Good harvests might mean positive cash flow, but it shouldn’t mean unabated spending, economists warn. This, as projections for South Africa’s summer crop harvests are well above the 10-year average and an improvement on the projections at the beginning of the season.
Paul Makube, senior agricultural economist at FNB Agribusiness, says that, even though heavy rains caused great concern towards the end of last year, the impact was less intense than originally feared. Projected maize yields – a good indication of the country’s total crop performance – now stand at 15.02 tonnes. This is lower than the previous season but above the decade norm.
“Given that domestic consumption typically averages around 11.8 million tonnes, there will be a healthy surplus available for export,” Makube adds.
The surplus, along with favourable international maize prices, will likely result in a good financial year for maize and most of the primary crop growers of the country.
Makube believes farmers are currently seeing positive revenues and cash flows, which are filtering through to other agri-related sectors. Tractor and combine harvester sales for the year to July 2022 are up 20% and 50% respectively, for instance.
Be careful what you spend on
Dawie Maree, head of agriculture information and marketing at FNB Agribusiness warns, however, that farmers should exercise some caution when spending.
“Although cost pressures that emanated from a dramatic increase in fertiliser and fuel costs that we saw earlier in the year due to the war-induced supply crunch have eased lately, it remains high relative to the previous season.
“When you combine this elevated cost trend with the potentially negative impact of rising domestic and global interest rates on consumer demand, cautious spending is probably the best policy for everyone in the agri sector right now,” Maree says.
This doesn’t mean farmers should spend nothing at all, he warns too. “Just as it is never advisable to over‑capitalise on your farming operations, it’s also possible to be too cautious and save yourself into bankruptcy.
“The most prudent approach is to leverage any current favourable financial position to invest in new and productive technologies that will deliver improved outputs in the future, but also to focus on cost containment where possible and appropriate and ensure that you retain a good financial buffer for when conditions become less favourable, as the cyclical nature of agriculture dictates, they eventually will.”
Despite strong yields, margins remain tight, and the economists warn that it’s too early to predict what inflation will do next.
“Margin pressures are likely to continue for some time to come. Farmers would be well advised to temper their optimism with a good pinch of realistic expectations, and exercise caution as we go into the new planting season,” concludes Makube.
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