Summary of gross margins
Figures 4.1-4.4 provide a summary of the gross margin performance of dryland and irrigated crops over the period from 2018 (adjusted to account for actual yields and crop prices) to 2026 (2025 and 2026 are projected). 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 & chemicals) and when marketing takes place. Furthermore, uncertainty remains regarding the forecasted La Nina and its effect on yields and a potentially drier- and warmer period during planting, as forecasted by the South African Weather Service (September, 2024). For the gross margins presented in this report, target yields were assumed.
The realized effects of El Niño impacted dryland gross margins, which continued to decline during the 2023/24 production season. In contrast, summer crops under irrigation were better able to mitigate the effects of the drought, resulting in less severe yield reductions. Combined with high crop prices, this allowed for improved margins compared to the 2022/23 season. However, average dryland gross margins across six crops in seven agro-ecological regions are projected to decline further in the 2024/25 production season. Similarly, the average irrigation gross margins across four crops are expected to decrease significantly, assuming trend yields and substantially lower crop prices. Both dryland and irrigation gross margins are anticipated to experience a modest recovery in 2025/26.
In the seven agro-ecological dryland regions, maize gross margins are projected to decline by 23%, while sunflower margins are expected to increase by 42%, and soybean margins are anticipated to remain steady in the 2024/25 season compared to 2023/24. As a result, both maize and soybean gross margins are expected to fall below sunflower margins in the 2024/25 production season. This shift is attributed to the anticipated price reductions for maize and soybeans, along with an assumption that yields will return to trend levels. In 2025/26, maize is expected to outperform oilseeds.
Figure 4.3 illustrates the changes in yield, price, cost, and gross margins from 2023 to 2024, and projections for 2025, focusing on the eastern and western regions for maize and soybean production, as well as sunflower production. From 2023 to 2024, production costs generally declined; however, the drought caused a reduction in yields. Despite crop prices reacting to the poor harvest by increasing, gross margins still declined. The drought had a more severe impact in the western parts of South Africa compared to the east. Soybeans in the west were particularly hard hit, with a 70% decline in gross margins, though they are expected to recover in 2025 with a projected 60% increase. On the other hand, with declining crop prices, yellow maize in the eastern regions is expected to see lower gross margins in 2025 compared to 2024.
Irrigation gross margins improved slightly after the 2022/23 production season, primarily due to high crop prices driven by the drought and poor dryland harvests. In 2023/24, maize achieved the highest margins, followed by soybeans and sunflower. A similar trend is expected in 2024/25 and 2025/26, though at lower levels due to decreasing crop prices, persistently high input costs, and trend-level yields.
