OPDT   OIL & PROTEIN SEEDS DEVELOPMENT TRUST
OAC   OILSEEDS ADVISORY COMMITTEE

OPDT
OIL & PROTEIN SEEDS DEVELOPMENT TRUST

OAC
OILSEEDS ADVISORY COMMITTEE


WINTER CROPS  //  2024 Income and Cost Budgets

User Information

Area coverage

Table 1 and Table 2 provide a summary of the area coverage for enterprise budgets that were generated for this report (dryland- and irrigated regions). The source of data and collaborators are also presented. The collaborators are sincerely grateful for the interaction and assistance with data, knowledge and other inputs from each organisation, agribusiness and farmers.

Table 1.1: Area coverage – Dryland
Area Dryland crops Source and Collaborators
Southern Cape
Caledon Wheat, barley, canola, oats and lupins Overberg Agri, GSA and BFAP
Bredasdorp Wheat, barley, canola, oats and lupins Overberg Agri, GSA and BFAP
Eastern Ruêns (high potential) Wheat, barley, canola, oats and lupins SSK, GSA and BFAP
Eastern Ruêns (normal potential) Wheat, barley, canola, oats and lupins SSK, GSA and BFAP
Eastern Ruêns (low potential) Wheat, barley, canola, oats and lupins SSK, GSA and BFAP
Western Cape
Southern Swartland Wheat and canola Kaap Agri, Overberg Agri, GSA and BFAP
Moorreesburg, Malmesbury and Porterville Wheat, canola and oats Kaap Agri, Overberg Agri, GSA and BFAP
Darling-vlakte – Hopefield Wheat, canola and lupins Kaap Agri, Overberg Agri, GSA and BFAP
Rooi Karoo Wheat and canola Kaap Agri, Overberg Agri, GSA and BFAP
Free State
Eastern Free State Wheat GSA / VKB / BFAP / Individual farmers
Central Free State Wheat GSA / SENWES / BFAP / Individual farmers
Table 1.2: Area coverage – Irrigation
Area Irrigated crops Source and Collaborators
Northern Cape
GWK Area Wheat, barley and canola GWK, GSA and BFAP
Free State
Eastern Free State Wheat GSA / VKB / BFAP / Individual Farmers
Limpopo
Britz / Northam / Koedoeskop Wheat and barley GSA, Obaro and BFAP

Yield assumptions

Table 1.3 illustrates descriptive statistics for yield trends over the period from 2005-2024 (2024 assumes trend yields). Figure 1.1 and Figure 1.2 reports the yield assumptions for dryland and irrigated crops. The yield assumptions represent target yields which were formulated in round table discussions and inputs provided by industry experts. These assumptions are re-evaluated and updated on a continuous basis. It is important to note that intra-regional variations will occur, and it is recommended that producers adjust their respective target yields based on their location and potential.

Table 1.3: Industry yield trends: 2005-2024
Wheat:
Winter area
Wheat:
Summer area
Wheat:
Irrigation
Barley:
Winter area
Barley:
Summer area
Canola
Mean (2005-2023) 2.70 3.09 6.32 2.86 6.45 1.43
3-year average (2022-2024) 3.00 4.01 6.95 3.06 7.00 1.81
5-year average (2022-2024) 3.17 4.30 6.83 3.26 6.98 1.93
Minimum 1.80 1.53 5.27 1.95 5.19 0.90
Median 2.61 2.78 6.40 3.04 6.53 1.32
Maximum 3.50 5.05 7.15 3.95 7.13 2.25

Source: BFAP, 2024

Figure 1.1 – Yield assumptions: Dryland winter crops
Figure 1.1a shows dryland winter crop yield assumptions for Overberg and Eastern Ruens
Figure 1.1b shows dryland winter crop yield assumptions for Southern Swartland, Moorreesburg, Malmesburty, Darling-vlakte, Rooi Karoo and Central and Eastern Free State
Figure 1.2 – Yield assumptions: Irrigated winter crops
Figure 1.2 shows yield assumptions for irrigated winter crops

