by Karabo Takadi – Karabo.Takadi@absa.co.za
Absa bank het al die afgelope 100 jaar in landbou belê en sien uit na die volgende 100 jaar saam met ons boere. Bekende name in die landboubedryf gaan verskillende vooruitsigte soos die ekonomie, die weer, gewasse, groente, vee ens vir 2017 bespreek. Hou ons webblad dop om almal te lees.
The price of synthetics is largely determined by the price of oil. Oil prices have declined in recent times, leading to a decline in the production cost of manufacturing man-made fibres. This decline has resulted in lower prices for man-made fibres in comparison to natural fibres, as low oil prices have increased the price competitiveness of synthetic fibres.
The use of wool in clothing and textiles manufacture is therefore likely to decline in favour of synthetics. The price competitiveness of wool against cotton and polyester declined between 2015 and 2016. With global oil prices assumed to remain low in the short term, the price competitiveness of wool in global textile manufacturing appears unlikely to improve significantly in the coming year. The relative prices of wool and competing fibres affect the demand for them in global textiles manufacturing.
The global production of wool is expected to record some declines in 2015/16 as a result of drought conditions in the major producing countries of Australia and South Africa, the biggest Merino producers. Wool prices are expected to be supported in 2016/17 owing to lower global wool supply and an improvement in consumer demand for woollen apparel. Moderate economic growth in the major woolconsuming economies such as the US and China may support the demand for wool. Recent data show that economic prospects in China are stabilising. However, consumer demand for wool is expected to grow slowly, as consumption for this product is strongly linked to higher incomes and strong economic growth. China’s domestic consumption of woollen goods is expected to grow more slowly, in line with an assumed slowing in economic growth. The improvement in global demand, set against the lower global wool production that has been forecast, is expected to support a moderate increase in world wool prices. Higher wool prices will create good returns for producers. Improved seasonal production conditions will support the herd-rebuilding process in Australia, which is expected to result in the national herd recovering in 2017.
This will be beneficial to future wool production. Lower initial international sheep number in 2017 are expected to lead to declines in the number of sheep shorn, but this will be balanced by the strong improvement in seasonal conditions, which may positively impact on production. There are many campaigns that encourage consumers to be more aware of the type of material their clothes are made of. This trend will drive demand towards natural fibres, which bodes well for a future switch to natural fibres.
Campaigns aimed at awareness in terms of the type of material used for consumers’ products bode well for the future consumption of natural fibres. This comes at a time when synthetics have gained popularity as their prices are lower, which have made them competitive.
South Africa suffered a severe drought caused by El Niño in the summer of 2015/16, which led to eight provinces being declared disaster areas. The woolproducing provinces of Mpumalanga and the Free State have been negatively affected, which has had a negative impact in terms of wool yields. In response to the drought, sheep producers have also slaughtered more of their sheep, which has resulted in the national herd being reduced. This has had a negative impact on production. Domestic wool prices have been supported by good demand and the weaker currency. In the 2015/16 growing season, auction prices have sustained higher levels. At the final sale of the season, the Merino indicator closed at 17,7% higher than the opening level. The total volume of wool received for auction showed a 0,3% decline in 2015/16, compared to that in the previous season. Increased demand from China has been one of the key drivers of prices. Between July and August 2016, China accounted for 70% of South African exports. China’s imports from South Africa have strengthened over the past three seasons, and there have been bigger orders from Europe as well.
Drought conditions in 2015/16 have negatively affected the production prospects of South African wool. In 2016/17 the predicted normal to above-normal rainfall is expected to improve the quality of production and help with rebuilding the national sheep herd, which will support production. Good demand and a weaker currency are expected to continue to support prices. South Africa is the world’s largest producer of mohair, and accounts for 52% of the total global production. In 2002, South Africa produced 64% of the total production globally. In the summer of 2015, grazing conditions were affected by dry conditions in South Africa. This is expected to have a negative impact on the total volumes produced. The quality of the mohair produced and the length of the clip will be affected. Mohair, just like other natural fibres, has been used less in recent times due to pressures from synthetics. A small percentage of South African mohair is consumed domestically while most of the yield is exported to Italy and China.
However, growth in the domestic market is possible with new manufacturers entering the market and designers being open to new trends. However, this growth will rely on intensive marketing by the industry and consumer education. In recent times, the mohair industry has shown growth, as the prices paid for South African mohair over the past few years have shown steady increases. The trend of rising mohair prices was maintained in 2015. Good demand in China, Bulgaria and Taiwan, coupled with the weakening of the South African rand, added some support to domestic prices in 2015. The South African rand weakened by almost 18% in 2015, and by almost 27% over the first seven months of 2016. The mohair industry is expected to continue to enjoy favourable prices due to the weaker currency. The attractive producer prices are expected to result in good returns, and will therefore encourage producers to invest in the sector, which will encourage future increases in production. In 2015, mohair exports recorded some declines. Italy, the second-largest export destination, has shown decreases over the past three years. Italy’s growth in GDP has slowed over these years. Moving forward, Brexit is expected to increase uncertainty and will likely weigh on Italy’s economic performance. This will hamper growth in this economy. Depressed economic conditions in the eurozone are expected to have a continued negative impact on demand, especially as far as kids are concerned. This can weigh down on demand prospects from the eurozone. China remains the largest export destination for South African mohair and demand from that area remains strong, which contributes to total export numbers in a positive way. China surpassed Italy as the largest export destination for South African mohair in 2014, and is maintaining that momentum. Bulgaria, too, has become a very important player in terms of demand for South African mohair. The weaker currency, coupled with a high demand and strong consumption in China, continued to be favourable for prices during the first few months of 2016. Overall, price levels remained high during the summer season, and the same momentum is expected to be carried over into the winter season of 2016. The average market indicator for the summer season reflected an overall healthy demand, and was 29% higher than during the 2015 summer season at R248,08/kg.
