Farmers should exercise caution in spending their recent financial windfalls as the landscape may have begun to shift, says Dawie Maree, the head of agriculture information and marketing at FNB Agribusiness.
Although cost pressures, which emanated from a dramatic increase in fertiliser and fuel costs that were seen earlier in the year owing to the war-induced supply crunch, have eased lately they remain high relative to the previous season, he said.
“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.”
However, Maree said this did not mean that farmers should not be investing in the future of their operations, but that they should be doing so in a measured way.
“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,” he said.
Last week Dr Marlene Louw, the senior agricultural economist at Absa Relationship Banking, said higher interest rates could knock the demand for higher-value agricultural products such as meat.
This was after the SA Reserve Bank’s Monetary Policy Committee increased the repo rate by a further 75 basis points to 6.25%.
Louw said higher interest rates would add to the broad-based cost pressures that producers had been experiencing over the past 18 months.
Paul Makube, a senior agricultural economist at FNB Agribusiness, said despite the slight drop in anticipated yields from the previous season, volumes were still significantly higher than the historical 10-year yield trend.
Given that domestic consumption typically averaged around 11.8 million tonnes, there would be a healthy surplus available for export.
He said this surplus, combined with high international maize prices, meant that conditions were positive for another good financial year for maize farmers.
The bank’s unit said while there had been signs of a slight economic reprieve with regard to the moderation in global food inflation and fuel prices coming down a little, it was still far too early in the current inflationary cycle to make a call on whether these events signalled the end of the upward trend.
Makube said given that there was always a significant lag in terms of any such inflationary trends filtering through the industry, margin pressures were 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,” he said.
BUSINESS REPORT