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Three indicators of a big recovery in this sector in 2021

by , 14 October 2020
Three indicators of a big recovery in this sector in 2021
Right now, the agriculture sector is one of the spots of excellence in South Africa, and its being treated very well thanks to a double whammy of record-breaking harvests, and increasing commodity prices.

This is good news for the SA economy.

It means the agricultural sector could employ more people, putting money in the consumers' pocket. It means there are many supporting businesses and industries (such as machinery and logistics) set to benefit as well…

And lastly - it means food security locally.

But don't just take my word for it, let's look at the different indicators and what they show.

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Three indicators showing upside in agriculture
Booming Indicator #1 – Tractor sales show a massive increase
September 2020 figures showed tractor sales are up 23%y/y with 529 new tractors sold in the month. Even over the first nine months of the year, including the lockdown, tractor sales are up ever so slightly (0.1% year on year).
This shows that despite economic doom and gloom, farmers are positive about their 2021 prospects.
What this figure should also suggest to you is that higher tractor sales = more plantings. More planting of crops means a number of things as well, higher employment, bigger harvests. A bigger harvest in turn means more harvesters needed to harvest, and more transport needed to move the product from farm to market.
So, this single figure suggests upside not only for the agricultural industry, but also for equipment dealers and manufacturers and for the logistics sector…
Booming Indicator #2 – 2020 will be one of the best years in the history of the sector
The final maize harvest figures aren’t out yet, but initial estimates show that 2020 will be the second biggest harvest in history, and roughly 35% above the 2018/2019 harvest at 15.2 million tonnes.
The wheat harvest is expected to come in above 2 million tonnes, thanks to good winter rain in the Western Cape. If this materializes, it will be the best wheat harvest since 2008.
To back this up, prices are also at great levels right now. Maize prices are around R3,400 per ton, around 21% higher than this time last year.
Sunflower and soybean prices are up in excess of 30%, and the price of wheat is also near all-time highs locally.
Simply put – the agricultural sector will have a great 2020…
Booming indicator #3 – So far, the all-important weather indicator predicts a good 2021
If you’ve not heard of El Niño and La Niña, or are unsure what they are, these are cycles of warm or cool ocean currents and ocean surface temperatures that affect the weather and rainfall patterns. Read more here.
So, according to weather agencies, La Niña conditions are now active and expected to last until the first quarter of 2021. The forecasts show these conditions will be moderate.
This means that we will likely have an above average summer rain season.
The South African maize industry specifically has great years when these conditions are present.
October rains that have just fallen are also great news for farmers planting maize – as it means they will have the required soil moisture levels to plant before the traditional planting season ends.
Initial planting estimates will be out by end October 2020, but so far it seems like 2021 will see an above average planting season for maize at 2.6 million hectares – the same as in 2019/2020.
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How this’ll play out for investors?
I expect current high commodity prices will ease somewhat. That’ll see food inflation ease.
If feed commodities like maize and soybean prices ease, it will be a positive for poultry and red meat producers – who use the grains as feed. Right now, they are hard hit because of high prices…
Higher output also means positive things for the logistics and retail sector that services agriculture.
That means companies like Zeder, Grindrod, and even a chemicals company like Omnia will do well.
Here’s to unleashing real value
Francois Joubert
Editor, Red Hot Penny Shares

Three indicators of a big recovery in this sector in 2021
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