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Grain producers are facing turbulent times and must carefully consider how to use inputs more efficiently in order to “produce more with less.” This was the core message from Richard Krige, chairperson of Grain SA, following the first day of the organisation’s annual congress at Nampo Park near Bothaville in the Free State. The theme for this year’s congress is “Opening the Gap – Sustainability key; profitability foremost.”
Krige warned that global events, particularly the escalating conflict in the Middle East, are likely to impact the agricultural sector within the next three to four months. He explained that the industry is entering a difficult market cycle characterised by high stock levels and low grain prices, while input costs are projected to rise due to geopolitical tensions.
He added that Grain SA is committed to supporting its members by providing updated guidelines and data to navigate rising production costs.
Emphasising that there is no quick solution, Krige urged producers to arm themselves with accurate information and robust strategies. “What stands out is that as a collective, we can get through this. My message to producers is to think long and hard about your inputs, production practices, and the strategies you implement.”
Price–cost squeeze tightens
Corné Louw, Grain SA’s head of applied economics and member services, noted that global grain stocks remain high, exerting downward pressure on prices. Consequently, South African producers are facing an exceptionally challenging economic cycle. Louw explained that in recent seasons, the domestic grain price structure has shifted from import parity to export parity pricing, a change that has significantly lowered the ceiling for local grain prices.
Over the past year, nearly all grain prices have declined significantly. Louw drew attention to a severe profitability gap using recent market data:
- Maize: Producer prices dropped by 22%, while total input costs rose by approximately 19%.
- Soybeans: Grain prices fell by 23%, despite input costs surging by as much as 45% in certain regions.
- Sunflower: While grain prices have held up slightly better (remaining largely flat), input costs continue to rise, tightening margins.
“If you calculate a production budget anywhere in the country, none of the budgets are in the green. At current grain prices we simply cannot produce profitably. Once total production costs are considered, everyone is paying in. The gap between input costs and grain prices is widening by the day,” warned Louw.
Concerns about supplier behaviour
Krige highlighted that diesel now makes up approximately 18% of producers’ input costs, with fertiliser representing an even larger share depending on the specific production system. He warned that current market panic is creating volatile conditions that some suppliers may exploit. “The question I keep asking is to what extent have orders already been placed?” Krige said. “While we see the rand showing some resilience, the rising price of Brent crude oil is directly inflating the costs of essential chemicals and fertiliser.”
He also challenged the transparency of existing global supplies. “Where is the Brent crude oil already sitting on tankers at sea? The same applies to fertiliser. Why is that stock not being made available to the market?”
Krige argued that it is unacceptable for producers preparing for the winter grain planting season to encounter “closed order books” due to uncertainty surrounding the Middle East conflict. “Suppliers know their traditional sales volumes. Every company has targets and growth plans. Did that planning simply disappear when panic set in?”
Krige noted that price fluctuations are distorting behaviour within the supply chain. He explained that if a R2/litre increase is expected, retailers may hold back stock to capture that extra margin. Conversely, when prices are expected to drop, distributors rush to sell expensive inventory before lower regulated prices take effect.
To address these challenges, Grain SA has engaged the Fertilizer Association of South Africa (FERTASA) and plans further discussions with suppliers and industry stakeholders. “Our aim is to build strong, transparent, long-term relationships with suppliers to ensure responsible pricing and fair treatment for all producers.”
Fertiliser supply a major risk
Louw cautioned that the region where the current conflict is unfolding is also a major global source of fertiliser. South Africa imports about 80% of its fertiliser requirements, making the country highly vulnerable to global disruptions. Nitrogen fertiliser and a portion of phosphate fertiliser production are highly energy intensive. As crude oil prices increase, natural gas prices typically follow, which in turn drives fertiliser production costs higher. “This is a clear red flag for South Africa,” He warned. Louw added that some opportunistic suppliers have already raised prices despite still having stock available – another issue Grain SA intends to address through industry engagement.
Talks with major fuel suppliers
Louw said some companies and individuals are already taking advantage of the situation. This is where Grain SA need to look input companies in the eye and ensure that they are genuine partners. Discussions are currently underway with major fuel suppliers. The goal is to secure a dedicated diesel allocation for agriculture. Since agriculture is a strategic industry, Grain SA is working to ensure diesel supply for at least the next two months, depending on how long the turmoil in the Middle East continues.
Krige thanked companies that have chosen a long-term approach rather than exploiting the crisis. “Once those names become clear, we will inform our members. These are the companies that have chosen to walk a road with producers in this country, and they are the businesses we should support.”
Consumers may feel the impact
Krige emphasised that stakeholders must remain informed rather than react to panic. Grain SA will continue providing verified information to its members. However, he said the biggest concern ultimately lies with consumers and the potential effect on South Africa’s inflation basket. He pointed to the government’s intervention during the Russia–Ukraine War, when some form of support was provided to help limit inflation and keep food prices affordable.
Diesel, Krige said, is a major cost throughout the agricultural value chain and in food distribution. Price increases pass through the system quickly, while price decreases take far longer to filter through. “With government intervention and support, the state can mitigate some of these risks for consumers,” he said.
Expert encourages a postponement of fuel price hikes
Meanwhile, Kokkie Kooyman, executive director and head of global financials at Denker Global Financial Fund, noted that 20% of global oil production, and more significantly, 50% of all sea-borne tanker traffic, passes through the Strait of Hormuz. He warned that closure of this vital passage would leave the market with very little flexibility. As a result, several governments with strategic reserves have decided to release Brent crude oil to mitigate this emergency.
Kooyman advised that South African stakeholders should consider engaging government to postpone the fuel price increase scheduled for April. This delay would allow time to determine if the current surge in oil prices is permanent. He argued against passing the price increase on to consumers immediately, suggesting instead a “wait and see” approach as the conflict unfolds.
Although Kooyman does not expect the situation to stabilise quickly, he noted that oil prices typically retreat toward previous levels once tensions ease, though perhaps not to their original lows. However, he cautioned that rising input costs remain an inevitable reality. – Christal-Lize Muller, Plaas Media.