Crop price assumptions

Annually, the Bureau for Food and Agricultural Policy (BFAP) presents an outlook of agricultural production, consumption, prices and trade in South Africa over a 10-year period. The information presented is based on assumptions about a range of economic, technological, environmental, political, institutional, and social factors. The outlook is generated by the BFAP system of models. A number of critical assumptions have to be made for baseline projections. One of the most important assumptions is that normal weather conditions will prevail in Southern Africa and around the world; therefore, yields grow constantly over the baseline as technology improves. Assumptions regarding the outlook of macroeconomic conditions are based on a combination of projections developed by the International Monetary Fund (IMF), the World Bank and the Bureau for Economic Research (BER) at Stellenbosch University. Baseline projections for world commodity markets were generated by FAPRI at the University of Missouri. Once the critical assumptions are captured in the BFAP system of models, the Outlook for all commodities is simulated within a closed system of equations. This implies that, for example, any shocks in the grain sector are transmitted to the livestock sector and vice versa. Therefore, for each commodity, important components of supply and demand are identified, after which an equilibrium is established through balance sheet principles by equalling total demand to total supply.

Table 1.4 illustrates the standard deduction from the base SAFEX or derived price as presented in Figure 1.3. Figure 1.3 illustrates the commodity price assumptions for wheat, barley, canola and oats that were used as base price for the winter crop budgets for the 2024 production season. The sensitivity analysis in the respective crop budgets makes provision for variation in price and yield and indicates the gross margin under each price and yield combination.

Table 1.4: Deductions from SAFEX price to derive a farm gate price per region
Wheat Barley Canola Oats
SAFEX / Derived Price: 2024 X X
(adjusted with price link for Southern Cape and Northern producing regions)
X X
– transport differential X X X
(for selective regions)
Standard wheat transport differential + transport to processing facilities (estimate R200-R250 per ton)
– grade differential (BS, B1, B2, B3 and COW) Based on historic averages; updated with new grading system Assuming 5% of barley is downgraded to feed, and the remaining is delivered as malt barley
– silo, handling and administration costs X X
– statutory levies X X X X
+ price premiums BS calculated at 2% premium X Back payment calculated at 10% of derived price
Figure 1.3 – BFAP average annual commodity price trends: 2019-2024
Source: BFAP, 2024
Figure 1.3 shows BFAP average annual commodity price trends for 2019-2024

Globally, supply has responded to high commodity prices following COVID and the Russia-Ukraine war which boosted commodity stock levels. As a result, commodity markets are in a consolidation phase implying lower prices, in some instances dipping below pre-COVID levels. Although uncertainty remains (e.g. Red Sea tension, weather and Russia's permanent withdrawal from the Black Sea Grain Initiative), volatility in markets is likely to continue throughout 2024. On the local front, the weaker exchange rate together with poor weather conditions in the summer-producing region has supported prices.

The international wheat price is expected to drop below the reference price, which will trigger the import tariff, and slightly support local prices. Furthermore, high shipping costs caused by the conflict in the Red Sea may further increase import parity prices. Canola prices are expected to realise a larger decline than wheat and barley prices, underpinned by the consolidation of the vegetable oil market.

Key input cost trends

Figure 1.4 shows a calendar year-on-year percentage change for key agricultural inputs over the period from 2022 to 2024 (projected). Since the cost spike in 2020-2022, input costs have declined in 2023 and are generally expected to continue declining in 2024 (except for wages and electricity). The cost of fuel realised a marginal decline in 2023, but uncertainty and escalated tensions in the Red Sea region may increase price levels again with potentially higher shipping rates further contributing to potential price hikes in 2024. Since South Africa is a net importer of many agricultural inputs (e.g. fertilisers, chemicals and machinery), higher shipping costs could increase costs locally.

