The high maize stock levels from last season will cushion the economic impact of this year’s drought in the Free State and North West, but farmers in drought-stricken areas must make new plans for next season, advises Standard Bank Primary Agriculture senior manager MC Loock.

“Farmers will have to take the specific conditions on their farm and of their bank balances into account when planning for next season,” he said in a statement on Wednesday.

Although the drought would not influence this year’s maize prices significantly, Loock said maize and other grain farmers needed to reassess their production plans for the next season.

“Crops planted using minimum tillage on sandy soils with a low clay percentage showed vulnerability in the drought. Especially where there was insufficient organic content in the soil that would have allowed the maize roots to [grow] deeper to find moisture.

“[In] contrast, crops planted using conventional cultivation and soil moisture conservation practices did reasonably well. Those who practiced crop rotation with soya or sunflower did particularly well, because both those crops handle dry conditions better than maize. Even so, the soya’s deep roots have depleted soil moisture,” he stated.

Therefore, throughout the drought stricken areas, the moisture profile in the soil was low.

Farmers now needed to decide whether to plough ahead of the next season, spending a great deal of money on fuel to break the hard ground, or they needed to trust that the rains would not only arrive but be consistent throughout the summer months. “Not ploughing leaves very little time for preparing the soil for planting after the first rains – or even impacts negatively on the area planted. On the other hand, applying a deep rip has the advantage of enabling the rains to penetrate deeper into the soil,” explained Loock.

In terms of finance, farmers who had hedged their prices and used crop insurance would have been able to cover most or all of their production costs and would, therefore, be eligible for a production loan next year and be able to plant a crop.

Those farmers not able to cover their production costs would be able to restructure the carry over production costs over a term against security. “If you’re already in a position where you don’t have the security to cover your term facility, you will need to sell off unproductive assets to recapitalise your business.

“For those who will not be able to cover their overhead costs, a hard core will be developing on the overdraft. If you don’t move your balance into credit at least once a year, the bank’s systems will see you as high risk and increase the cost of capital. You will be required to secure your facility with bonds at possibly a higher interest,” said Loock.

Farmers who had covered their production costs and overheads but could not cover their capital and interest repayments on long-term debt would need to reschedule the debt payment.

In this regard, Loock highlighted that the bank might consider giving a farmer a payment holiday, allowing payment to be made at a later date. “[However], Reserve Bank regulations require banks to then put your business in a different category, increasing your interest. It would be in your interest to consider a bigger overdraft, instead,” Loock warned.

THE GOOD NEWS
He described last year as a bumper white and yellow maize season that provided a “very comfortable” carryout stock of 33% for the 2014/15 marketing year.

“Owing to [this year’s] drought, a carryout stock of 25% is predicted, but an 8% reduction is no cause for panic. Overall, the reduction in white maize production this year should have a limited effect on food prices,” Loock assured.

This year was expected to yield a 9.76-million-ton crop, as per the latest crop estimate, which he said was considered on the conservative side.

“One-million tons of white maize is usually used for feeding livestock, anyway. So, losing that amount of white maize does not reduce what is available for human consumption, even if one takes into account the normal 1.5% increase in demand,” Loock explained.

To compensate for the shortfall in white maize for the feed market, it was likely that South Africa would import about 838 000 tonnes of yellow maize.

However, because this was less than 6.5% of the total white and yellow maize supply, Loock did not foresee a significant increase in the price of livestock feed.

“We annually require 5.5-million tons of yellow maize to satisfy commercial demand. Predictions are that we will achieve only 85% of that through production. However, carryout stock from last year will reduce the amount we need to import.”

Meanwhile, price reductions at the beginning of the 2014 maize production season pushed the feed market into relative profit. If the reduced output of maize this year caused a slight increase in prices to the feed market, Loock pointed out that the feedlot industry would absorb the increased costs and consumer prices would not be affected.

This was the result of feedlots being price-takers and not being in a position to put through cost increases to the consumer, he advised.

If considered in light of the five-year average of 12.8-million tons for maize production, the drought conditions this year would have caused an overall production shortfall of no more than 23%. “Farming is a long-term business, so you get a realistic picture only if you compare annual yields with average rather than peak production.

“Comparing this year’s output with last year’s exceptional yields makes it look as though there will be a 32% reduction in production. This is a skewed perception that could cause people to unnecessarily worry about prices,” Loock noted.