Summary: 2025 Income & Cost Budgets
Figures 4.1 provides a summary of the gross margin performance of dryland crops over the period from 2022 to 2025 (projected), adjusted to account for actual yields and crop prices in 2022 to 2024 (2024 using preliminary results), and projecting to 2025 using trend yields and cost and price projections. It is important to note that the gross margins only consider direct costs and exclude overhead costs, and that the presented gross margins will differ based on the timing when producers have purchased agricultural inputs (fertilisers, fuel and chemicals) and when marketing takes place.
In 2024, Swartland experienced a decline in yields due to challenging weather conditions, including a late start to the season, excessive rainfall in June and July, followed by a dry period. Canola performed poorly compared to wheat. In contrast, the Southern Cape had a generally good season in 2024, despite lower crop prices.
Margins are expected to remain relatively flat in 2025 and 2026, assuming lower crop prices. A marginal recovery is projected for wheat produced in Swartland. Assuming trend yields, margins should be sufficient to cover overheads. However, risks remain, especially for producers with overheads exceeding 50%.
Considering a long-term trend, there has been steady growth in gross production value, but costs, particularly overheads, have outpaced revenue in recent years. For instance, overheads as a percentage of direct costs have increased from 28% pre-2010 to 46% in the past three years. Break-even yields have risen, with overhead costs' share increasing from 0.4 to 0.9 tons per hectare. The combination of these factors has led to certain areas and producers being under pressure with an increasing risk environment. There is an opportunity for efficiency gains throughout the entire industry, including the wheat tariff system, diversification strategies in off-take markets, and logistics. However, cost structures should be carefully assessed, particularly for capital investments. It is crucial to balance economies of scale against capital requirements, such as expensive land, and risk exposure.
