Farmers face a very strong El Niño with margins already stretched thin

By André Wentzel, Sector Head for Agriculture at Merchant West

South African agriculture contributes under 3% of GDP, yet it shapes food prices, rural employment and rural credit books well beyond that share.

A very strong El Niño and a volatile cost environment are now converging on the same season, and the numbers behind that combination deserve attention.

The World Meteorological Organisation confirmed in early September that El Niño is now firmly established and forecast to intensify into a very strong event, peaking around October 2026 to January 2027.

• Click here to enquire about harvest opportunities with Dynamic Finance Solutions from Merchant West.

The South African Weather Service expects below-normal rainfall across most of the country through that window, alongside above-normal temperatures.

For summer-rainfall regions, that means reduced soil moisture, higher irrigation demand and slower crop development. For livestock farmers, it means tighter grazing and higher water costs.

Several consecutive seasons of strong La Niña rainfall have left soil moisture and groundwater levels well above normal heading into this El Niño, which should soften the impact even where rainfall disappoints.

Farmers are not starting this cycle from a dry base, which was not the case in the last severe El Niño year.

What makes this season harder commercially is the pricing environment. Food inflation fell to 0.9% in July, its lowest level in 16 years, which is good news for consumers but leaves producers with almost no room to pass rising costs through to the market. Meanwhile input costs have moved anything but steadily.

Diesel prices rose more than 50% year-on-year at one point earlier in 2026, and while fuel costs have since eased, they remain well above where they stood a year ago. Fertiliser, electricity, seed and production finance have followed a similarly uneven path.

Agriculture has become a daily exercise in risk management as a result. Farmers now track rainfall forecasts, soil moisture, fuel prices and input costs before making decisions that shape the whole season. Timing matters most at planting.

A farmer may hold off when rain is uncertain, then move fast once a reliable rain event arrives, and the calculus differs by region since planting windows in the north and south rarely align.

Technology has become central to managing that decision-making under pressure. Weather stations, satellite imagery, soil-moisture monitoring and precision farming tools now put detailed, farm-specific data on a smartphone, and the level of insight available this way has changed how quickly farmers can act.

Precision equipment in particular has moved from nice-to-have to a real cost-saving tool, since it applies fertiliser and chemicals according to actual crop need rather than a blanket rate, which matters more than ever when there is no pricing cushion to absorb a wrong call.

A strong crop still needs input costs that don’t outpace what the market will pay, and this season is likely to test that harder than most.

The farms that come through it comfortably will be the ones with strong balance sheets, efficient production systems and the flexibility to adjust as conditions change.

Financing has a direct role to play here, and not only through new equipment loans.

Merchant West is the only agricultural financier in South Africa offering finance against paid-up moveable and infrastructure assets, through structures such as sale-and-leaseback and bridging finance running one to five years.

For a farm sitting on paid-up equipment or infrastructure, that means releasing cash from an asset that already exists, rather than taking on new debt against a margin that is already under pressure from El Niño and volatile input costs on one side and near-zero food inflation on the other.

Merchant West’s agricultural finance team has developed structures built for exactly this kind of season, drawing on close, ongoing partnerships with farmers across the country navigating cycles like this one.

Click here to enquire about harvest opportunities with Dynamic Finance Solutions from Merchant West.