The mohair industry has experienced growth over the past few years, with steady production increases recorded in 2015. In this regard, sustainable production practices and traceability of the fibre will become increasingly important moving forward. Positive mohair prices will allow reinvestment in this sector. The weaker currency and good demand from China is expected to remain the key driver, while depressed economic conditions in the eurozone may negatively impact demand. Efforts by the industry to focus on market awareness can revitalise the industry.
World cotton production in 2016/17 is expected to increase by 6%, supported by improved average yields despite smaller areas planted. For India the area planted is expected to decline in 2016/17 as producers switched to planting alternative crops for which they can receive better prices. The late arrival of the monsoon and yield losses from pest pressures during the previous season also discouraged farmers to plant more. However, expectations of higher yields will support the total output of the crop. In China, the 2016/17 area planted to cotton is expected to decline. This decline constitutes the fifth consecutive decline. The higher production costs for cotton compared to competing crops, the lower cotton prices and decreased government support continue to reduce production in that area. China is expected to become a big cotton importer following the offloading of its huge state surplus. China reduced its cotton inventories by auctioning off huge government reserves, which has resulted in lower ending stocks. Cotton production in the US is expected to improve owing to favourable weather conditions and a larger area being planted to cotton. The number of hectares planted in Pakistan is also expected to decline, but a rebound in yields will support production. Growth in world cotton consumption has been limited in recent years, declining from the high levels in 2007 and 2010 due to competition from synthetic fibres. Cotton consumption is expected to strengthen by 1% in 2016/17. This increase is higher than consumption has been over the past two seasons. China remains the largest consumer of cotton. World cotton consumption is expected to exceed production for the second consecutive year. World cotton stocks are expected to decline for the second year running in 2016/17.
World cotton prices are expected to improve on the back of declining ending stocks. World cotton stocks are expected to decline for the second year running in 2016/17, getting a boost from reduced inventories in China. World production is expected to be supported as a result of improvements in yields. Improved consumption of cotton will continue to be limited by strong competition from the cheaper alternative fibres.
South Africa experienced drought conditions in the 2015 summer production period. This negatively impacted on planting for the summer crops. The effect of the drought was also felt among cotton producers, with significant declines in the area planted under cotton. Area planted under dryland declined by almost 70% when compared to the previous season, which had a drastic impact on the total amount of cotton that was produced. In the past, dryland cotton farming used to serve as the basis of South Africa’s cotton production. Hectares planted under irrigation were also under pressure. This was the result of strong competition for other summer crops like maize, which fetched very high prices.
Some producers chose to plant these alternative, more favourable, crops, which added to fewer total hectares being planted to cotton under both irrigation and dryland. The eighth estimate for the 2015/16 production season shows that the South African cotton crop is expected to decline by 52% from the previous season, and realise a total production of 44 590 lint bales. One of the major obstacles is the lack of adequate infrastructure, especially at farm level. Over the years, as cotton production decreased, infrastructure replacement and renewal were also neglected. The high cost of mechanising the harvesting of specifically dryland cotton has also contributed to the decline in cotton production. Weather forecasts point to a normal to a somewhat-later-than-normal start to the rainy season, which should possibly still be in time for summer crop producers to plant well within the optimum planting window. Normal to above-normal rainfall is expected for most of the summer crop areas. This brings hope of a better season ahead. For the cotton industry to do well, good rains are needed by the end of November at least.
South Africa does not produce enough cotton to meet its domestic needs, and it is therefore a net importer of cotton. The fact that South Africa is a net importer of cotton indicates that there is scope for a substantial increase in production without fear of creating surpluses. Even so, South Africa still exports cotton. Approximately 70% of South Africa’s annual cotton crop is exported. In 2015/2016, 77% of the crop was exported. The main export destination for South African cotton is Asia, mainly China, and small volumes are also exported to Lesotho. The weakening exchange rate continues to support domestic cotton prices, especially on the export market. The cotton industry has come up with exciting efforts to form a cotton cluster that will improve the industry’s competitiveness. The Sustainable Cotton Cluster programme brings together the entire cotton value chain− all the way from the farmer to the consumer − to bring about industry collaboration. This involves most of the well-known retail clothing and textile groups forming a cluster. One of the benefits bestowed by the cluster is that cotton producers will be able to depend on a fixed price. This guarantees that fluctuations in world cotton prices will not affect this price in the course of the season. The cluster therefore brings about price certainty and a guaranteed off-take agreement benefiting producers. Access to GMO technology to manage the crop is improving every year, which puts the industry in a well-placed position for growth. Other efforts by the industry include establishing crop insurance for the producer in order to insure yield or input, and minimise risk for the financiers. The first pilot project will be launched in the Limpopo production area in the coming season.
Cotton prices are expected to continue to benefit from the weakening of the exchange rate. Initiatives such as the Sustainable Cotton Cluster and the crop insurance programme are expected to bring about competitiveness in the industry and can encourage investment in the cotton market. This will support improved future production prospects and also minimise risk to financiers.
Source: ABSA agricultural outlook 2017