THE EXTENT to which South Africa’s agricultural industry is subject to cycles is shown in the latest Trends in the Agricultural Sector, which has just been issued by the Directorate of Agricultural Information Services. Just like the share market, this industry constantly fluctuates from profitability to below average and even loss conditions. And – judging from the directorate’s index of net farming income – it looks as if the industry is once again entering a period of poorer profits.
The latest cycle of profitable farming began in 2004/2005 (see graph) and then rose sharply. Over the past 2007/2008 season farmers were 25% better off than in the previous season. According to that, net farming income (after deducting production expenses but excluding spending on fixed assets and capital goods) was R36,7bn for the year to end-June 2008 – around R7,5bn better than the previous year.
Indications that the cycle is turning are shown by the weaker agricultural prices of the past few months and the lateral movement of net farming income as a percentage of gross farming income.