for the fourth consecutive quarter as farmers remain optimistic about future prospects despite the fact that the South African economy entered a recession in the first quarter 2017.

 

 

The Agbiz / IDC Agribusiness Confidence Index reflects the perceptions of more than 20 agribusiness decision-makers on the ten most important aspects influencing a business in the agricultural sector (i.e. turnover, net operating income, market share, employment, capital investment, export volumes, economic growth, general agricultural conditions, debtor provision for bad debt and financing cost).

 

The first quarter gross domestic product (GDP) data saw the recovery in agricultural production. This showed the first quarter-on-quarter (q/q) increase since the fourth quarter 2014 and was up a massive 22.2% q/q seasonally adjusted annualised, while the y/y growth was an equally impressive 10.3%. The positive impact will only truly be felt from the second quarter onwards as the record maize and soybean crops are harvested from May through to September.

The Crop Estimates Committee in its fourth estimate in late May said the 2017 maize crop would rise by 101% compared with the 2016 crop to a record 15.631 million tonnes. Recent indications are that this record harvest may be boosted further as yields from fields being harvested now are more than expected.

Reflecting the improvement in farmer confidence, tractor sales jumped by 16.8% year-on-year (y/y) to 493 units in May following a 11.3% fall in 2016 to 5,855 units, according to the South African Agricultural Machinery Association (Saama). This is reflected in the improvement in the perception regarding capital investment which rose to 62 in the second quarter from 56 in the first quarter.

 

Amongst the ten sub-indices making up the Agbiz/IDC Agribusiness Confidence Index, the capital investment, market share, employment, the volume of exports and debtor provision for bad debt sub-indices were the key underlying drivers of the sustained optimism in confidence in the second quarter of 2017.

 

The decline in other sub-indices, namely turnover, net operating income, economic growth, general agricultural conditions and financing cost, all of which mirror the tail-end effects of the 2016 drought, particularly businesses operating in the horticulture, wine and insurance industries.

The insurance business received a high volume of claims following the drought, which eventually weighed on their financial standing, and they face further claims arising from the 7/8 June Cape storm and fires.

 

The good news is that farmer optimism is being translated into increased job opportunities with the employment sub-index rising to 59 in the second quarter from 56 in the first quarter. The first quarter Quarterly labour Force Survey by Statistics South Africa showed that agriculture only added 6 000 workers y/y to 875 000 in the first quarter.

 

The export volumes sub-index rose to 58 in the second quarter from 55 in the first quarter on expectations that the record maize harvest will allow the export of some 3 million tons. Already bulk export volumes from South African ports such as Durban, which mostly export bulk agricultural commodities such as grains and sugar, show a 20.4% y/y rise in the first five months of 2017 to 4.8 million tonnes.

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