Fuel Crunch From War Threatens South African Wheat, Corn Crops

3)a3ds7mwu7c9xx]v)hh)tie_media_dl_1.png Central Energy Fund

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(Bloomberg) — Farmers in South Africa are heading into the winter planting season with surging diesel prices and tightening supplies — triggered by the Middle East conflict — threatening production in sub-Saharan Africa’s largest commercial wheat-growing industry.

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For Rossouw Dippenaar, who farms near Riebeek-West about 80 kilometers (50 miles) northeast of Cape Town, time is running out. He needs as much as 40,000 liters (10,564 gallons) of diesel to plant his wheat, but has only secured about 6,000 liters because some retailers are limiting purchases in a bid to prevent a run on their stocks.

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“I don’t know what I will do if it doesn’t change in the next two weeks,” he said. “I’m living in hope that it will get better.”

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A five-day halt to US strikes on Iranian energy infrastructure announced by President Donald Trump on Monday eased global oil prices. But there’s little sign that trade will normalize any time soon. Iran continues to disrupt traffic through the Strait of Hormuz, restricting shipments from key oil and fertilizer producers such as Saudi Arabia, Qatar and Oman, and has dismissed Trump’s claims that ceasefire talks are underway. 

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Unlike in many sub-Saharan African countries, most of South Africa’s crops are grown on commercial farms, with production heavily dependent on inputs such as fuel and fertilizer. Ethiopia produced about three times the 1.9 million tons of wheat that South Africa did last season, but it is primarily grown by small-scale farmers.

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Cost Shock

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“The combined effects of rising diesel and fertilizer prices present one of the most significant cost shocks to producers in recent years,” Richard Krige, chairman of Grain SA, which represents corn and wheat farmers, said in a statement. “The impact on farmer viability — and therefore food security — could be severe.”

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Since the US and Israel began bombing Iran on Feb. 28, global oil prices have surged by 40% or more and emerging-market currencies such as the South African rand have plunged. 

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Fuel and fertilizer account for about half of grain farmer’s production costs in the country and preliminary data suggests the diesel price, which is set monthly, will rise by almost half in April. Many farmers have already ordered fertilizer, but expect to pay higher prices when they replenish supplies.

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Wheat farmers aren’t the only ones who are concerned. 

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First to be affected will be sunflower and soybean farmers, who will need diesel to harvest by the end of this month. Wheat, barley and canola farmers will start planting in April and corn farmers in Africa’s biggest exporter of the staple will begin harvesting in late May. 

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Farmers of so-called winter grains, such as wheat, may cut plantings if they aren’t confident that prices for their produce will rise sufficiently to compensate for higher costs. 

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So far there is little sign of that. 

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Wheat prices on the South African Futures Exchange in Johannesburg have climbed only 5.6% since the start of the war and the most commonly traded corn contract is up 11%. If they do rise significantly, there would be a knock-on effect on inflation in a country where corn meal and bread are the main staples and beef cattle and poultry are fed with corn.