Bumper year ahead for agriculture, but farmers still need to plan for tough times

Fin24

Compiled by Lameez Omarjee

18 April 2021

The agriculture industry reported 13.1% growth during 2020.

Favourable weather conditions and strong international demand is set to support continued production growth in agriculture.

Producers now have room to reduce debt and even consider expansion, says an analyst.

Favourable weather conditions and more robust international demand is expected to set up the agricultural industry for further growth, but producers must use these good times to plan for the future, says an analyst.

The industry expanded by 13.1% during 2020, while eight other industries, such as mining, trade and finance, suffered setbacks in economic activity.

Notably, the country experienced a record citrus crop with growth up 35% from 2019. According to the Citrus Growers Association, the industry exported 146 million cartons which, if lined up, could nearly cover the earth’s circumference, Fin24 previously reported.

“We have good maize and oilseed crops in the ground with excellent prices,” said Dawie Maree, head of information and marketing at FNB Agriculture. He explained that it was not common to have a large crop and good prices in one year. Usually, prices are driven down when there is sufficient market supply.

Commercial maize in 2019/20 increased by 36% year-on-year, to 15.3 million tons. The potential maize crop for the 2020/21 production season is expected to expand to more than 16 million tons.

Demand for maize exports, mainly from China, was driven by supply chain disruptions brought on by Covid-19 related lockdowns. South Africa also experienced increased export demands from neighbouring countries, like Zimbabwe. During the 2020/21 marketing season, maize exports increased by 93% year-on-year from 1.16 million tons to 2.24 million tons.

Prices also remained high, above R3 000 tons for all maize types. The US experienced production limitations due to drier conditions, which led to higher corn prices. This filtered through to the maize price, Maree noted.

The livestock sector also remained resilient, with exports priced relatively high and domestic demand remaining strong.

“This bucked the trend. One would expect that during tough times, meat consumption would be affected, putting downward pressure on prices. However, prices remained relatively stable and even strong for some meat categories,” said Maree.

For producers, beef prices are on average 10% higher on a year-on-year basis. Sheep and pork are 15% higher, and poultry is up 5%.

Cattle, sheep and goat farmers benefited from good rainfall, which supported grazing lands. This reduced feed costs. However, farmers with intensive livestock feeding systems, feedlots, poultry operations and piggeries experienced a “margin squeeze” from higher maize prices. Grain makes up 70% of livestock feed, Maree explained. However, strong livestock prices helped cushion against the effects of higher maize prices.

Future planning

Maree said producers might have room to settle debt and even consider expansion, given a better agricultural season.

He explained that producers needed to use the “good times” to work on good production and financial management for the future.

This included working on succession planning for when farmers retire and investing in productive assets.

“We have a fairly old fleet of tractors and farming equipment in SA. Now may be a good time to do some replacements,” said Maree. Interest rates are still favourable for these acquisitions, he added.

Farmers should also consider diversification – to move operations beyond farming and into processing. Investing in pack houses could be a starting point, an extreme step would be to move out of agriculture and into manufacturing.

Maree emphasised that farmers needed to consider measures to ensure survival for tough times.