The weighted cost for fertiliser (a combination between nitrogen, phosphorus and potassium) has decreased by 31% in 2023, and is expected to continue declining, but at a slower rate of 19% in 2024. Despite the significant decline, fertiliser prices remain above the pre-COVID period. Furthermore, due to the weakening exchange rate, South Africa's fertiliser prices have not decreased at the same rate as international fertiliser prices. In 2024 urea and potassium are projected to decline by 24%, while LAN(28) and MAP are expected to decline by 8% and 19% respectively. The World Bank expects fertiliser costs to continue with its downward trend, by projecting a further decline of 16% in 2024 and 8% in 2025.

Plant protection chemicals marked a significant decline in the global market, with herbicide prices decreasing by 15% and insecticides by 21% from 2022 to 2023. International insecticide prices have dropped below the pre-Covid era. Chemicals are expected to decline further by 32% and 29% in 2024 respectively.

Projections from the South African Reserve Bank reveal a modest expected GDP growth rate of 1% in 2024, with other institutes such as the IMF only marginally better. The Rand also remains weak, reflecting global uncertainties, risk appetite, relative interest rates and inconsistent messaging on crucial domestic issues. The weak Rand contributes significantly to inflation, increasing the cost of imported products.

Figure 1.4 - Agricultural input cost inflation: Calendar year-on-year percentage change for 2022, 2023 and 2024 (estimated)
Source: Grain SA and BFAP, updated April 2024
Figure 1.4 - Agricultural input cost inflation: estimated calendar year-on-year percentage change for 2022, 2023 and 2024

Methodology, approach and definitions

  • A standard operating procedure was used across all crops and regions for generating the cost and income budgets for the 2024 winter production season.
  • Deterministic or target yields are based on industry discussions which refer to a yield that should be obtained given a normal production season with normal weather in the respective agro-ecological production regions.
  • The farm gate price for each crop is calculated by deducting transport differential, grade differential, handling fees, commission and levies (statutory for seed breeding and technology) from the BFAP simulated SAFEX price and adding price premiums, as discussed in Table 1.4.
  • The gross production value is then calculated by multiplying the yield with the farm gate price.
  • The direct costs are calculated by multiplying the cost per unit by the estimated quantity of input use or application rate.
  • For the majority of the crops, it is assumed that own machinery is used, except for speciality operations that are coupled with economies of scale. In such cases, a contracting cost item is allocated.
  • In the Western Cape, provision was made for fire and SASRIA crop insurance, and in the northern parts of South Africa, provision was made for hail insurance.
  • Fertiliser and lime application will vary significantly in regions and across crops, however, an attempt was made to follow a standardised approach across the regions. Micro-elements and foliar feed for selective crops are included in the total fertiliser cost.
  • The price for fertiliser nutrients (N, P and K) was calculated by using a weighted approach that accounts for 1) variation in discounts received from suppliers and 2) the time period when fertilisers were purchased.
  • Fuel consumption is based on the prevalence production system in each region.
  • For plant protection, herbicide, insecticide and fungicides are accounted for based on interaction with industry experts and producers. For instance, in certain regions provision was made for fungicide sprays, but for others where the practice is not common, fungicides were excluded from plant protection costs.
  • Repairs and maintenance costs are calculated based on the production system operations and were consulted with industry experts and producers.
  • An average seed price across various seed companies was used for calculating the cost of seed. The cost of seed per hectare is calculated by multiplying the cost per unit (either kilograms or plant population) by the application rate per hectare. For selective crops, seed treatment was included where relevant. For wheat and barley, the seed application rate was sub-divided according to own and purchased seed. For own seed use, a cost is allocated which is based on a realistic crop price (hence, opportunity cost) and seed preparation costs such as sifting and treatment.
  • For irrigated crops, the cost of water and electricity is calculated according to typical irrigation application rates at their respective regional costs per millimetre water applied throughout a season. For instance, variations will occur in the cost for water in areas where predominantly boreholes are used compared to irrigation/water scheme areas.
  • The gross margin was calculated by subtracting the direct cost from the gross production value.
  • Overhead costs and production interest are not accounted for in the enterprise budgets.
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