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Plan financing early

Timely applications provide sufficient time for assessment, approval and disbursement of funds, which must align with the agricultural season calendar, while allowing farmers to plant within the optimal planting window .

Early application is also crucial so that farmers can acquire production inputs at the right time. Timing planning ensures that the farmer has timely facilities to purchase essential inputs such as fertilizers and mitigates the effects of possible market fluctuations that may result in increased costs or insufficient supply, thus having an impact on production costs and profitability margins.

Failure to meet these deadlines could result in the loss of an entire planting season or even lead to undesired yields. It is therefore imperative to organize your finances well in advance, ideally before the start of the season.

However, the expected improvement in weather conditions will likely increase the supply of agricultural production (supply), which will likely put downward pressure on prices and, therefore, profitability at the farm level. Farmers should consider hedging instruments such as futures to mitigate this risk.

Preparations for the upcoming season are crucial

As South Africa’s 2024/2025 summer planting season quickly approaches, farmers can expect more favorable conditions due to the predicted La Niña, which typically brings increased rainfall and cooler temperatures, contrasting with the El Niño phenomenon of the previous season which had a negative impact on crops. Farmers faced a 23% drop in production in the 2023/2024 season due to El Niño conditions.

Farmers should prepare their soil early to take full advantage of the expected wetter conditions. They should consider selecting crop varieties that are resilient to possible excess moisture. We advise farmers to closely monitor weather forecasts provided by the South African Weather Service to stay informed of real-time changes and make timely adjustments to their farming strategies.

Staying current with local agricultural advisories and weather updates will also be crucial to making timely and informed decisions throughout the season.

Opportunities for livestock and horticulture

The livestock and horticulture sectors are also expected to benefit from more favorable weather conditions. Livestock farmers could see reduced feed costs, while the horticulture industry could benefit from higher yields thanks to better rainfall. Both sectors should plan their finances from the start and invest in technologies that improve efficiency and production.

Economic relief from lower interest rates

The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) reduced the interest rate by 25 basis points at its meeting on September 19, 2024, from 8.25% (a plus high for 15 years) at 8.00%.

This reduction was widely expected given the deceleration of domestic inflation to 4.4% in August 2024 (below the midpoint of 4.5% and a three-year low) from 4.6% in July 2024.

The easing of interest rates was also influenced by the recent strengthening of the rand against the US dollar, the decline in global inflation and the US Federal Reserve’s decision to cut its interest rate. Before this cut, the interest rate had increased by 475 basis points since November 2021 to reach its highest level in 15 years at 8.25%.

The restrictive monetary policy environment has put considerable pressure on costs, both for farmers and already indebted consumers. High debt servicing costs, profit margins were tight and expansion plans were also scaled back.

For example, sales of agricultural machinery were weak in 2023. The current drop in interest rates will ease farmers’ borrowing costs, improve their profitability, and encourage farmers to invest in their businesses. Lower interest rates will also improve household disposable income, which in turn could improve their demand for agricultural products.

Looking ahead, from a cost pressure perspective, the rate reduction likely bodes well for the growth prospects of the agriculture sector. After contracting by 4.8% (quarterly, seasonally adjusted and annualized) in the fourth quarter of 2023, the agricultural sector rebounded in the first quarter of 2024, growing by 13.5% (quarterly, seasonally adjusted and annualized) .

During this period, the agricultural sector was the main positive contributor (0.3 percentage points) to overall gross domestic product growth in the first quarter of 2024. It was a good start to the year for the sector, after a contraction of 12.2% in 2023.

The growth of the agricultural sector in the first quarter of 2024 was surprising given the challenges faced by the sector, including the El Nino-induced heatwave, load shedding and inefficiency at ports.

The growth of the agricultural sector was supported by the growth of the horticultural sector which recorded an increase in fruit production. Increased production of maize and animal products has also contributed positively to the growth of the agricultural sector.

The agricultural sector’s growth was evident in its export results, which increased by 6% year-on-year in the first quarter of 2024. During the same period, the sector’s trade surplus increased by 20% year-on-year .

The strong transition to the La Nina weather pattern, the rise in raw material prices, the facilitation of load shedding and the improvement of logistics are expected to have a positive impact on the agricultural sector.

The agricultural sector will further be supported by low prices of inputs such as crude oil and fertilizers. From May to October 2024, diesel prices fell by 370 cents per liter, or 17%, marking a significant decline over these six months. These reductions in diesel prices could help reduce operating and transportation costs for farmers, potentially improving their profit margins.

However, risks remain related to ongoing tensions in the Middle East, which could lead to higher crude oil prices and lower agricultural prices due to improved agricultural production.